The great health-care debate - President Clinton's Health Security Act proposal from a small-business perspective - Watchdog - Column

Home Office Computing, Jan, 1994 by Rob White

WITH ALL THE FANFARE AND HYPERBOLIC UNCERTAINTY surrounding President Clinton's Health Security Act proposal, there's been no singular response among small-business groups. Some people, powered by the vocal opposition of the National Federation of Independent Business (NFIB), say that the plan as constructed will destroy business and jobs. On the other hand, many other small-businesses owners believe that the Clinton plan will cut their costs considerably. For instance, the Vermont Teddy Bear Co., named the best small business in awards administered by the NFIB, endorses Clinton's health-care efforts.

That continuing controversy is why we need to take a line-by-line look at the plan's expected impact on the self-employed: sole proprietors, partners, and owners of incorporated small businesses. While the outline of the proposed legislation remains relatively clear, the details change almost daily in the halls of Congress, as representatives argue about how best to reform America's health-care system.

Who will participate in the new health-care plan? Nearly everyone will have to be part of this plan; the only nonparticipants will be employees of large corporations that self-insure and undocumented immigrants. Using your Social Security number as ID, every individual will be issued a National Health Card.

How much should my premiums cost?

You'll pay a premium based on where you live, which plan you choose, and your status (single, two-parent family, and so on). The White House estimates that the national-average premiums for average-priced plans will be $4,360 for a two-parent family, $3,893 for a single-parent family, $3,865 for a married couple without children, and $1,932 for a single person. Won't some people's premiums be subsidized?

If you fall within 150 percent of the Federal Poverty Guidelines (currently $21,514 for a family of four), you will be eligible to have your premiums subsidized. Otherwise, there will be caps (or limits) on how much of a premium anyone will pay. The caps range from 3.5 percent of salary for employees to 7.9 percent of payroll for employers (some employers will have lower caps; as low as 3.5 percent, depending on average annual wages for full-time workers). As a self-employed individual, your subsidy cap will also be 7.9 percent or less (depending on your taxable income), since you will be treated as an employer under the Health Security Act.

Will I be able to deduct my premiums?

Sole proprietors and people in partnerships, like corporations, will finally be able to deduct 100 percent of insurance payments. Right now, these two groups may deduct only 25 percent of their premiums.

Will my taxes be raised to pay for health-care reform?

Maybe not. However, large corporations--defined as those with 5,000 or more employees--who opt out of the plan by self-insuring will be subject to a 1 percent tax on gross payroll to help fund the plan. Additionally, federal taxes--such as the so-called sin tax on cigarettes-are expected to be enacted.

Will I have any costs other than my premiums?

Premiums are just one half of the cost equation; your out-of-pocket expenses are the other half. These ancillary expenses can include deductible payments (before your insurance payments kick in) and copayments or flat fees paid to health providers. Which out-of-pocket expenses you'll incur will depend on which type of coverage you pick.

What types of coverage will be available?

As presented today, you will choose among three levels of coverage, each with different premiums and out-of-pocket expenses. All plans are also subject to annu- al maximum out-of-pocket costs of $1,500 per person or $3,000 per family, not counting premiums, with guaranteed coverage for catastrophic losses.

* The Basic plan is an HMO-type, with a flat fee of $10 per doctor visit, no deductibles, no added costs for tests or hospital visits--but a 40 percent penalty on all expenses if you go to a doctor outside the network.

* The Midlevel is a PPO-type plan (preferred-provider organization), with you sharing a portion of out-of-pocket costs, more doctor choices available, and a reduced 20 percent penalty if you choose to go outside the network to another doctor.

* The Premium plan (also known as a "fee for service" plan) offers the most flexibility for the highest cost. For annual medical costs you pay the first $200 per individual or $400 per family (your deductible), and then pay 20 percent of all subsequent costs (your copayment)--but you can go to any doctor or hospital you want without penalty. This combination of a deductible cost along with a 20 percent copayment is similar to most current health insurance plans.

Will plans and premiums vary, depending on where I live?

Yes, because as envisioned now, many arrangements will be localized. Regional authorities will be set up to oversee rates and plans. Also, each state will have some autonomy in creating plans unique to its own situation, subject to federal guidelines. However, the percentages listed above would still determine your maximum premium costs.