Projected Impact of Affordable Care Act on Small Business Employers
Tyler White
University of Mississippi: Tupelo Campus
Instructor: Dr. Frank Markham
4/23/2017
Table of Contents
• Introduction p.3
• Costs to Employers p.3
• Businesses Not Expanding p.4
• Costs are Not That Devastating p. 6
• Percent of Businesses Affected p.7
• Conclusion p.7Projected Impact of Affordable Care Act
The Affordable Care Act, better known as Obamacare, was established to control the cost of health care and make it universally available to everyone. The ACA is designed to radically transform the U.S. health care system. Arguably the most radical piece of legislation ever passed by Congress, the law will affect everyone to include small business in the U.S. The Affordable Care Act was intended to provide state and government sponsored health insurance through the private market at lower rates to every American who may be underinsured or has no coverage at all. The Affordable Care Act also provided individuals with pre-existing conditions the ability to get health care coverage and children can be on their parent’s health insurance till they are twenty-six years old. The Affordable Care Act, although noble in its attempt, has generated mixed emotions in America, usually all for it or one hundred percent against it. A big question stemming from the ACA is its impact on small businesses employers. Is the Affordable Care Act costing business owners more for health insurance for their employees? Is there too much bureaucracy which prevents employers from expanding and creating more jobs? The story can be swung to favor either opinion subjective to different data presented. This essay will present both arguments.
Costs to Employers
Some economists argue that employers will spend less in wages in order to pay for the mandated benefits. The Congressional Budget Office (CBO) estimates the average annual cost of a minimum benefit package at $4,500 to $5,000 for individuals and $12,000 to $12,500 for families in 2016. That translates into a minimum health benefit of $2.28 an hour for full-time workers with individual coverage and $5.89 an hour for full-time employees with family coverage (Goodman, 2012).
In 2014, 91% of small businesses reported increases in their health plan at their most recent renewal while 96 percent reported increased health insurance costs over the past five years (Kerringan, 2015). It is arguable that employers will have to eat the costs of rising premiums caused by the Affordable Care Act. There is a maximum cap of $2,000 annual deductible for a plan covering a single individual or $4,000 annual deductible for family on employer-sponsored group health plans (Robinson, 2015). Employer’s share of contributory plan premiums will increase as a result. Another factor raising employers’ share of the premium is young adults may remain on their parents’ plan until age 26. A new excise tax has been in effect that is applicable to pharmaceutical companies and is based on the market share of the company. This will increase the cost of medicine leading to the rise in health insurance coverage costs. Also, a 2.3% excise tax is collected at the time of purchase on all medical devices (Robinson, 2015). The manufacturer must pay the tax, but passes this on to the consumer. Increasing the cost of medical devices increases health care costs, which drive up premium costs for employers. Additionally, in 2018, employers will be assessed an excise tax on high cost health coverage. These insurance plans are called “Cadillac” insurance plans. The problem with this tax is it does not take into consideration that the high premiums are required for highly dangerous occupations, such as commercial fishermen, logging workers, and pilots (Robinson, 2015).
Businesses Not Expanding
Large employers, those who have over 50 employees, who do not offer health coverage, will be assessed a $2,000 per employee per year tax penalty (called a Shared Responsibility Payment). The monthly penalty is calculated by subtracting 30 from the total number of actual full-time employees (excluding full-time equivalents) and multiplying the difference by one-twelfth of $2,000 (Robinson, 2014). This fine, however, will be much smaller than the cost of providing 51 employees with the insurance mandated under the Affordable Care Act. The fine is much smaller if a firm hires a significant number of part-time workers (those working less than 30 hours per week). This law will discourage the 63,000 businesses with between 40 and 49 workers from expanding (Goodman, 2012). It will encourage all businesses to replace full-time labor with part-time labor. Jim Amos, CEO of Tasti D-Lite said, “It’s going to force franchises to shift workers to part-time to avoid the 50-employee threshold. It will keep new owners and new openings on the sideline (Orsini, 2012).”
Another factor holding back business expansion is the overall uncertainty of the Act. Not knowing what Washington is going to do about all this will have a large impact on the decisions of businesses. It is apparent that the public has become a lot more uncertain about government policies in general since 2009 based on the following graph (Goodman, 2012).
The problem in the current economy is that hiring new workers and committing to new production has become risky. The mercurial nature of this bill has employees refraining from making their next move. Employers could decide to drop their health insurance altogether. But if a lot of employers do this, it is likely the federal government will respond by making the fine a lot higher.
Costs are Not That Devastating
Some are endorsers of the Affordable Care Act and argue that it does not present a financial burden on employers. They argue that the increase in premium costs has actually declined since the implementation of Obamacare.
The average increase for an employer-provided family plan in 2016 was only 3%– marking the fifth straight year of 3% or 4% percent premium growth (Robertson, 2017). The average growth rate for employer plans has been so low, it’s difficult to tell whether this is due to the ACA. The individual market has seen much higher average premium increases than the employer-sponsored market. There was a 9% spike in 2011. Republicans blamed the Affordable Care Act, but several experts told us rising health care costs and very low growth in the previous year were the reason for the increase (Robertson, 2017). Also, deductibles have gone up despite the idea that the ACA will force lower deductibles creating higher premiums. In 2016, 83% of covered workers face a deductible for single coverage, which averages $1,478. That’s up $159 or 12% from 2015, and $486 or 49% since 2011. Gary Claxton, vice president and co-director of the Program for the Study of Health Reform and Private Insurance, said that most employer plans already had an out-of-pocket limit on premiums for its employees that was lower than what the ACA required (Robertson, 2017).
Percent of Businesses Affected
The Affordable Care Act does not require businesses with fewer than 50 full-time employees to provide their employees with health care coverage. About 96% of employers have fewer than 50 full-time equivalent employees. These businesses will not be penalized for not providing health coverage. In fact, a growing number of small businesses have stopped paying for coverage, but have increased wages so employees can buy their own insurance (Steingold, 2013). The need for employer-paid coverage may be less urgent as a result. Also, if a business has less than 25 full-time equivalent employees, they will qualify for a tax credit of up to 50% of the premiums you pay.
Conclusion
In conclusion, the Affordable Care Act is not fully implemented in this day and time and this could affect some of the data presented here. With a new president in office, there is a current push in Congress to re-draft the legislation in order to prevent an economic catastrophe in the future. All facts and data presented by economic scholars should be looked at to make sure a plan is in place to assure affordability and top-of-the line medical care to American citizens.
References
Kerrigan, K. (2015, March 23). Small Businesses and the Affordable Care Act at Five Years. Retrieved April 21, 2017, from http://sbecouncil.org/2015/03/23/small-businesses-and-the-affordable-care-act-at-five-years/
Orisini, P. (2012, June 28). Small Business on Obamacare: No Reason to Hire or Invest. Retrieved April 20, 2017, from http://www.cnbc.com/id/48000806
Robertson, L. (2017, March 14). Employer Premiums and the ACA. Retrieved April 22, 2017, from http://www.factcheck.org/2017/03/employer-premiums-and-the-aca/
Robinson, R. K. (2015). Employment regulation in the workplace: Basic compliance for managers. Routledge.
Steingold, F. S. (2013). The employer’s legal handbook: Manage your employees & workplace effectively. Berkeley, CA: Nolo.
The Impact of the Patient Protection and Affordable Care Act on Job Creators and the Economy, Committee on Oversight and Government Reform Cong. (2012) (testimony of John C. Goodman).