Businesses Wary of Details in Obama Health Plan - NYTimes.com

October 27, 2008

AGAWAM, Mass. — Dave Ratner, owner of Dave’s Soda and Pet City, is pretty sure he is about to get “whacked” by the new state law that requires employers to contribute to health care benefits for their workers or pay a $295-per-employee penalty. In order to avoid thousands of dollars in fines, Mr. Ratner is considering not adding part-time workers at his four pet supply stores in Western Massachusetts.

Nancy Palmieri for The New York Times

Dave Ratner, owner of four pet stores in Western Massachusetts, is worried about being able to pay into a state health benefits plan.

The Presidential Candidates on Health Care

But the penalty in Massachusetts is picayune compared with what some health experts believe Senator Barack Obama, the Democratic presidential nominee, might impose as part of his plan to provide affordable coverage for the uninsured. Though Mr. Obama has not released details, economists believe he might require large and medium companies to contribute as much as 6 percent of their payrolls.

That, Mr. Ratner said, would be catastrophic to a low-margin business like his, which has 90 employees, 29 of them full-time workers who are offered health benefits.

“To all of a sudden whack 6 to 7 percent of payroll costs, forget it,” he said. “If they do that, prices go up and employment goes down because nobody can absorb that.”

Writ large, that is one of the significant concerns about Mr. Obama’s health plan, which like this state’s landmark 2006 law would subsidize coverage for the uninsured by taxing employers who do not cover their workers. And it is a primary reason that so-called play-or-pay proposals have had an unsteady history for nearly two decades.

With Mr. Obama’s plan, business leaders say, the devil will be in the unknown details.

Mr. Obama would prohibit insurers from rejecting applicants because of medical conditions, require health insurance for children and create a new federal health plan to provide comprehensive coverage to the uninsured. Those beneath certain income levels would be granted tax credits to make premiums affordable, and small businesses would be offered tax credits to provide benefits.

The tax credits are projected to cost at least $110 billion. Mr. Obama has said he would pay for it primarily by raising income taxes on those making more than $250,000 and by reducing health spending. But when he announced the plan in May 2007, he emphasized that employers would share in the cost.

“We will ask all but the smallest businesses who don’t make a meaningful contribution today to the health coverage of their employees to do so by supporting this new plan,” he said.

Left undefined has been what size firms would be exempted, what constitutes a “meaningful contribution,” and how much noncompliant businesses would be required to pay. Senator John McCain, the Republican nominee, badgered Mr. Obama in two of their debates to define the penalty, but Mr. Obama did not rise to the bait.

“We made a decision even before the plan was rolled out not to decide,” said David M. Cutler, a Harvard economist who speaks for the campaign on health care. “It’s not that there’s a decision out there that we’re not telling. It’s literally that we’ve decided not to decide.”

That may be smart politics. But it makes business groups nervous that Mr. Obama might impose an unmanageable burden. They also worry that any time his health plan faces a shortfall, businesses will be asked to up their ante, as has happened in Massachusetts.

“Play-or-pay can become a blank check to an already overcapitalized health care system,” said Helen B. Darling, president of the National Business Group on Health, which represents 300 companies.

Business groups also have concerns that Mr. McCain’s plan to change the tax treatment of health benefits would erode employer-sponsored insurance.

Mr. Cutler said the Obama campaign regarded play-or-pay less “as a revenue raiser” than as a way of “leveling the playing field.” It would hold accountable those employers whose uninsured workers might seek treatment in emergency rooms or enroll in government insurance plans, with costs subsidized by others through higher premiums and taxes. Mr. Cutler said the expense to businesses would be offset by savings from Mr. Obama’s proposals to reduce health spending, though that is an uncertain prospect.

Several econometric models have assumed that Mr. Obama would have to set his penalty near 6 percent of payroll (Mercer, a benefits consulting firm says that large employers typically pay 15 percent). Recent play-or-pay proposals in California and Pennsylvania put the figure at 3 or 4 percent, and both failed in part because of business opposition.

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More Articles in US » A version of this article appeared in print on October 27, 2008, on page A16 of the New York edition. http://www.nytimes.com/2008/10/27/us/politics/27healthcare.html