Small Businesses and Health Insurance Reform

Some of the strongest criticism against the Affordable Care Act of 2010 is that the requirements are going to be a major burden to small businesses.  They claim that the increased costs faced by small businesses who are required to provide health insurance under this law will lead to the destruction of jobs.  The biggest problem with their arguments, however, is that they are predicated on partial truths and talking points.  They never seem to be able to point out exactly how this legislation will destroy jobs using actual facts and specific provisions.  I would like to clear up some of the misinformation about the impact of health insurance reform on small businesses.

The most important thing to know related to small businesses is that the law will only require employers to provide health insurance if they have more than 50 employees.  That means 5.8 out of 6 million, or 96 percent, of all businesses in the US are exempt from this requirement.  So, first and foremost, only 4 percent of all businesses in the US fall under the employer mandate for coverage.

Of those approximately 200,000 businesses that do fall under the mandate, 95 percent of them already provide insurance to their employees.  That leaves only about 10,000, or 0.2%, of all businesses in the US that will be required to purchase insurance as a result of this law. 

Starting in 2014, businesses with up to 100 employees will have access to state-based Small Business Health Options Program (SHOP).  The CBO estimates the Exchanges will reduce premiums by up to 4 percent.  Also in 2014, insurers are barred from raising premiums because an employee got became sick or older, or because the business hired a woman (which insurance companies sometimes do under the premise that she might have a baby, which is potentially higher costs). 

The law introduces tax credits in 2011 that will provide an estimated four million small businesses an estimated $40 billion dollars in relief over the next ten years.  The following applies to the small business tax credits:

• Eligible employers that have fewer than 25 full time equivalent (FTE) employees, average annual wages less than $50,000, and contribute at least 50% of the total cost of health insurance premiums for employees are eligible for the credit.  The credit is phased based on number of employees, with the maximum credit provided to employers with fewer than 10 FTE employees and average annual wages of less than $25,000.
• For tax years 2010 to 2013, eligible employers will receive a tax credit for up to 35 percent of their contribution toward the employees' health insurance premiums.  Tax-exempt employers meeting the above requirements are eligible for tax credits of up to 25 percent of their contribution.
• For tax year 2014 and beyond, eligible employers who meet the above requirements and purchase coverage through the new Health Insurance Exchanges can receive a tax credit of up to 50 percent of their contribution.  Tax-exempt employers meeting the above requirements are eligible for tax credits up to 35 percent of their contribution.  Employers not eligible for tax credits are still allowed to purchase coverage through the Exchanges.

The individual mandate will introduce an estimated 30 million customers into the insurance market.  This bill is largely a gift to the insurance industry wrapped up in a nice, pretty bow, as the companies are likely going to have to grow to meet the needs of a rapidly expanding market.  So, there will be massive job creation in everything related to health insurance.

Given the facts stated above (taken straight from the White House http://www.whitehouse.gov/files/documents/health_reform_for_small_businesses.pdf), I don't see how anyone could say that the Affordable Care Act is going to be very damaging to small businesses.  Only 0.2% of all business in the United States will face increased costs as a direct result of the law.  2/3 of small businesses will potentially be eligible for tax credits.  If they already provide insurance, then they will get the credit for money they were spending anyway.  If they don't provide it yet, they might be encouraged to provide insurance since they are eligible for the credit. 

Health insurance benefits provide a more stable working environment.  Benefits are the things that keep employees content in their work and willing to do a good job.  Good health insurance benefits are the next thing after Salary that most people ask when finding out potential compensation of a new job.  Workers with health insurance are likely to go to the doctor more often, especially when preventative care is covered.  Access to preventative care is proven to increase the overall health of people.  Every workplace is better off with healthier employees.

Congress needs to stop spending so much time debating the legislation and efforts of repeal.  The law will not have a widespread detrimental impact on businesses, which contradicts the case Congressional Republicans are making by calling the legislation "Job Killing" in the actual title of the reform bill.  Let's focus on solutions that will move our country forward and out of this deficit, not go backwards and repeal the efforts we already made.

For various data on health insurance:

http://ehbs.kff.org/pdf/2010/8085.pdf