Bush to Urge Easing Health Insurance for Small Firms

As a key component of his Administration’s health care plan, President Bush intends later this month to call for significant changes in federal law that would make it easier for small businesses to obtain lower-priced health insurance for their employees.

Administration officials said the proposed revisions of labor law and the tax code would encourage small businesses to band together, thereby gaining new bargaining power in what now is an often fruitless quest for affordable coverage.

The officials said the plan is to be announced by Bush in his State of the Union address Jan. 28 or in the federal budget proposal that will follow.

It is intended as part of a broad health care proposal calling for tax credits to help people buy health insurance.

The White House has portrayed the health care package as the most important element of the new programs Bush plans to introduce later this month. It also is expected to become a centerpiece of his reelection campaign.

Potentially, the small-business plan could affect millions of workers who now do without health insurance or must pay extremely high prices for it.

Estimates place the number of adults in the United States without health insurance at 35 million. About 18 million of them are employed, half in businesses with fewer than 50 workers.

Because the nation’s smallest businesses have been plagued by limited options and what they consider an unfriendly tax code, officials who outlined the Bush plan on condition of anonymity said it was designed to give the small business more “buying power.”

Under the plan, the government for the first time would encourage small businesses to form collectives to purchase cheaper, no-frills policies to which they now have little access.

At the same time, officials said, the Administration would as much as quadruple tax deductions for health insurance expenditures as a new incentive for small firms to enroll in health plans.

“Right now, small businesses are basically excluded from the market,” a senior Administration official said. “This is a way to get them in and to force prices down.”

With the small-business plan, the White House hopes to ease the burden on employers and employees of ventures not large enough to enjoy the benefits provided to those who work for larger corporations, the officials said.

Under current practice, these smaller businesses--convenience stores, self-service laundries and restaurants, for example--generally act alone in their search for insurance companies and usually find only companies willing to do business at high cost. At the same time, federal law requires companies to meet state requirements for health insurance coverage.

As an alternative, the Administration hopes to encourage efforts like those in Cleveland, where the Council of Smaller Enterprises has enrolled 8,500 firms with a total of 65,000 workers in a cooperative effort to buy health insurance.

Under the White House plan, such cooperative organizations would be exempt from state mandates, which might require, for example, that a health insurance policy provide coverage for cosmetic surgery and acupuncture.

The exemption, if approved by Congress, would permit purchasing groups like that in Cleveland to offer basic and more affordable insurance.

The tax breaks expected to be part of the plan also would make the purchase of policies more attractive for the smallest of firms--the one-man and one-woman businesses called sole proprietorships and unincorporated businesses with a handful of workers.

Now, these firms are permitted to deduct from their income tax payments just 25% of the cost of insurance policies, contrasted with a full deduction for corporations providing health insurance to their workers. The Administration would ask Congress to give the same 100% deduction to the sole proprietors and the unincorporated firms, making it less expensive for them to join groups like that in Cleveland.

At the same time, officials said, Administration backing would give nationwide exposure and impetus to the concept of small businesses joining together to buy health coverage.

Bush discussed his health care proposals Tuesday morning with businessmen during a well-publicized White House session that was scheduled as a counterpoint to health care town meetings convened by Democratic lawmakers around the country.

While Bush’s chief spokesman labeled the get-together an “important meeting,” another White House official conceded: “The Democrats keep making all the noise on this and somehow we have to convince people that we have a plan.”

Nevertheless, some of the businessmen who attended the session told reporters that, although Bush had not discussed all the details of his plan with them, they generally endorsed the concept.

“It’s very, very clear that the President is fully engaged in the issue of health care reform,” said Dirk Van Dongen, chairman of the National Assn. of Wholesaler Distributors.

The members of the group said they had made a particular pitch for the kind of change in the tax code that Bush is expected to embrace.

Health insurance has become one of the most pressing issues in domestic politics. Almost two of three workers believe that they pay too much for health care, a survey issued Tuesday by the Employers Council on Flexible Compensation said. However, 93% of full-time workers are covered at their own firms or through a spouse’s insurance policy, the organization said.

“Employee-based health insurance is doing the job,” said Ken Feltman, the group’s executive director.

In a poll of 800 Americans, conducted for the Health Insurance Assn. of America and released Monday, 61% said the current health care system is meeting the needs of their families. But 65% said they would like to see significant reforms.

“The public clearly wants change,” said Democratic pollster Mark Mellman, who conducted the survey, along with Republican pollster William McInturff.

Times staff writer Edwin Chen contributed to this story.