Restoring the health care system for small businesses

By: Alfredo Ortiz

Appeared in The Orange County Register on February 9, 2017


Restoring the health care system for small businesses

By ALFREDO ORTIZ

Donald Trump issued an executive order on his first day that showed he’s sincere about fixing the Affordable Care Act. But this is simply the first step for the more complex fix of the unpopular law that will repair and restore the U.S. health care system.

The law’s inability to control costs has been well-covered. According to S&P, costs increased by 38 percent between the years 2013 and 2014 — followed by yet another 23 percent increase the following year. 2017 is looking to be no different. Premiums for ACA’s benchmark plan are expected to increase by an average of 22 percent. These cost increases are largely a result of the ACA’s hundreds of regulations and taxes that drive up the cost of providing care.

Less discussed is the law’s impact on small businesses and their employees. Roughly 150 million Americans receive their health care through employer-provided plans. But not all employers are affected by increasing health care costs equally. Big business is often able to mitigate rising health care costs by leveraging their lofty employee count to negotiate cheaper, group prices. The economies of scale generated by a high employee count allows health care coverage to be provided at a cheaper bulk rate, where risk is spread out over a large pool of employees. For instance, a survey done by the National Business Group on Health shows that premiums for employees on large group plans will increase by only 6 percent in 2017.

However, small businesses do not have this luxury. In fact, a survey by Level Funded Health concluded that 87 percent of small businesses who offered group plans had premium hikes of 25 percent — with 12 percent of small businesses seeing jumps closer to 50 percent.

The ACA requires businesses with 50 or more employees to provide their staff with coverage. But market pressure and conscientious employers mean that tens of thousands of businesses with fewer employees than this threshold also offer coverage. Given that small businesses employ roughly half of employees in the country, and provide livelihoods for 85 million people, this is an important concern.

Not only are small businesses unable to negotiate the health care discounts that large businesses can, but they often have much smaller profit margins — think restaurants, day cares, laundromats, etc. — than big businesses. As a result, large health care premium increases can quickly make small businesses unprofitable. As slim profit margins are slashed, fewer resources are available to go toward company expansion or salary increases.

The ACA includes a provision that was designed to help small businesses with fewer than 50 employees attain coverage, but in order to qualify they must have fewer than 25 workers with average salaries of less than $50,000 a year. The Congressional Budget Office predicted more than 1 million small business employees to be enrolled in the program by the end of 2015, but in practice less than one-tenth of that number is participating.

Small businesses are also hit harder by ACA requirements because they compel health plans to include a wide array of benefits like dental and vision care, or even expensive mental health services even if enrollees don’t want them. These inclusions drive up the price disproportionately for smaller health insurers, which have traditionally covered small business employees. Consequently, these insurers are pushed out of the health insurance marketplace. In fact, a majority of counties in 12 states will only have one health care carrier in 2017. This reduces the effect of the key mechanism that keeps health care prices under control — competition.

As ACA costs continue to rise, small business creation rates continue to fall. As a result, employees are left with fewer job opportunities and lower wages. The small business community and the 55 million people they employ eagerly await replacement legislation.

Alfredo Ortiz is the president and CEO of the Job Creators Network.