Affordable Care Act

One of the most highly publicized criticisms of the Patient Protection and Affordable Care Act by the media and the bill’s adversaries is concerned with this idea that “Obamacare” will kill small businesses. While the ACA is indeed not entirely benign for small businesses, the actual harm of Obamacare regulations and mandates to small businesses, however, depends entirely on how we consider what a small business is, as the effect of Obamacare on small businesses varies vastly between firms on differences composition and size in their workforces (i.e. number of full time employees, average wages, state where the business is operated). While the cost of providing health care insurance has assuredly risen, there is evidence that health insurance premiums have been on the rise for many years [1]. The most obvious tangible and visible effect of Obamacare on small businesses is not necessarily in abandonment of plans to grow a business or death of businesses themselves, but, rather, in a slowing or decrease in hiring and cutting employee hours.

How the ACA really affects small businesses

The United States has almost 6 million small businesses, and 90% of these businesses employ fewer than 20 people [2]. And for the most part, there is not much evidence the provisions of the ACA are devastating these small businesses and startups with fewer than 50 full time equivalent employees.

The Affordable Care Act uses the language “full-time equivalent” (abbreviated FTE); a full-time equivalent employee is the total number of full-time employees plus the combined number of part-time employees hours divided by 30. Another criterion for determining mandate-exemption or tax-credit status in the ACA is the average annual wage of employees; average annual wage of a business is calculated by dividing the total wages paid by an employer by the number of FTEs, rounding down to the nearest $1,000 [3].

Most of the harms of the ACA, thus, are passed onto larger companies - firms with larger than 100 FTE (full time equivalent employees) - but many of these larger corporations also already offer health insurance coverage for their employees. However, companies between 50 and 100 FTE are required to offer the minimum health insurance coverage accepted by the ACA are implicated in a slightly more complex way.

For small businesses with fewer than 50 employees

Despite all of the backlash the Patient Protection and Affordable Care Act, or Obamacare, has received for its perceived potential destruction on small businesses, for the most part, small businesses with under 50 full time employees are not greatly devastated by the Act. In fact, companies with fewer than 50 employees, which make up a large portion of small businesses, are not penalized at all for not providing comprehensive and affordable health care to their employees. Thus, if employers with less than 50 FTE find themselves unable or unwilling to accommodate the rising costs of health care, they can simply opt out of providing employee-sponsored health insurance. Those who do decide to provide employer-sponsored health insurance will have to deal with the issue of rising premiums and other slightly increased regulations.

Regulations/Provisions that affect small businesses with fewer than 50 employees=

Although small businesses with less than 50 employees do not have to risk paying the employer mandate for not providing health care insurance to its employees, there are some regulations and provisions associated with the ACA that increase the cost of providing and receiving health care (for those that do choose to do so). Employers are required to provide their employees with a Summary of Benefits and Coverage Disclosure Rules (SBC’s), a standard form that essentially explains to employees what their plan entails (noncompliance may result in a further penalty). The ACA also institutes a cap on the maximum contribution an employee can make toward a flexible spending arrangement ($2500), increases Medicare withholding on employees with wages over $200,000 and $250,000 for married joint filers, and assesses net investment income for Medicare (taxable capital gains, dividends, rents, royalties, and interests) for single filers with a Modified Adjusted Gross Income of $200,000 for a single filer (and $250,000 for married joint filers). The ACA institutes a 90-day maximum waiting period for employees to provide health care coverage employees who eligible and creates incentives for employers to put in place Workplace Wellness Programs. For employers that sponsor self-insured plans, there is an additional information reporting required that is separate from information reporting required for employers with more than 50 FTE. (https://www.sba.gov/content/employers-with-up-to-50-employees) Options for small businesses with fewer than 50 employees that still provide health care Although, health care is not a mandatory service for small businesses with fewer than 50 FTE many small businesses still provide health insurance for their employees. These companies, along with large companies, are seeing rising premiums on their insurance due to the ACA stipulation that health care companies cannot deny coverage when considering an individual's health. However, there are options to compensate with the increased (while also non-mandatory) cost of providing health care, the most obvious of which would entail the end of employee-sponsored health insurance coverage by small businesses or simply increasing the employee contribution to coverage. Small businesses can try to save on rising health care costs in various ways, such as participating in the SHOP Exchange, negotiating on private insurance plans, converting their employee group plans into individual employer-sponsored plans, such as Health Savings Accounts or Health Reimbursement Accounts (HSA’s and HRA’s), switching to direct primary care, or using Workplace Wellness Programs [4].

Between 50 and 99 Employees

Small businesses with fewer than 50 FTE are exempt from the penalties of ACA; however, as soon as a company reaches the 50th employee mark, the hire becomes much more expensive, thus dis-incentivizing small businesses from expanding their labor force. Firms that employ 50 or more workers and don't provide health insurance must pay a tax penalty of $2,000 for each uninsured employee beyond the first 30. Furthermore, firms with 50+ workers are required to contribute at least 60 percent of the cost for individual minimum essential coverage. (http://www.ncpa.org/pub/st356). This 50th employee marker serves as the reason why many critics of the ACA believe that Obamacare is killing jobs, as well as the reason why many small business owners have concerns about expanding their businesses. “A survey of more than 600 small business owners by the Society for Human Resource Management found that more than four-in-10 small business owners have delayed hiring due to uncertainty about the effects of the Affordable Care Act. One in five reported they have cut the number of workers they employ. The Society for Human Resource Management also found about one in five small businesses are reducing workers' hours to part time because they are not required to offer coverage for employees who work less than 30 hours per week.41 Those employees will be eligible for subsidized coverage in a new health insurance exchange” [5]. Companies with between 50 to 99 employees are required to provide insurance, but the penalties imposed for not complying with the ACA requirements were delayed until 2016, while the penalty for companies with > 99 employees was delayed until 2015. Because of these delays it is not entirely possible to fully understand and analyze the exact effects of the ACA on small businesses that are required to provide health insurance to its employees.

