Many small businesses will not get to keep their plans
President Obama said last spring, “for the 85 percent to 90 percent of Americans who already have health insurance … their only impact is that their insurance is stronger, better, more secure than it was before. Full stop. That’s it. They don’t have to worry about anything else.”
Many businesses in 2014 will find their new Affordable Care Act-compliant coverage is more expensive and less attractive, with higher premiums and deductibles and narrower physician networks.
In July 2013, the Obama administration pushed back the effective date of the ACA’s employer mandate reporting requirements to Jan. 1, 2015. The look-back period for next year will begin soon for many companies, which means the one-year delay will not significantly change the adverse effects it is having on the hiring behavior of employers. At the most, the delay gives employers more time to figure out how to restructure their businesses and work forces to avoid the added costs of the health law.
According to a recent survey conducted by Public Opinion Strategies for the U.S. Chamber of Commerce and the International Franchise Association, more than half of businesses with 40 to 70 employees said they will make personnel decisions to stay below the 50 full-time threshold at which the health law requires them to provide health insurance to workers or pay a penalty.
The survey found that 28 percent of businesses offering health coverage plan to drop it in 2015. Also, 64 percent of franchise owners and 53 percent of non-franchise businesses say the law already negatively effects them.
Employers have provided health insurance for their workers voluntarily for more than 70 years. Most employers want to continue this long tradition, but not all can afford it and keep their prices competitive. For companies that operate with very tight profit margins, the employer mandate will send their bottom line from black to red. For these firms, paying the penalty of $2,000 to $3,000 per employee for not providing ACA-compliant health insurance is a lesser financial burden.
The Congressional Budget Office estimates that as many as 11 million workers could lose their health insurance from employers who pay the penalty rather than the cost of insurance. Other estimates, such as one from the American Action Forum, suggest that the number could be as high as 35 million.
The law is also impacting larger companies and their employees. ACA provisions, such as allowing adult children to stay on their parents’ policies up to age 26, no lifetime or annual limits on policy payouts and “free” preventive care, are costing companies millions of dollars a year in added health costs. The added costs of these mandates and taxes are forcing many companies to curtail spousal coverage, raise deductibles and increase the employees’ share of premiums.
Businesses also are beginning to restructure their coverage in anticipation of the “Cadillac tax” on benefit-rich health plans that starts in 2018. Insurance companies will pay a tax of 40 percent on the amount by which the total costs of health plans exceed $10,200 for individuals and $27,500 for families. The tax will be passed along in the form of higher premiums.
A International Foundation of Employee Benefits Plans survey released in August 2013 shows that nearly 17 percent of respondents had begun to redesign their health plans to avoid the “Cadillac tax,” and another 40 percent are considering action. Sixty percent said the looming tax had a “moderate” or “significant” influence on benefi ts decisions for 2014 and 2015.
Starting this year, a new tax of $63 will be added to the cost of health insurance policies to finance a $25 billion fund designed to help cushion adverse risk among plans participating in the exchanges.
The ACA also imposes an annual “fee” on health insurance companies that is expected to raise $8 billion this year and up to $100 billion over the decade. The Congressional Budget Office and industry experts say the health insurance tax (HIT) will largely be passed on to small businesses and consumers buying individual policies in the form of higher premiums. A report by Oliver Wyman consulting says that the tax will increase premiums by $150 per employee and $360 per family in 2014, and that the costs could rise to $360 per employee and $890 per family for small businesses. Selfinsured companies are exempt from this tax.