(CNSNews.com) – The Senate version of President Obama’s government health care overhaul contains a mandate that all businesses provide their employees with health insurance or pay a fine, unless the business employs fewer than 25 people. Critics say the 25-employee benchmark could stifle small business growth by prompting companies to limit themselves to 24 employees.
 
The mandate, called the “shared responsibility of employers,” says that businesses must provide their employees health insurance or else pay an annual fine of $750 per employee per year ($375 for each part-time employee).
 
The bill exempts “small” companies, which are defined as any company that employs fewer than 25 people at any time during the year.
 
Greg Conko, senior fellow at the Competitive Enterprise Institute, told CNSNews.com that the exemption for small businesses would “absolutely” have a negative effect on business growth, because it would prevent businesses from expanding beyond 25 people – the point at which the penalty kicks in.
 
“We know from experience in other areas [that] there are a whole host of employer-based regulations, not just in the health care field, but in the Fair Labor Standards Act and OSHA (regulations) and things like that, where -- when you set an especially low employee count…employers know that if they hire a 25^th employee, that’s going to increase their costs substantially,” Conko said.
 
“They make hiring and firing decisions based on that [cost] calculus.”
 
Conko said the exemption would hurt the economy just as it begins to recover because small businesses are the most dynamic type of business.
 
“It’s not just a short term issue, it is also a longer-term issue,” Conko explained. “Even if a business is not – right away – ready to hire an extra few employees, businesses plan for the future.”
 
Bob Moffit, director of the Heritage Foundation’s Center for Health Policy Studies, said the employment cap of 25 would send entrepreneurs a message: “stay small.”
 
“Stay small, don’t grow, don’t expand, don’t hire more people. Whatever you do, stay under 24. If you tax something, you impose a mandate, you’re going to get less of it. The [only] option is to stay small,” Moffit told CNSNews.com.
 
Another possibly detrimental provision is one that concerns new businesses. The Senate bill mandates that for start-up companies, the government will estimate how many employees that new company might need – and it will use that estimate to determine if the new firm is exempt from providing their employees health insurance.
 
“[T]he determination of whether such [new] employer is a small or large employer shall be based on the average number of employees that is reasonably expected such employer will employ,” the bill says.
 
Moffit said this provision will amount to government determining how big a new business can be, because no new employer will want to run afoul of the government mandate.
 
“It’s a lot of uncertainty, [because] government’s going to determine how many employees. Small businesses are not going to evolve into larger businesses. It’s a disincentive for expansion.”
 
Both Moffit and Conko agreed that a policy that bases penalties on the size of a business always ends up keeping unemployment higher than it should be.
 
“It’ll dampen the recovery, it’ll stunt economic growth,” Moffit explained. “There is no school of economic thought that thinks that raising taxes or imposing mandates on businesses in the middle of a recession does anything other than make the recession worse.”
 
“All these efforts to avoid these hugely expensive mandates are just dead weight losses to the economy,” Conko said. “So it has an impact -- not only on job creation on a firm-by-firm basis, (but) it ripples across the economy.
 
“Hundreds of thousands of small businesses (are) being put in the position of having to spend resources avoiding this huge cost, and that means “there is less money they can put into growing their business,” Conko added.