Health insurance tax "scares the daylights" out of some small-business owners Meanwhile, the provision exempts health-insurance plans that are set up and operated by businesses themselves (the self-insured market). Revenue from the tax will help pay for the health-care overhaul, which is expected to extend coverage to millions of uninsured or underinsured Americans. However, because most large corporations self-insure their workforce, experts warn that insurance companies will pass the costs directly to small businesses. The vast majority purchase coverage in the fully insured market. "Insurers have confirmed back to me that the tax will be passed down to consumers, and the direct impact will be staggering," Ryan Thorn, owner of a small insurance planning firm near Salt Lake City, told lawmakers during a congressional hearing Thursday. It disproportionately hits individuals and small-business owners, the people who have been hurt most by these challenging times. During his testimony, Thorn read letters from his small-business clients about the likely impact of the new health insurance tax. One wrote that the tax "scares the daylights out of us," while another warned that it would likely "hasten the decision to move away from providing group coverage for our employees." The Department of Health and Human Services reports that among private businesses that offer health insurance, three of every four firms with between 100 and 500 employees purchase coverage in the fully insured market. The number jumped to 87 percent for firms with fewer than 100 workers. On the other hand, 82 percent of large firms (500 or more employees) run their own health insurance programs. Robert Zirkelback, a spokesman for America's Health Insurance Plans, a trade group for insurance providers, acknowledged that small firms will likely "shoulder most of the burden" of the tax. Meanwhile, a new minimum-coverage requirement for employers with 50 or more workers will be broader than what some of them already offer, he said, which could further increase their costs as they are forced to supplement their current plans. A new study by the National Federation of Independent Business, which has long pushed back against the health-care law, suggests that the health-care tax could reduce private-sector employment by several hundred thousand jobs over the next decade, more than half of which would come from small businesses. Based on its forecasts, the toll on gross domestic product could reach as high as $185 billion. Paul Van de Water, an economist with the Center on Budget and Policy Priorities, took issue with parts of the study, saying that the model does not account for higher compensation for employees in the form of better health coverage. He disputed the claim that the tax would eliminate jobs, too, citing estimates from the Congressional Budget Office that any changes in employment because of the health-care law will be negligible. But even if the tax has some negative side effects, he said, that is the price the country must pay to improve the health-care system. "No one likes taxes, per se, but we raise taxes to raise revenues to pay for things that we want to pay for," Van de Water told members of the House Small Business Committee. In this case, we are paying for an expansion of health-care coverage to 27 million Americans. Nevertheless, the concerns from small-business owners and insurance companies have prompted lawmakers to introduce bills that would repeal the health insurance tax - one from Sens. Orrin G. Hatch (R-Utah) and John Barrasso (R-Wyo.) and another from Reps. Charles W. Boustany Jr. (R-La.) and Jim Matheson (D-Utah). Business lobbying groups from the manufacturing, construction and farming sectors have supported those efforts, citing similar concerns about the likely impact on their health insurance premiums.