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Health care overhaul: Some small businesses don't qualify for help

Some local entrepreneurs have been stunned because they failed to meet all the rules for the small-business tax credits in last year's highly vaunted federal health care law to help cover their health care costs.

Despite their disappointment, they're hopeful that another part of the law, which kicks in three years from now, is well worth waiting for.

Take Linda Derivi, for example. She said it's tough to provide health care coverage for her employees, but thought that the federal health care law would help ease their -- and her -- pain.

She founded Derivi Construction and Architecture Inc. in Stockton with her husband in 1979. The firm employs 12 workers, and 11 are full-time. She provides coverage for eight of her employees. Two of her employees are under their spouses' insurance. The total cost to offer coverage for the eight employees, and three dependents, is about $42,300 a year. That breaks down to about $5,287.50 for each worker. "It's a challenge," she said. "It decreases our profit."

Derivi had hoped she'd get a break to help cover those costs from the tax credits that small employers were able to claim this year under the year-old health care law. Those can help cover up to 35 percent of their employees' health care costs.

However, her business didn't qualify. "I was very disappointed," she said.

Her business didn't qualify because she has a professional staff that's highly paid. To qualify, the average wages for employees must be $50,000 or less.

The assumption that businesses with highly paid staff members don't need the tax credits to help pay for their health care costs is just plain wrong, she said. "I think that should be examined," she said.

Even so, she supports the federal health care law. She expects to see benefits if the state's health benefit exchange is properly set up.

Each state is supposed to establish its own health benefit exchange. The exchanges, which are set to begin in 2014, are supposed to give small businesses and individuals better deals on insurance.

California was the first in the nation to implement key components of the law. One of those actions was to authorize an oversight board for the state's health benefit exchange.

Fifty percent of small business owners in the Central Valley said they would be likely to participate in the state's health benefit exchange, according to a 2011 study conducted by Pacific Community Ventures, an organization that helps create jobs in low-income communities. The study was paid for with funding from The California Endowment. (Editor's note: The endowment has given a grant to the Sun-Star for a health care reporter.) In addition, 33 percent indicated they already provide coverage for their employees, so the exchange would make them more likely to continue that coverage, the study found.

Of those not offering insurance for their workers, 19 percent said the exchange would make them more likely to offer health benefits in the future, according to the study.

Overall, Derivi said the law is a "major first step" in providing coverage to all Americans. "I do support that," she added.

Other reasons why she and her workers back the future provisions of the law are because there will be more competition among insurance providers, more reasonable insurance premiums when a person doesn't have a job and fewer restrictions on prior existing conditions.

"You need insurance if you have a chronic condition, and the irony is that most times you can't get it," she said. "With everyone participating in the program, costs will average out."

That's meaningful because health care costs are one of the major causes of personal bankruptcy in the United States. "Through no fault of your own, you could lose everything you have worked to save and invest by one illness or accident," she said. "Hardly a scenario a wealthy and progressive nation should tolerate."

Liz Parker, owner of Tulsa Rib Co. based in Orange County, said she supports the federal health care law, despite also being dissatisfied with the results from the tax credits.

Parker's business has been operating for 30 years and employs 13 full-time employees. They make wages from $25,000 to $28,000 a year. She pays more than $80,000 a year for her employees' health care costs.

Parker applied for the tax credit to help bring those costs down, but was shocked when she only received $400. "It was surprising how low it was because we really fit the profile of what the law was intended to help," she said. "I was disappointed."

Especially because she's seen a 20 percent increase in premiums for each of the past two years, she said. "In a way, it shows you why small businesses are frustrated with the government regulations."

Still, like Derivi, Parker remains optimistic about the gains small businesses might reap from the law down the road. She also expects to see gains from the state's health benefit exchange. "That's the concept where everyone will be able to buy," she said. "Our goal is to provide for our employees."

In practice, the exchanges will require that insurance companies compete with each other to offer the best prices for consumers. Small businesses will be able to pick the most competitive prices just like any larger business, she said.

A steep hurdle for small businesses now is that they're being choked because they don't have access to better pricing, Parker said. That's a problem that could disappear with the state's health benefit exchange. "That's the main thing -- this was a great first step," she said.

But she and other heads of small businesses will have to wait at least three years to see the second step.

Reporter Yesenia Amaro can be reached at (209) 388-6507 or yamaro@mercedsunstar.com.

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