Health-care reform: what it means to practice owners, associates

NATIONAL REPORT — $455,000 per year. That's the cost of health care for the 130 workers at Dr. Gary Block's emergency and referral clinic in Rhode Island.

Dr. Gary Block

Health-care reform legislation under consideration by Congress could raise Block's annual health insurance costs to more than $650,000, or lower them to $400,000.

Several new health-care reform bills are circulating and require individuals to carry insurance and businesses to offer it. There are provisions in some of the proposals, however, to ease burdens on small businesses, offering tax breaks and levels of exemption based on payroll sizes. Which proposal is chosen in the end may depend heavily on the contested public health insurance option in the House bill, favored by President Barack Obama. Other versions, like those introduced in the Senate, do not offer a public health-insurance program.

With a strong emergency and referral practice, Block says he doesn't worry too much about the cost of offering health benefits for his 130 hospital workers. Like most practices, he has faced double-digit premium increases over the last three years and now spends more than 3 percent of his revenue on providing health care, but Block says he will do what it takes to care for his workers and keep attracting the best.

"It's a huge expense, and it's going up every year. But offering some type of health-insurance benefit is important when you're trying to recruit employees. It's probably double for trying to recruit support staff," says Block, DVM, MS, Dipl. ACVIM, and co-owner of Ocean State Veterinary Specialists, a 27-doctor referral and emergency clinic in East Greenwich, R.I.

Block's bottom line isn't affected much by his benefits costs because of the size of his business, but he says smaller practices affected more deeply by the recession are in a different predicament. It's a reality of small business ownership that is not uncommon among veterinary-practice owners — a part of the smal- businesses segment that grapples with how to attract the best employees by offering them competitive benefits while still being able to meet payroll.

Small businesses, or those with fewer than 20 employees, made up about 18 percent of private sector jobs in 2006, and about a quarter of all job growth over the last decade. Yet these businesses, like veterinary practices seeking to offer benefits, pay up to 18 percent more per worker than larger firms for the same health insurance policies, according to a report released July 26 by the Executive Office of the President's Council of Economic Advisers. The answer to some may be to not offer health insurance, but then their ability to attract the best employees is compromised.

Health-care reform, always a hot topic during presidential campaigns but hardly successful in the Legislature, may have more traction this year. Democrats and Republicans are battling out the nuts and bolts during primetime addresses, and the public is engaged in the debate. But what do their proposals mean for small-business owners, particularly the bottom line in the average veterinary practice?

Three different proposals (see "What's on the table") are circulating, with one, House Resolution 3200, garnering the most attention from lawmakers. HR 3200 and the Senate HELP bill both require businesses to offer insurance coverage, with varying requirements for how much of the premium businesses would have to cover. All the proposals call for the creation of an exchange program; a marketplace for individuals and, initially, very small businesses to shop for insurance rates previously accessible only to larger companies. In the first year of the program, companies with fewer than 10 employees could participate in the exchange. Companies with fewer than 20 employees would be admitted in the second year and larger companies being phased in during the third year and beyond.

Whats on the table

The House health-care reform bill would require all employers to offer health insurance, paying 65 percent of family premiums and 72 percent of individual premiums, or pay a penalty based on the size of their payroll. Small businesses with less than $500,000 in payroll costs would be exempt from the requirement, and businesses with $500,000 to $750,000 in payroll would be subject to a penalty ranging from 2 to 6 percent for not offering coverage. Companies with payrolls above $750,000 — like Block's — would pay the full 8 percent. The penalty would be used to fund the employees' participation in an insurance exchange program. Small businesses that offer private insurance to their employees would also be eligible for a 50 percent tax credit, based on their number of employees and average wages, under the House bill.

Carol Amernick, CPA, who runs an accounting firm for veterinary practices in Virginia, says she is concerned about the lure of a credit that may not impact a practice's bottom line.

"I don't necessarily think, in my own opinion, that people will be any better served or there will be a true savings of cost," Americk says of the House proposal. "Regardless of getting a credit, that doesn't address the cost of supplying the benefit. Will they come out better than what it's going to cost them? Likely not."

