Sebelius: Obamacare's Penalty on Small Businesses a 'Great Incentive' for Growth

By Nicholas Ballasy | July 11, 2011 | 6:06 PM EDT

Health and Human Services Secretary Kathleen Sebelius ( Starr)

( - Health and Human Services Secretary (HHS) Kathleen Sebelius told on Monday that a provision in President Barack Obama's health-care law that requires small businesses to begin buying health insurance for their workers when they hire their 50th employee--or otherwise pay a penalty to the federal government--"will actually be a great incentive" for businesses to grow. asked Sebelius, “Part of the health care law requires small businesses that grow to over 50 employees to provide health insurance to their employees or face a penalty [starting in 2014]. Do you think that may affect their incentive to grow--small businesses--to above 50 employees?”

“I hear, frankly, just the opposite from small business owners ... where they say the way that they retain and recruit the best possible employees is with a benefit package that is solid; that often they lose good employees because they can’t provide affordable health coverage, they go down the street or around the corner, even though businesses like Frager’s are a family--absent that protection that people have for their employees,” Sebelius said at a press conference about the Affordable Care Act’s insurance exchanges at Frager’s Hardware on Capitol Hill in Washington, D.C.

“So," Sebelius said, "I think that this will actually be a great incentive--as you know the 50 people also have lots of part time worker exclusions, seasonal worker exclusions--and I don’t hear anything from people who say, ‘Oh, I would never grow my business past this threshold’ but are very enthusiastic about the notion that this is a competitive issue. It’s a bottom line issue and when they’re being essentially in the market place paying substantially more than their competitors for exactly the same coverage, they feel at a great disadvantage so I think, what I hear from folks is they see this as a huge step forward.”

Beginning in 2014, under President Obama's health care law, when a small business hits 50 employees they must purchase health insurance for the workers or they will be required to pay a penalty of $750 per worker each year.

In her remarks at the news conference, Sebelius highlighted the reasons she believes many small businesses do not currently provide health insurance for their employees.

“The health insurance market today is often broken, especially for small businesses like Frager’s. Small companies can pay up to 18 percent more for the same insurance that the large chains are able to get and those are their competitors and small business owners are more likely to be victims of large premium increases or to be offered coverage that might exclude care for various pre-existing conditions like cancer or diabetes, and that’s a big part of the reason why small employers are less likely than large companies to offer health benefits to their workers.”