The chairman of the House Committee on Small Business yesterday called on Congress to exempt businesses with fewer than 25 employes from any legislation to mandate health insurance benefits.

The proposal, by Rep. John J. LaFalce (D-N.Y.), would exempt nearly half the workers whose employers do not provide some form of health insurance. Pending legislation would require all employers to provide minimum health insurance coverage.

Robert McGlotten, legislative director of the AFL-CIO, said the LaFalce proposal appeared to be an attempt by the committee chairman to gain political leverage for the small business community on the health insurance issue.

The mandatory health insurance bill -- called the "minimum essential health care act" -- is sponsored by Sen. Edward M. Kennedy (D-Mass.) and Rep. Henry A. Waxman (D-Calif.) and is supported by organized labor and some large corporations. The bill has been denounced by small business lobbying groups and some insurance companies.

There are an estimated 37 million Americans without health insurance coverage. Two-thirds of the uninsured are working adults and their dependents. Of this group, an estimated 8 million people are either self-employed or work for companies with fewer than 25 employes.

In a statement released yesterday, LaFalce said most small business owners do not provide health insurance coverage because they cannot afford it. He said health insurance costs for small businesses were "exorbitantly high."

LaFalce said his proposals, recommended by his committee staff after hearings last June, were "an alternative to the mandated health benefits bill that would require all businesses to provide health care benefits to their employes."

To give small businesses an incentive to provide health insurance voluntarily, LaFalce called for regulatory changes in the federal tax code and pension law to encourage "pooling arrangements" that would allow small businesses to form associations capable of insuring themselves.

He also called for legislation that would require employers to participate in an insurance risk pool similar to those used in many states to provide insurance for the medically uninsurable and a change in the tax law to allow self-employed workers to deduct 100 percent of their health insurance premium costs.

Kennedy, in introducing his bill last May, said 60 percent of small businesses with fewer than 25 employes already provide health insurance coverage. He said his proposal would help reduce costs for those firms that do provide health insurance.

Under the Kennedy-Waxman proposal, businesses that are less than two years old and employ fewer than 10 people would be required to provide only catastrophic coverage for their employes.

In addition, the mandatory health bill would create regional insurance pools in which small companies could achieve the same cost efficiences as larger coporations. This essentially is the same concept as the LaFalce proposal, but would be mandatory.

The bill also would eliminate the tax inequities between small and large businesses in the health insurance area.

McGlotten said the issue of what constitutes a small business for determining a cutoff under any new law was still negotiable. Although he did not indicate the AFL-CIO would be willing to exempt any business, he said, "It's safe to assume we're willing to negotiate what's economically feasible."

Some of the strongest opposition to the Kennedy-Waxman proposal comes from smaller group health insurance companies that fear they will be cut out of small business coverage under the regional insurance pool concept.

Some corporations such as Chrysler and American Airlines are actively pushing the Kennedy-Waxman bill in an effort to force their competitors to share the cost of health care. The Business Roundtable opposes the bill primarily because it does not like mandated benefits.

A senior executive for one large corporation who asked that his name not be used said his firm had not decided what position to take on the Kennedy bill. "In the short term, it's not a bad deal for us," he said. On the negative side, he said, once you start down that kind of legislative road "they never stop."

He called the health insurance problem a tricky issue. "Mandated benefits are becoming more and more of a problem in this country," he said.