SHOP Exchange

The SHOP Marketplace or Exchange (Small Business Health Options Program, is a provision of the ACA designed to help small businesses get lower health insurance rates using group plans and also to claim tax credits. However the SHOP exchange did not open up to employers with less than 50 FTE until 2015 and only just opened up in 2016 to businesses with 100 FTE or less. A SHOP allows for some employer choice functions, thus, enabling employers to choose from a larger field of available coverage options for its employees (http://digital.library.unt.edu/ark:/67531/metadc501935/m1/1/high_res_d/R43181_2015Jan15.pdf). However, it is still unclear whether there is a financial advantage in using the SHOP exchanges, as insurers in the marketplace regardless will still be unable to charge premiums based on health status, and workers using the SHOP exchanges, will become ineligible for subsidies when they buy their own insurance. (http://www.ncpa.org/pub/st356) What the SHOP program does do, however, is offer small businesses increased buying power in the group-plan market (an advantage only larger firms used to possess), and the exchange also offers a simpler way to compare prices, coverage, and quality of plans (http://obamacarefacts.com/insurance-exchange/shop-exchange/).

Tax Credit

There is a temporary health insurance tax credit available to firms with 25 or fewer employees and making less than $50,000 in annual wages, but many firms will not meet the strict requirements necessary for obtaining the generous tax credit. To qualify for the small business tax credit, employers have to cover at least 50% of employee-only health care coverage for every employee. Additionally, there are further stipulations and qualifications, such as employers with 10 or fewer FTE with annual wages of less than $10,000 can qualify for the full tax credit for up to 50% of their share of employee premiums. The health insurance tax credit became available to firms in 2014. (http://obamacarefacts.com/insurance-exchange/shop-exchange/). However, this tax credit is extremely under-inclusive, and according to the National Federation of Independent Businesses, only one in three small businesses qualify (http://www.ncpa.org/pub/st356).

2016 Election Candidates’ Positions on the ACA

The four remaining Republican candidates remaining in the 2016 Presidential Election, Ted Cruz, John Kasich, Marco Rubio, and Donald Trump are largely united on the issue of health care reform in that they all have plans to appeal the Affordable Care Act if elected President, opting for free market tactics in the health insurance industry – allowing individuals and employers to continue to opt in or out of privately offered health insurance. Using vague language, they promise to expand coverage, improve health care quality, lower drug and other medical costs, and even increase transparency in the health care market. Meanwhile on the other end of the spectrum, Democratic Candidate Bernie Sanders actually goes so far as to say that he wants to expand the ACA into a Medicaid-for-all system, which could completely remove employer-sponsored health care from the equation. Democratic Candidate Secretary Hillary Clinton has been an advocate of universal health care ever since she proposed her own health care reform plan in the 90’s and is now running with the intention of defending and building upon the ACA. In an interview with AOL.com on January 27, 2016, she expressed that “Health care is a basic right. We are 90 percent covered, we gotta get to 100 percent, and then we gotta get cost down and make it work for everybody. And even though we didn't get it then, we've got it now and I'm going to defend it and improve it." (https://ballotpedia.org/2016_presidential_candidates_on_healthcare)

Conclusion

There remains a lot of uncertainty as to the specific effects of the ACA on small businesses because of the many delays and exemptions in the rollout process and implantation of the ACA’s mandates and provisions. By extrapolating from the status quo and general trends of the health insurance market, the ACA will most likely not turn out to be the “job-killer” or “enemy of small business” it was predicted to be. In fact, the head of the CBO Douglas Elmendorf said, “We don’t think that the healthcare law is having a significant impact on the economy today… It would reduce the amount of labor used in the economy by about a half a percent at the end of the decade… but, most of that is people choosing not to work because they can obtain health insurance at an affordable price outside of the workforce” (http://obamacarefacts.com/obamacare-small-business/). John Arensmeyer, founder and CEO of the Small Business Majority, even went so far as to say in in a statement, reported by Fox News, that “The Affordable Care Act tackles small business owners’ top priorities when it comes to health-care reform: cost and accessibility. The law will significantly rein in costs while providing more health coverage options for entrepreneurs.” (http://obamacarefacts.com/obamacare-small-business/).

So while there is certainly evidence that the ACA has increased burdens and regulations for small businesses, thus slowing or halted hiring by many small employers - and even cut hours for many employees - there is surely not yet enough evidence to suggest that the ACA and its regulations have or will overwhelmingly devastate the small business economy. If the ACA is amended and improved, as Democratic Candidate Secretary Clinton plans, we will see hopefully an enhancement of the options for small businesses that wish or are required to provide health care insurance its employees. It would be nearly impossible to predict the exact effects of a rollout from our status quo, if the ACA is revamped into a Medicaid-for-all single-payer tax system like Democratic Candidate Senator Bernie Sanders proposes, aside from tax-based predictions. On the other hand, if it is indeed repealed, as our Republican nominees would prefer - although we might see a return to the slow trend of rising health insurance premiums and would certainly witness a massive increase in the number of uninsured Americans - the economy could possibly recover some of the jobs lost to the ACA. The future of the Presidency and composition of the Congress in the United States will entirely determine the fate of the health insurance market and small businesses, and ultimately the fate of the American economy and way of life.