In a speech yesterday to Latino activists, Barack Obama unveiled a tax credit to encourage small firms to buy health insurance for employees. "My plan won't impose any new burdens on small businesses," he told the audience at the National Council of La Raza. "Instead, we'll help them not just create new jobs, but good jobs -- jobs with health care; jobs that stay right here in America; the kind of jobs we need in our communities."
The proposal, elaborated in a conference call with reporters by the campaign's Economic Policy Adviser, Jason Furman, would provide small firms with a 50 percent tax credit against the cost of employee premiums. To receive it, a company would have to buy a "quality" plan and shoulder a "meaningful share" of the premium burden. The credit, like most of Obama's tax initiatives, would be fully refundable, meaning that it's not limited to the firm's tax liability -- the IRS would send out a check for the excess.
The credit would begin to phase out for middle-sized businesses, as well for firms that employ a high-income workforce. The campaign has not defined those thresholds yet, but Furman said they would be calibrated to limiting the proposal's cost to the government at $6 billion a year. To pay for the credit, Furman said that Obama would reduce federal spending on prescription drugs by creating a pathway to marketing generic biological drugs, a new, rapidly growing, and expensive treatment for illnesses like cancer and arthritis. As a back-up, Obama would deflect some of the savings in Medicare and Medicaid brought about by a reformed insurance system. "The fact that we have subsidies in the health plan actually makes it less expensive to add this small business tax credit on top of it," said Furman. "Some of the subsidies we had already budgeted that were going to individuals will instead flow through the small business."
In his speech, Obama noted that a small business tax credit was championed early on by "my friend Hillary Clinton, who's been leading the way in our battle to insure every American," which led one reporter on the call to wonder aloud, rather fruitlessly, why Obama didn't propose it himself last year. (And prompted others to speculate on Clinton's role in the campaign going forward. Might she be in the running for -- dare we say -- vice president?) But there's no doubt that any comprehensive reform of health insurance must address small businesses. As Rep. Nydia Velazquez (D-NY), chair of the House Small Business Committee, noted in the conference call, three-fifths of the 48 million Americans without insurance are either small business owners, their families, or their employees. Entrepreneurs often must pick between "skyrocketing health care costs or using that money to invest in their businesses, expand their business and create jobs," she said. "If they choose to pay the high cost of health care, then they might have to reduce investment."
As Obama stressed in his speech, this initiative doesn't require any company would be required to offer health insurance. However, the campaign's initial health proposal (detailed pdf here), formulated last year, includes a play-or-pay provision -- firms that don't buy "meaningful" (there's that word again) coverage would have to contribute a percentage of their payroll to help finance a national public insurance plan that would be open to anyone. Now Obama has added a carrot to his stick.
To my taste, the carrot may be a bit too sweet -- for the insurance companies. In the 2007 program, people who need help buying insurance would get subsidies to purchase it through an "exchange" that would include the public plan and any private plans that are just as generous and which don't discriminate against sicker enrollees. But the small business credit announced yesterday isn't limited to those plans--any "quality" health insurance plan is eligible. So wouldn't the credit amount to a transfer of wealth from taxpayers to insurers who profit from treating small group pools differently from large group pools?
Furman didn't think so. When I put the question to him, he said, "This is a complement to the broader set of proposals." One of these would reinsure an employer's costs for catastrophic care." That is disproportionately beneficial to small businesses, because part of why they pay such high premiums today is the risk of just one really sick employee if you only have a pool of ten is quite high. And Senator Obama is committed to a sound regulatory structure for insurance markets, and that would complement it as well."
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