Small businesses getting boost from state to help pay for health insurance

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Paul Shedden, co-owner of Mission Engineering in Petaluma, has deep admiration and respect for his guitar-playing employees — their knowledge of musical instruments is at the core of the company’s handmade guitar pedals, amplifiers and power converters.

He knows their work is a labor of love. If he could pay them more money, he would. If he could give them medical coverage, he would.

But Shedden says the decade-old small business still does not make enough money to offer a group health insurance plan to its eight employees in Petaluma and four in St. Louis, Missouri, where its subsidiary Stage Craft Gear builds wooden cabinets for amplifiers, speakers and other professional audio equipment.

Shedden’s own income is just within the current cutoff for receiving a federal subsidy for individual health insurance through Covered California, the state health insurance exchange made possible via the federal Affordable Care Act.

“We have to keep reinvesting everything back into more and more components, more and more product design,” he said.

But small business advocates say help is on the way. The 2019-2020 state budget, signed by Gov. Gavin Newsom in late June, includes funding to expand existing Covered California medical coverage subsidies for people like Shedden. It also adds a state subsidy for people earning wages between four and six times the U.S. poverty line.

Local small business experts say the budget funding could be a boon to small business owners, their employees and self-employed entrepreneurs, making it easier for them to buy health insurance in the individual market.

“From a small business perspective, roughly half of the folks in the individual market are either self-employed entrepreneurs, small business owners or their employees,” said Mark Herbert, California director of Small Business Majority, an advocacy group that promotes liberal economic policies.

James Scullary, a spokesman for Covered California, said the new state initiatives will have a broad effect and could apply to current Covered California enrollees, consumers who buy directly from insurance companies and the uninsured.

Scullary said the state health insurance exchange’s analysis shows that 922,000 people from those three groups will be eligible for the new state subsidies. Some 229,000 people will become newly insured, including 187,000 through Covered California and the remaining 42,000 enrolled directly with a health insurer.

An estimated 235,000 middle-income residents — those earning 400% to 600% above the federal poverty level — will be eligible for the new state subsidies, Scullary said. For an individual, that pay range is between $48,560 and $72,840, and for a family of four it’s between $100,400 and $150,600.

“These consumers previously did not qualify for financial help because they exceeded federal income requirements,” he said. “We expect many of them are small business owners, entrepreneurs, self-employed, contractors or members of the gig economy.”

Covered California said that beginning in January 2020 when the state funding kicks in, middle-income workers will be eligible to receive an average of $172 per household monthly, which will help them save an average of 23% off their current health insurance premiums. The subsidy likely will be significantly higher for those living in high-cost regions, such as the Bay Area, with premium savings in “the hundreds and even thousands of dollars,” he said.

“They can take that savings and reinvest in their companies, giving them the ability to expand their operations, hire staff or upgrade equipment,” Scullary said.

Shedden, who is originally from England, said the company grew about 30% a year between 2012 and 2018, and turned a profit in 2015 and 2018. And Mission Engineering is on track in 2019 for its most profitable year.

James Lebihan, a longtime friend from the United Kingdom, started the company about 10 years ago and invited Shedden and his wife, Amanda, to join him in running the startup.

In the first half of 2019, the musical instrument parts business already has generated two-thirds of its total sales in 2018. Shedden said he hopes to give some of that money back to employees at the end of the year, along with the constant reinvestment required to produce “more and more (guitar) pedals.”

In 2016, almost 96% of Sonoma County’s nearly 20,000 businesses employed fewer than 50 workers, according to the latest economic report by the county Economic Development Board. Meanwhile, the number of self-employed entrepreneurs increased by 8.9% between 2011 and 2016, the report said.

It’s unclear exactly how many area small- to medium-sized businesses offer employer health insurance to their workers. In general, health coverage in Sonoma County has expanded since the official launch of California health exchanges in 2014 under the Affordable Care Act.

In 2013, 17% of non-elderly residents in Sonoma County lacked health coverage, a figure higher than the national average. By 2017, only 8% of non-elderly residents were uninsured, well below both state and national averages.

“For many Californians, this new financial help will allow them to expand their businesses, hire staff, purchase new equipment and continue pursuing their dreams,” Covered California executive director Peter Lee said in a statement last week.

An estimated 2.2 million people make up California’s individual health insurance market, including about 1.39 million enrolled through Covered California and the rest buying coverage directly from insurers.

Last week, Covered California announced the state would see a preliminary price bump of 0.8% in 2020, the lowest change since the state health insurance exchange launched in 2004.

State officials credited efforts by the state to bolster Affordable Care Act subsidies, as well as the state’s restoration next year of the penalty for individuals who don’t buy health insurance via an employee group plan or on their own — even as President Trump continues efforts to eliminate the Obama-era health care law.

Daniel Canales, an insurance agent with HealthMarkets, said under the system of subsidies now in California, a family of three earning 400% above poverty, or $83,120 a year, can get a subsidy of $795 a month to cover health insurance premiums. But if they earn a dollar more, they are no longer eligible for that assistance.

The state’s new health insurance subsidy should offer relief, he said.

“I think it has an opportunity for a lot of people who can’t afford health insurance and have been struggling,” Canales said.

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