Uwe is quite right: I do support a transition to individually owned and portable coverage within an exchange system -- particularly for those currently in the small business sector -- with employers handling the paperwork but not organizing insurance. I wrote about this before Obama was elected.

But it just needs to be noted that this is not what the reform plan promised to do. I seem to remember: "If you are happy with what you have, nothing will change.' Moreover, while I proposed an orderly transition, for the reasons I mentioend below this is going to be a collapse rather than a transition. As Uwe recommends, the White House should fess up to what this bill will actually do to small business coverage.

I would not be surprised at all if the health-reform bill, once implemented, will trigger some and perhaps quite a bit of migration from the employment-based health-insurance platform onto the individually-insured platform based on health insurance exchanges. The White House would be well advised to acknowledge that possibility and to defend it, as can easily be done.

Indeed, if memory serves me accurately, Stuart Butler or John Goodman would not mourn the erosion of the employment-based health insurance system either. Would they not favor a system of truly protable, individually purchased insurance policies in place of a system that tied individuals to particular jobs and offered ephemeral coverage? Why should small business be saddled with the problem of health insurance?

The health legislation will accelerate the erosion of employer-based coverage, especially among small business. In particular, the huge differential in subsidies available for employees in exchange plans (up to around $10,000 for family coverage) compared with help for similar employees with employer plans (a few hundred dollars in tax benefits) will make it increasingly irrational for employers to offer coverage and employees to request it. Modest tax credits to smaller employers are fiscally inefficient and will do little or nothing to encourage coverage.

If you think the administration is going to be kind to small businesses, see the document they released this morning on proposed rules on which plans will be grandfathered and thus escaped onerous, cost- increasing regulations.

Whereas large companies with unions who are in self-insured plans can switch their third-party administrator at will and still be grandfathered, small businesses will lose their immunity if they switch insurers (say to keep costs down).

The document predicts that up to 80% of small businesses will not be grandfathered in just three years (by 2013).

There has never been any doubt that health insurance premiums, particularly for small businesses and the fully-insured products that they buy for their employees, are going to rise as a result of PPACA. Marilyn has singled out some important provisions that will have a direct cost impact – the fully-insured product tax, limits on deductibles and cost-sharing, new mandates – but this is only the tip of the iceberg.

First, the tax increases: we have many times in the past discussed the pass-through taxes small businesses will pay (taxes on prescription drugs, medical devices, health insurance policies). Remember that slashing payments to providers under Medicaid/Medicare is also a hidden tax on consumers like small businesses. But many taxes in the bill are much more overt; the 1099 paperwork mandate, the new “Medicare” payroll and investment taxes, new taxes on HSAs and limits on tax deferral through FSAs, and lest we forget, the Cadillac tax, which will be more and more costly as the other parts of PPACA raise premiums higher and higher. All of these will be borne by small businesses owners, and thus also by the workers they employ.

But just as expensive, or even more, will be the new health coverage mandates in PPACA: requiring the coverage of “adult children”, eliminating cost-sharing for certain services, restrictions and eventual elimination of annual and lifetime limits, a new “essential benefits” minimum coverage package, new appeals processes, new nondiscrimination requirements, new notice requirements, prohibitions of most underwriting, and limitations on waiting periods, among others. In fact there are more than 20 new requirements specifically lain out – what if each of these means premiums go up by 1 percent? 2 percent? More?

Proponents of the law will say there are two reasons small businesses need not worry: they will be able to grandfather their plans, and they will get a new tax credit to offset a portion of their costs. Let’s examine both.

Grandfathered plans will not have to meet every one of the new health coverage mandates, but about half of the mandates will have to be covered no matter what. What remains to be answered is, will it be feasible to maintain grandfathered status, or will it be very difficult, if not impossible, to meet the requirements? We have only seen draft regulations pertaining to this, but what we have seen so far suggest that the kind of changes plans make in the ordinary course of business year-to-year will risk eliminating grandfathered status for many, if not most plans. However, even with grandfathering, a plan sponsor will still be subject to all the new tax increases.

