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Would governor's proposals help small businesses?

Date: 3/1/2010

March 1, 2010

By G. Michael Dobbs

Managing Editor

Some people call it election year politics, while others see the initiatives announced by Gov. Deval Patrick to help small businesses in the past several weeks as at least a start in the right direction to make Massachusetts a friendlier state, especially to small business.

Under existing authority, Patrick recently directed the Commissioner of Insurance to immediately file an emergency regulation requiring health insurance companies to file proposed changes in small business premiums with the Division of Insurance in advance of their taking effect so the commissioner can review and disapprove rates that are excessive or unreasonable in relation to the benefit provided.

His plan also includes legislation that would trigger a presumptive disapproval of health insurer rates that are significantly above the Consumer Price Index for Medical Services. The bill also provides for similar oversight of provider rates to ensure shared responsibility for controlling costs.

The issue of the state not approving premium increases for health insurance plans for small business could impact small businesses in a negative way, Russell Denver, president of the Affiliated Chambers of Commerce of Greater Springfield, explained. The costs would be shifted more onto larger businesses which then would have less funds to spend for goods and services from smaller businesses.

Denver would much rather see the return of small group buying pools as a way to reduce the cost of health insurance for small businesses. Up until about 10 years ago, small businesses could purchase health insurance through pools established by chambers of commerce and receive more affordable rates.

Peter Straley, the CEO of Health New England told Reminder Publications, "I think it's a great idea to jump in the fray and start making some changes. I have serious questions about whether this is the right way to start because you are just regulating the insurance cost but the underlying cost haven't changed. Any by regulating insurance cost you're really not getting to any sustentative change."

Although Straley couldn't predict the long-term consequence of regulating just the premium for small businesses, he did think the short-term effect would be creating a tax on the reserves insurance companies must maintain.

He explained the cost of healthcare is driven by the cost of the services multiplied by the number of times the services are used. "What the governor has proposed is something like a regulation around the unit price of the service. So, if we use more of those units of service, that's going to come out of the reserves of the insurance companies, which will deplete their ability to guard against future loss," Straley said.

Straley said there is the potential for substantial reform by the rebuilding the delivery system for health care. He added if people would take better care of their health that would also lower costs and, in turn, premiums.

Controlling health care premiums was just one of the initiatives the Patrick Administration announced in the past two weeks to help small businesses in the state.

Last week, Patrick's office announced a freeze on an increase in employer's contributions to the Unemployment Insurance Trust Fund at current levels. This new law prevents a scheduled rate hike from taking effect, which the administration said would save businesses almost $400 million this year.

"Without this legislation, employer costs were on track to rise by an average of over $300 per employee. That increase was simply unacceptable to us," Patrick said. "By freezing the rates at current levels, we are providing businesses with the immediate relief they need to invest and grow."

Patrick has also announced the following proposals:

A tax credit for small businesses to create and retain new full-time equivalent (FTE) jobs this year. Those businesses would be awarded a $2,500 tax credit for each net new job they create.

The credit, capped at $50 million, will be awarded on a first-come, first-served basis to small businesses defined as those with 50 or fewer employees. To qualify, companies must create a new FTE position and retain that position for at least one year.

Patrick would also consolidate the three agencies responsible for small business finance into the Massachusetts Growth Capital Corporation (MGCC), an umbrella organization that would function as a one-stop source for debt-equity and financing for small and mid-sized businesses.

Denver said in response to the governor's efforts, "He's trying."

While he didn't think what Patrick has proposed is anything more in depth than previous governors, he called the initiatives "good starts."

Denver did express a concern about the unemployment insurance freeze. "Eventually someone is going to have to pay the piper on a rate freeze."

The tax credit for creating and retaining jobs, is a "wonderful incentive," Denver said.

Denver believes the governor should "dig deeper" for reforms. He said Massachusetts is the only state offering 30 weeks of unemployment benefits and is the state requiring the shortest time of being employed to qualify for benefits. He added the provision that allows seasonal employees to regularly go on unemployment also should be examined.

How the state invests in a particular business sector should also be reconsidered. Denver said, for example, a solar panel company that has received much state aid has made the decision to relocate its manufacturing to China.