Many of her clients have been among those to drop health insurance altogether in recent years, because "it's just not worth the escalating cost."

"The problem is, people hear 'credit' and get all excited. But all [the government] is doing is giving back your money as opposed to not taking it in the beginning," Amernick says. "In analyzing it, it's just not a slam-dunk of numbers."

Not everyone agrees.

"I think that most veterinary offices are going to be clear winners in this," counters Rep. Kurt Schrader (D-Ore.), a veterinarian and owner of Clackamas County Veterinary Clinic. "I've got 12 full-time employees and probably two to three part-time employees. Right now, I try to provide health care to my employees, and I'm running about 15 percent of my compensations on health care. In the bill, I would just have to pay an 8 percent penalty and don't have to offer health care."

With a $250,000 payroll ceiling to exempt small businesses, a $1 million practice would be right on the cusp, Schrader says. With the ceiling raised to $500,000, he thinks many veterinary clinics, his included, would end up exempt from the requirement to provide health-insurance benefits.

And Schrader is not far off. The average annual payroll size in all types of veterinary practices in 2007 was $238,622, according to figures published in the 2009 AVMA Report on Veterinary Practice Business Measures. The highest payroll — a mean of $317,774 — was in companion-animal exclusive practices.

Block's practice, with $4 million to $5 million in annual payroll, certainly is a unique case. He would not qualify for the exemption many smaller clinics might be able to get under the House bill.

Right now, Block pays 50 percent of the premiums for his employees — about $455,000 per year. Under the House bill, he would have to increase his share of individual premiums to 72 percent, bringing his annual share of the premiums to $655,200 per year. By dropping coverage and paying the 8 percent penalty, Block's health-coverage cost would be only about $400,000 — a $50,000 savings. But there is still the competition factor to deal with.

About 84 percent of all veterinary practices reported offering health insurance to full-time employees in the American Animal Hospital Association's Compensation & Benefits report. Fifteen percent extend those health benefits to part-time employees.

Of those practices that do offer health insurance, 91 percent reported paying a portion of the employee's premium, with the average percentage paid resting at about 74 percent — 2 percent higher than what would be required of them to pay under the proposed House version of health-care reform.

For those practices that already offer health insurance and want to keep their plans, they could, Schrader says.

"If you're a veterinarian and you have a health plan you like, you can keep it," he says. "But I don't think there's a veterinarian out there that likes their health plan because it goes up 20 percent each year."

Under HR 3200, small-business owners can keep the individual plan they already have and earn a tax credit, dump their plan and pay an 8 percent (or lower depending on the size of their business) penalty so their workers can get their own policy in the exchange, or keep the group plan they have as long as it meets a basic benefits test but get no tax credit.

"I think there are two basic aspects. How does it affect my bottom line? The second one is, to attract good quality employees," Schrader explains. "The question for the veterinary employer will be, even though my payroll is low enough I don't have to provide high-quality health care, maybe I should to compete."

The exchange would be set up with a very basic plan, then two upgraded plans, he says.

"I'd like to think some of us offer health care because we're nice guys, but frankly it's also a good business decision," Schrader says.

Groups like the American Veterinary Medical Association, the American Animal Hospital Association and the National Council on Veterinary Economic Issues are keeping an eye on the issue, but can't or won't make any judgments yet.

To Amernick, there are still too many variables to tell whether any of the several renditions of health-care reform, particularly HB 3200, will help.

"It's purposely vague; it's ill-defined and it doesn't address some of the real issues that businesses have," she says. "Are you really getting something less expensive, or are you just getting something less expensive because it's not as good coverage?"

Block says he isn't sure what direction he will take — keeping his current health offering or going through the exchange — if HB 3200 is approved, but says his staff will be consulted.

"We would probably present the issue to our staff and maybe raise fees to cover some of that additional expense, and it might impact our ability to hold on to certain employees and give raises," Block says.

"But whatever we need to do to offer the maximum health benefits to our staff is what we're going to do. And if that means our personal benefit goes down a little bit, we're not going to worry about it."