The tax credit has been touted quite a bit, but many experts agree that it is unlikely to bring new businesses into the realm of plan-sponsors. In fact, all but the smallest of small businesses will not even be eligible, and only micro-businesses can be eligible for the full credit. Worse, it is extremely complicated (do check out NFIB’s excellent calculator though). Worst of all, it is one of the only parts of the new law that actually sunsets (along with benefits for early retirees, and high-risk pools for the uninsured). If a small business already offers health insurance, and is able to obtain the full credit, perhaps it will partially or fully offset the new costs imposed by PPACA, at least for a little while, but for most, it will not be enough to make the law a net positive.

As the Administration continues promulgating regulations to implement PPACA, the Chamber and others in the business community will work to make the regs as workable as possible for business. After all, small businesses are the engine of our economy, and only by creating a competitive environment where small businesses can grow, will we be able to rise out of the current morass of nearly 10 percent unemployment.

There are a lot of questions to answer here but I’ll start with three main points before discussing the health insurance tax and the much talked about tax credit.

1. This law did nothing to institute reforms that will result in lower health insurance costs for small businesses – we said it, CBO said it and now CMS says it. This is the tragic failure of the healthcare law because no one needed reform to help lower costs more than small business.

2. This law adds new costs (outside of their already skyrocketing premiums), paid for on the backs of small businesses. Examples include: new 1099 reporting requirements, new payroll taxes and new Medicare taxes. And, since I’m sure someone else here will mention it, yes, the new Medicare taxes areon incomes of $200,000 or more ….But what so many don’t know (or ignore) is that approximately 75 percent of small business owners file their taxes as individuals. These taxes will be levied on the capital a business owner has to re-invest in his company or put aside to hire a worker in the coming year. These aren’t Wall Street executives sailing on a yacht each weekend, this is your local gas station owner who wants to expand their autobody shop and add mechanics.

3. In response to the incentive or dis-incentives in this law to begin offering coverage to workers: The sad truth is there is very little in this law that would make a small business want to begin offering if they aren’t already, much less even continue offering coverage if they already do. And, despite it being touted differently, the law actually creates incentives to NOT grow your business, hire a worker or be successful.

Tax Credit – Often cited as the cure-all for small businesses, the much-hyped small business tax credit will do little to nothing to make purchasing insurance more affordable for small firms and won’t provide long-term relief from high healthcare costs. The credit is based on a complicated formula that combines both average wage and firm size to determine the value (but only if you offer and pay 50% of insurance though). A temporary credit certainly isn’t a bad thing, especially for the smallest and lowest wage firms. But, less than 1/3 of small firms will even meet the firm size and contribution requirements to qualify for the credit, and that number doesn’t even factor in the average wages of the firm, which will decrease this number. For example, a business with 17 employees and an average wage of $40,000 most likely will not receive any credit. The credit is clearly flawed but it’s also hardly enough of an incentive for those non-offering firms (who are lucky enough to qualify for some portion of credit) to begin offering insurance.

Health Insurance Tax – Messaged as a “health insurance fee,” this tax is actually a tax on small business. The new tax is structured as an annual fee on insurers and it does not expire. How it works: An insurer’s portion of the annual tax will be determined based on their market share. While the health insurance fee was designed to "go after" large health-insurance companies, the reality is that insurers aren't simply going to absorb this new tax; it will be passed on to customers. In this case, it will be passed on to the plans that 87% of small businesses and individuals buy because Congress exempted self-insured plans (the plans most big business and labor unions buy). The annual “fee” begins at $8 billion in 2014 and steadily increases to $14.3 billion in 2018. In subsequent years, this fee remains at $14.3 billion annually added to whatever the rate of premium increase is for that year. A study by the Federal Policy Group published last October found that the amount of taxes passed on to the typical family of four could be $500 or more per year. Small businesses, the ones who already pay 18 percent more for their insurance, will be paying for this new tax in even greater premium increases in the coming years.

Not only is the law bad policy, we believe it is also unconstitutional. The federal mandate requiring that nearly all U.S. residents carry health insurance by 2014 seriously threatens our basic constitutional rights and individual freedoms. This is why the NFIB, on behalf of small business owners nationwide, has joined the lawsuit with 20 states mounting a constitutional challenge to the healthcare law.