Still, not all small firms would benefit. One government estimate suggests that 39,000 firms (out of a total of six million small and large employers in the country) would have to start providing benefits or pay a penalty, and another 240,000 that do provide benefits would have to increase their subsidy levels. The penalties for not offering coverage could be relatively small ($750 per worker after exempting the first 25 workers under the Senate bill) or quite substantial (reaching an estimated $2,800 per worker for some firms under the House bill).

There is no question that the cost of coverage  which currently averages about $5,000 per individual or $13,000 per family  or paying fines could take a substantial bite out of the profits of some firms, forcing them to accept lower earnings, reduce wages, shed some jobs or raise prices.

Trade groups say the main reason small firms don’t provide coverage is that they can’t afford to, and they complain that there is little in the reform bills that would reduce medical costs any time soon. But in making that argument, they conflate two issues. It is true that deep-seated reform of the health care delivery system will take years to reduce medical costs. But the cost of health insurance for small businesses could drop quickly once the exchanges are open.

While some small percentage of companies will suffer, there are good reasons for requiring as many companies as possible to “play”  by offering coverage  or “pay” by paying a penalty. The most important is that the penalties would help deter employers from dropping their own coverage. The number of companies offering health insurance to their workers has been declining steadily, mostly among small firms, and it is important not to accelerate that erosion.

The play-or-pay provisions could also raise significant money to help cover the uninsured. The penalties alone could raise $52 billion over a decade under the Senate health committee bill and probably much more under the House bill. We see no easy way to ease the pain of the minority of firms that will face very substantial new costs. We’d be inclined to suggest hardship exemptions were it not for the likelihood that creative accountants might make every firm look like a hardship case.

A bipartisan group within the Senate Finance Committee is considering dropping the employer mandate and substituting a requirement that employers pay only for those workers who end up with government-subsidized coverage. That seems a poor approach because it could deter employers from hiring low-income workers that could saddle them with high subsidy costs.

It makes good sense to us to require small businesses to contribute to solving a problem that mostly affects their own workers. There also seems little doubt that the small business community would be one of the biggest winners from health care reform.