Some Small Businesses See Burden In 'Cadillac' Tax The proposed tax on high-cost insurance plans could make it more difficult for small businesses to purchase health coverage. Even though many of these businesses don't offer rich benefits, their plans may be costly because the covered employees are predominantly older, sicker or female — three categories that currently result in higher premiums.
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Some Small Businesses See Burden In 'Cadillac' Tax

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Some Small Businesses See Burden In 'Cadillac' Tax

Some Small Businesses See Burden In 'Cadillac' Tax

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Rangel's move comes at a moment when Democrats would much rather focus on passing a health care bill. A big part of that plan offers subsidies so more people can buy insurance. Of course, somebody has to pay for the subsidies, which is why the plan includes a tax. It would apply to expensive insurance plans that are currently tax-free. The people opposing the tax includes some small businesses that wonder how they'll will manage. Jenny Gold of Kaiser Health News has more.

JENNY GOLD: Ellen Warner and her husband run a small online store out of the basement of their home outside Atlanta.

Ms. ELLEN WARNER: We sell products for people with dementia and their caregivers.

GOLD: The Alzheimer's Store is a mom-and-pop operation, with five employees and a budget that just barely breaks even. But they do offer health insurance at a cost of about $11,000 per person in premiums each year. That's well over the rate that lawmakers want to tax, and just over the rate Mr. Obama proposed. But it was the best deal they could find, Warner says.

Ms. WARNER: I ran the numbers on everything to see which one was the most cost-efficient. And the one that was most cost-efficient was the one we took.

GOLD: This is not a fancy plan, the kind the so-called Cadillac tax was supposed to hit. The three employees covered by the plan pay $1,000 out-of-pocket for their health expenses before the insurance kicks in. And they pay $40 co-pays for each visit to a specialist. But their cost takes into account who's getting covered. The Warners are both over 60 years old. And even though the other employee covered under their plan is a healthy 25-year-old, their premium costs are still very high.

Ms. WARNER: It means that instead of making a profit last year, we lost money. It means the difference between success and failure in a business.

GOLD: Warner is a supporter of a health care overhaul, but she says she's not sure her business could sustain a Cadillac tax, which could cost them another $1,000 a person each year, just to keep their health plan.

Ms. WARNER: Yeah, small businesses struggle, and we struggle. And if we have another tax to consider, I think that there was a chance that I would have no other choice than to drop it.

GOLD: Warner isn't alone. Small businesses often have a hard time finding affordable coverage. They pay an average of 18 percent more than a large business for the same health plan. That's partly because they don't benefit from pooled risk the way a large business does.

Mr. PAUL FRONSTIN (Employee Benefit Research Institute): Small businesses are definitely going to be affected by the excise tax.

GOLD: That's Paul Fronstin of the Employee Benefit Research Institute in Washington. He says small businesses are more likely to be caught by the Cadillac tax, even if they only have ordinary coverage.

Mr. FRONSTIN: You may be providing, you know, in quotes, "lousy benefits" as a small business, but if everyone in your firm is 55 to 60 years old, the premium for those lousy benefits is still going to be very high.

GOLD: A final health bill is likely to include tax credits to help small businesses keep their insurance. But the details are still unclear. Douglas Holtz-Eakin says small businesses are extremely sensitive to new costs. Holtz-Eakin was director of the CBO under President George W. Bush.

Mr. DOUGLAS HOLTZ-EAKIN (Former Director, Congressional Budget Office): We know small businesses are especially responsive to tax costs and other things associated with providing fringes to their employees, so they are the more likely to stop offering health insurance in the presence of a higher cost.

GOLD: President Obama has been pushing the Cadillac tax, but support isn't limited to the Democratic administration. Gail Wilensky ran the Medicare and Medicaid programs under the first President Bush. She says some small businesses could lower their premiums by changing the kind of health plans they provide. And the bill may ultimately contain provisions that could help people like the Warners by limiting how much more insurers can charge older customers.

Dr. GAIL WILENSKY (Former Director of Medicare and Medicaid): That will mean that the Cadillac tax is much more likely to reflect generous benefits than people who are older or have had some sickness, especially for the small groups, where that can dominate the cost of the plan.

GOLD: She says the Cadillac tax isn't likely to be a major issue for small businesses. With so many variables, it's difficult to puzzle out exactly how health reform legislation would affect any given company. Ellen Warner says she supports the bill, despite the uncertainties her business faces.

Ms. WARNER: I think that for small companies to get good employees, they've got to offer health insurance coverage.

GOLD: And she's determined to try.

For NPR News, I'm Jenny Gold.

INSKEEP: Kaiser Health News, for which Jenny Gold works, is an independent and non-profit news service.

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