If you’re a small business owner, the cost of providing health insurance for your employees may be worse than you thought.
According to U.S. Rep. Bill Pascrell, medical bills have led about two-thirds of small businesses nationwide to close during the past five years.
Pascrell (D-8th Dist.) pointed to that startling statistic during a Feb. 1 debate in the House over a bill repealing the Community Living Assistance Services and Supports Act, or the CLASS Act. That Act was a provision of the health care reform law enacted in 2010.
The CLASS Act was meant to create a new insurance program for individuals to pay monthly premiums and later receive a cash benefit to support their long-term care needs. But before the program was implemented, federal officials canceled it in October 2011, pointing to legal and financial concerns.
"We have to find a way to make long-term care both accessible and affordable. These problems will not simply disappear. They're not going to go away," Pascrell told his colleagues. "This bill certainly does not fix these problems. The bill does not even provide an alternative. All it does is attack the progress made in the Affordable Care Act."
Pascrell added, "Sixty-two percent of small businesses over the last five years went under because they couldn't pay their health care bills, and you stand there with no alternative whatsoever."
That bill passed in a 267-159 vote, with Pascrell voting against it.
But PolitiFact New Jersey found it hard to believe that 62 percent of small businesses had closed during the past five years. After reaching out to Pascrell’s spokesman, we found out why: the statement’s not true.
Pascrell spokesman Paul Brubaker told us the congressman meant to say that "62 percent of personal bankruptcies in 2007 were due to health care costs."
"He mistakenly said ‘small businesses’ instead of ‘personal bankruptcies’ and ‘past five years’ instead of ‘five years ago,’" Brubaker added in an email. "Congressman Pascrell stands by his overall point that personal bankruptcies have been demonstrably connected to health care costs."
That’s good enough for the Truth-O-Meter. But let’s explain the basis for the statistic that Pascrell was aiming for.
To back up the congressman’s point, Brubaker directed us to a report published in 2009 in The American Journal of Medicine.
Following a national study, researchers estimated in that report that illness or medical bills contributed to 62.1 percent of all bankruptcies in 2007 -- a significant jump from six years earlier. Many families were under-insured, leaving them responsible for large out-of-pocket costs, while others lost their private health insurance when they became too sick to work, according to the study.
"Since 2001, the proportion of all bankruptcies attributable to medical problems has increased by 50%," according to the report. "Nearly two thirds of all bankruptcies are now linked to illness."
As for small businesses, their numbers have declined in recent years, but that reduction is much less than 62 percent.
According to the U.S. Small Business Administration’s Office of Advocacy, the number of small employers -- defined as having fewer than 500 employees -- dropped by about 4.2 percent from 6,004,056 in 2006 to 5,749,797 in 2009, which is the latest data available.
We don’t know how much medical bills contributed to that reduction, but health care costs obviously remain a significant concern for small business owners.
In a speech on the House floor, Pascrell claimed that "sixty-two percent of small businesses over the last five years went under because they couldn't pay their health care bills."
But his spokesman told us the congressman made a mistake and cited the wrong statistic. Pascrell meant to say health care costs led to 62 percent of personal bankruptcies five years ago.
We rate the statement False.
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