The Honorable Henry A. Waxman

Chairman

House Committee on Energy and Commerce

U.S. House of Representatives

Washington, DC 20515

The Honorable Frank Pallone Jr.

Chairman

House Committee on Energy and Commerce, Subcommittee on Health

U.S. House of Representatives

Washington, DC 20515

Dear Chairman Waxman and Chairman Pallone:

As Chairwoman of the House Committee on Small Business, I applaud your work to pass healthcare reform legislation this Congress. The enactment of comprehensive health care reform bill will greatly benefit our nation and its 27 million small businesses. For entrepreneurs, many of which are already struggling with skyrocketing premiums, reform holds the promise to rein in runaway health care costs, providing badly needed relief.

As your Committee moves forward on addressing this enormous challenge, it is vital that we keep small businesses' priorities in mind. America's entrepreneurs remain our single best source of job creation, generating close to 70 percent of new jobs. However, given the enormous economic pressures small businesses are currently enduring, we must be careful that the final legislative product does not unduly burden them. Legislation should ensure coverage for all Americans, while reducing the skyrocketing costs of health insurance for small employers.

For this reason, I urge the Committee to consider revisions to several provisions in H.R. 3200, America's Affordable Health Choices Act of 2009, as currently drafted, would significantly impact small firms. The current version of H.R. 3200 bill mandates that employers who do not provide coverage must pay 8 percent of payroll (reduced for small employers with a payroll size of $400,000 or less). Those with less than $250,000 in payroll would be exempt from the mandate. While the exemption was designed to protect small firms who may not be able to afford the 8 percent payment, most small business would be subject to the employer mandate and a payroll fee.

According to the 2006 Census, the average annual payroll for employers with 1 to 4 employees was $286,987, while payroll of employers with 10 to 19 employees was $429,877. These numbers dramatically increase as the employer size gets closer to 100. As such, nearly all firms who have an employee will face the prospect of a fee if they fail to offer coverage.

Some have suggested increasing the "annual payroll" number in HR 3200 to ensure small businesses are not unfairly burdened. However, simply raising this number offers an imperfect - and likely insufficient - solution. Payroll does not neatly correlate with business size. Rather, depending on the industry, it is quite possible for a business to have a sizable payroll, yet fail to generate revenue necessary to pay the required fee.

A more accurate measure of a small firm's ability to contribute would be "average gross revenue." Coupled with a mechanism to differentiate between industries, such an approach could provide a more sensitive measure of a small firm's size. The Small Business Administration (SBA) already employs a similar system by using revenue with an industry classification system (North American Industry Classification System) to define a "small business" and determine eligibility for SBA programs.

Additionally, H.R. 3200 only provides small firms with 20 or fewer employees (over a two-year period) guaranteed access into the new Health Insurance Exchange (the Exchange) that is established under the bill. Many small firms could be excluded due to this limitation. Small businesses purchasing coverage outside of the Exchange will be exposed to a volatile market, with little competition and potential for increased premiums. Without access to the Exchange, these small businesses will have fewer choices for affordable coverage and little incentive to continue offering it.

Congress should continue to identify ways to give small businesses more options when it comes to purchasing insurance. Current state laws often preclude small businesses from banding together to negotiate for lower premiums. The legislation should enable small firms to create cooperatives or otherwise pool risk so they can secure affordable, accessible insurance.

In conclusion, I commend your efforts to date. I believe that is possible to craft legislation that will guarantee access for all Americans and bring costs under control, while benefiting employers of all sizes and helping to strengthen our economy. I look forward to working with you in achieving this common goal as Congress moves forward with reform legislation.

Sincerely,

Nydia M. Velázquez

Chairwoman

cc: The Honorable Nancy Pelosi

Speaker

U.S. House of Representatives