Opponent Testimony to HB 33
House Insurance Committee

Presented by:
Thomas Pitrone
Vice President of Marketing
Capital Creation Company
Shaker Heights, OH
March 27, 2001

Chairman Stapleton and members of the House Insurance Committee, thank you for the opportunity to testify today. My name is Thomas Pitrone. I am the Vice President of Marketing at Capital Creation Company, a financial services firm, located in Shaker Heights, OH.
I currently serve on the governing board of Ohio Small Business Council (OSBC), an organization affiliated with the Ohio Chamber of Commerce, where I sit on the Small Business Survival Task Force. I am a member the board of the Council of Smaller Enterprises (COSE), where I chair the Taxation Working Group. I was a delegate to the White House Conference on Small Business in 1995 and I am a member of the National Federation of Independent Business Ohio.

I am here to testify in opposition to HB 33 that, if enacted, would mandate employers to provide additional benefits without explaining to employers how to pay for them.

At the last Ohio Small Business Council Board meeting, Ohio Tax Commissioner Tom Zaino shared with us his approach to taking positions on tax issues. He has developed a list of guidelines he refers to in deciding the impact a tax change might have. OSBC was impressed to say the least, and the OSBC Survival Taskforce Healthcare Working Group developed a similar list of guidelines to assist us in evaluating proposed health care mandates. I would like to share those questions we consider with you in taking a position on health care mandates:
Will the proposed change increase affordability?
Will the proposed change increase accessibility?

Can small business opt out of the proposed change by any means besides dropping coverage?
Does the proposed change benefit 50% or more of the employees covered by employer paid health insurance?
I hate to say that the answer to all four of these questions is "no"when considering HB 33. Therefore, we conclude that HB 33 will have a negative impact on the small business community.
In preparing my testimony, I read several previous witnesses' testimony, including that of the bill's sponsor. It is not surprising to hear that Ohio and the federal government are providing this benefit to their employees. They are both very large groups and neither entity has a reputation for fiscal prudence. Why should they? They pass all overhead expenses to the taxpayer. If one is not paying the fare, of course one demands the best.

The sponsors compare physical ailments with mental ailments in an effort to demonstrate the so-called "arbitrary"nature of the distinction insurers make. In fact, the sponsor's examples only highlight the distinction. For example, it is not uncommon for insurers to limit the number of chemotherapy treatments for cancer patients.
This mandate will place the highest burden on small businesses. Large employers will escape because of federal ERISA exemption. Small employers do not have human resource departments to deal with intricate employee benefit situations. There is a blatant cost shifting to the small business owner who is providing the best health care coverage possible for their employees who are often family members and close family friends.

The sponsors minimize the impact of the expense of this measure. I work with small businesses providing investment based benefit plans, like 401(k) plans. As an example of a potentially negative result of this legislation, one of my clients recently had to deal with an employee with a drug problem. The fellow was a truck driver. He got strung out on cocaine and quit coming to work. His brother was also an employee and well liked. For the brother's sake, the company extended every opportunity to the fellow to get help. He ended up quitting and withdrawing all his retirement money.

Since the company has less than the 25-employee limit for COBRA extension, coverage extensions were not available to him when he was "laid off"so that he could receive health care benefits and collect unemployment. He later demanded to be fired so he could access his 401(k) plan so as to cash out all his retirement money. He paid taxes and penalties equal to 45% of his account. Now he is broke and unemployed. As of last week, he is still not looking for help.

As part of the OSBC Small Business Survival Task Force, I participated in an interesting project. Last fall, we surveyed small businesses around the state by mail to find out what they felt were their biggest challenges. The third most common response was the cost of health care.
To expand the depth of our research, I made calls to several respondents. The majority told me that the cost of insurance was a problem they are angry about. I got quite an earful. With one exception, they said they saw the day coming when they would no longer offer health insurance. About two thirds of the comments we received focused on the COST of health care. Another frequently mentioned topic included the negative impact of government meddling by way of onerous regulations.

The last part of the project was a focus group in my office. The stories that came out of this meeting were chilling. An accountant who heads a firm in Geauga County told me his concern. He said that of his eleven employees, six are professional women covered on their husband's policies. Since the firm pays only 75% of the cost of coverage, these women opt out. This leaves five employees to be covered. Since the company's percentage of plan participation is so low, it jeopardizes the company's ability to get coverage at all. The alternatives are to drop coverage or pay 100% and provide double coverage to the six employees. The latter is beyond this accountant's financial means.

Beyond that, increasing the premium might cause one of the employees currently covered to drop coverage. That would further reduce the company's plan participation.

The focus group concluded that providing health insurance is hardly an option for small businesses if we want to have good employees. This is a competitiveness issue for small businesses to compete for and retain competent employees. Mandates may sound attractive, but the reality is that they ultimately make things worse by raising costs for everyone.

The sponsors accuse the business community and the insurance industry of opposing all mandates. In fact, it is "unfunded mandates" that draw our ire. The sponsors make the point that legislation is usually about creating mandates. That is true. However, if you go to the schools and governmental units the sponsors refer to, you'll find they hate unfunded mandates too.

Thank you for your time, Chairman Stapleton. I would be happy to entertain any questions you and the committee may have.