Small Business Crusader Discusses California Healthcare Reform

The cost of providing health insurance to employees is becoming an increasingly nasty thorn in the side of businesses, particularly small businesses, in California. Meanwhile, state lawmakers and U.S. presidential candidates argue over the best way to reform what many say is a broken system.

Scott Hauge, president of the advocacy group Small Business California, says healthcare is one of the main issues keeping small business owners up at night.

The National Small Business Association named Hauge, who also is the owner and president of San Francisco-based CAL Insurance & Associates Inc., Small Business Advocate of the Year 2007. He has been particularly active in making sure Sacramento lawmakers understand the unique needs and concerns of California’s small business owners across a variety of issues.

Hauge discusses California’s healthcare crisis with California Executive and what might be done fix it. 

California Executive: The cost of healthcare was the biggest concern among the respondents to your recent small business survey. What are some healthcare concerns that are specific to small businesses?

Scott Hauge: Two-thirds of the businesses in California are sole proprietors, with no employees, about 2.1 million or so. They have a lot of problems, especially if they have any health problems, buying on the individual market. The individual market is very expensive and, in some cases, [coverage] is very difficult to get. So that sector of the small business community is looking for some kind of guaranteed issuance that doesn’t exist right now.

Another area, which is not as significant, is the market for businesses between 50 and 100 [employees]. Right now, there is a guaranteed issuance for businesses between two and 50 [employees]. But once you hit 50, there is no guaranteed issuance.

And while the amounts of the increases have come down a little bit, they’re still significantly above the consumer price index. Small businesses are consistently seeing double digit [increases] every year. So while you may have an average increase of 6.5%, which is the last number I saw, small businesses are still in the double digits. They just can’t keep getting 12, 15, 17% increases every year.

CE: Are these concerns reflected among the broader healthcare concerns of all California businesses?

Yeah. The larger companies are faced with the same problems. They may not be seeing as much of an increase, but still double the inflation rate or more. When you couple that with the fact that a lot of the larger companies are providing for dependants also, that increase is pretty significant to them, too.

CE: Which among the state healthcare reform bills most closely aligns with the needs of small business owners? Which proposal is least attractive?

There are maybe three bills out there, but only two are being debated right now, and the other is a concept. So you’ve got the Schwarzenegger concept, which isn’t even a bill; then you have the Nunez bill; then you have Sheila Kuehl’s bill, which is single-payer. So those are the three ideas that are out there. The governor vetoed the Kuehl bill, so it’s not in the loop of discussion, except the nurses have basically said they wouldn’t support anything that isn’t single-payer.

CE: Kuehl’s bill never seemed like it would get much traction.

Well, what’s going to probably happen is Kuehl’s bill will go on the ballot next year. And it’s kind of the 800-pound gorilla. Because if it goes on the ballot, the Legislature and the governor will propose something that will go on the ballot, too. So you could see three, maybe four measures on the ballot, which would confuse the voters.

For the moment, I’ll just say the view that is most in line with the needs of small businesses is the governor’s proposal. We like the aspect of universal coverage and the individual mandate. He did deal with the wellness issues. He dealt with cost-containment, although it’s not as strong as we would have liked to see. We like the aspect of guaranteed issuance, right down to the individual. So there are a lot of positives in that proposal. Our concern is cost-containment.

We’re also a little concerned that, with both bills, they don’t define what the basic coverage is. They basically turn it over to the Department of Health and Human Services to determine what that package is going to look like.

We’d be more in line with the governor’s proposal, which has an up to 5.5% charge on a sliding scale basis. We have not taken a formal position on the 5.5%, but I would say that probably we’re okay with that piece. The Nunez proposal is 7.5%; we have a problem with that. We also have a problem with “Mr. MIB” [an acronym for the state’s Managed Risk Medical Insurance Board] determining what the rates are going to be from year to year.

CE: The elephant in the room is the issue of rapidly increasing costs. Are there some solid proposals for how we contain these costs?

They get around the edges, to some degree. They talk about wellness and the 85% [of fees] that the governor says must go to patients. But things like transparency, payment for outcomes and some of those things don’t seem as strong as we would like to see.

It doesn’t make a whole lot of sense to me to have a system that is based on procedures, as opposed to outcomes. So if somebody in a hospital gets a staph infection, and it costs three times more to get treated, and the hospital makes three times more because the patient got a staph infection … those things are pretty preventable.

CE: Are you hopeful that something will get passed in the New Year?

Well, it could be that something gets passed this year that is still on the table. People are saying that something could get passed this year.

The question becomes: Will what they pass get so watered-down that it won’t mean a lot? That’s to be determined. The other question is: Whatever they pass, if something has to go to the ballot, will that pass the ballot, given the state of the economy? I don’t know.

We’re talking about a system that is close to $200 billion. So when you have that kind of money on the table, you have a lot of powerful special interest groups.

Taking the first part of your question, I think everyone would say that in an ideal world, it should be a national scope instead of at the state level. But it’s not an ideal world, and realistically, states – especially California and Massachusetts – will come up with their own systems and that will become kind of the laboratory. And then the federal government will come in once some of the bugs are worked out.

As far as the proposals on the table [by the presidential candidates] – the Republican proposals, to a large degree, are market-driven. When you get into the Democratic proposals, you go all the way from the single-payer, by Kucinich – which I don’t think anyone takes too seriously – to Hillary Clinton’s proposal, which looks a lot like the [California] governor’s. Hers has an individual mandate, which makes a whole lot of sense. But she does not have a small employer requirement of coverage, so there is a little bit of difference.

Obama basically says employers, if they don’t provide meaningful coverage, have to pay into a pool. But his plan doesn’t have an individual mandate, so we have a problem with that. Edwards has an individual mandate, which is a little surprising coming from him.

But at the end of the day, you have to have a cost-containment mechanism. To pay into a broken system doesn’t make any sense. Even if you can finance it today, we’re going to be looking at the same problems down the road if we don’t look at the cost drivers.