A small-business lobby's million-dollar legal assault

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The Wall Street Journal
By: Sarah E. Needleman and Angus Loten
March 27, 2012

A small-business lobby's million-dollar legal assault

Small-business owners will be in the center of the Supreme Court debate Tuesday about whether the requirement that most Americans carry health insurance or pay a penalty violates the Constitution.

National Federation of Independent Business lawyer Michael Carvin will argue against the "individual mandate" in President Barack Obama's health-care law, together with former Solicitor General Paul Clement, who is representing 26 states.

NFIB, a conservative-leaning small-business lobby based in Washington, D.C., spent more than $1.2 million total on the lawsuit in 2010 alone, according to one recent disclosure.

"This is new to us, unchartered territory for us," NFIB president Dan Danner said in an interview Friday. "We've never been a lead plaintiff in a case before the Supreme Court. We're learning along the way."

The NFIB, which took in almost $95 million in revenue in 2010, joined the legal challenge initiated by 13 states in May 2010.

The lawsuit moved through the lower courts based in part on an assertion by Mary Brown, the owner of an auto-repair shop in Panama City, Fla., a recent NFIB member. Ms. Brown said her business planning was jeopardized by the need to set aside funds to pay for her health insurance beginning in 2014, when a provision requiring most Americans to carry such coverage or pay a penalty takes effect.

Ms. Brown closed her shop in August and filed for personal bankruptcy the following month. And, in January, the NFIB filed a motion to add two other NFIB members as plaintiffs: Dana Grimes, the owner of a roofing company in Greenwich, N.Y., and David Klemencic, who runs a flooring business in Ellenboro, W.Va.

Mr. Grimes, 50, said in an interview with the Wall Street Journal earlier this year that if he had to pay for health coverage, he would likely have to close his company because he wouldn't be able to afford new equipment.

Not all small business owners are on the same page, however.

Mike Roach said he opposes the lawsuit, even though he's been a member of NFIB for 36 years. The owner of Paloma Clothing in Portland, Ore., said he initially joined the group because it was a "strong voice for small businesses." But, he added: "They're doing a very big disservice to their members," by opposing the health-care law.

Mr. Roach launched a group insurance plan at his businesses in 2008, and currently pays 85% of health insurance costs for six full-time employees. Last year, those costs came to $17,000, he said.

Four more workers are covered under plans from separate providers, he said. The health-care tax credits saved his business about $5,500 last year, he said.

"I wouldn't quit [NFIB] over this, but I'm not very happy about it," he said about the lawsuit. "If you look at it carefully, this bill does a lot to help businesses with 10 to 20 employees," he said. "We don't get breaks like this very often," he added, referring to the tax credits tied to the law.

Sara Garc├ęs, chief executive of Red F Marketing in Charlotte, N.C., said she approves of the health-care law, adding that health-care coverage for her company's 51 full-time workers accounts for about 32% of its total payroll costs.

"We're in the advertising industry, so we're competing with some very large national firms. We need to compete for talent on that level," she said of her decision to provide coverage for employees.

The firm, launched in 2000, pays 80% of health insurance premiums for employees and their families, in addition to other benefits. Part-time employees who work more than 30 hours per week are also covered.

The cost of Red F Marketing's premiums surged by 21% last year, but have since started to fall. She added that she believes the health-care law "has the potential" to bring those costs down. She isn't an NFIB member.

According to a 2010 financial report for its legal center released last month, NFIB incurred legal expenses of about $2.9 million on the lawsuit that year, of which the NFIB itself paid roughly $1.2 million.

About $1.6 million was described in a footnote as "contributed services," referring to an agreement with an outside law firm to handle the case.

NFIB's Mr. Danner, declined to specify the group's total spending on the lawsuit so far, but said that while the group opposes the health-care law's individual mandate, it is strongly in favor of health-care reform, such as curbing medical malpractice lawsuits.

In a summer 2010 ballot, in which about 20,000 NFIB members voted, about 93% said they believed Congress should repeal the health-care law.

The NFIB has about 340,000 members, and says its average member is a business with 10 to 15 employees.

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