For small business, the 2010 health reform law means higher costs, more red-tape and fewer choices. Some provisions are already in effect (e.g., coverage expansions, drug tax, FSA limits). Others start in 2013 (e.g., medical device tax, increased “Medicare” taxes on business owners’ wages, a new “Medicare” tax on owners’ investments). But the biggest provisions don’t kick in until January 1, 2014 (e.g., individual mandate, employer mandate, health insurance tax, essential health benefits, exchanges, Medicaid expansion).
Hence a recurring question from journalists and others: “I understand that the provisions that go into effect in 2014 might hurt small business, but how is the health care law hurting small business TODAY?”
Let me offer an equivalent question:
“I realize you’re worried about the freight train arriving in six minutes, but how is being tied to the railroad tracks adversely affecting you RIGHT NOW?”
Yes, the guy lying on the track may be hot, thirsty and itchy. But the approaching train is far more real to him than any heat, thirst or bugs. So it is with small business and the health care law.
Businesses are already smarting under the law’s provisions currently in force. The coverage expansions, drug tax and FSA limits have driven premiums up for small business employers and employees. Insurance premiums rose 3 percent in the year before the law was passed (and 5 percent for the preceding few years), but have risen 9 percent in the year after its passage. The law’s supporters claim that only 2 percent of the most recent rise is attributable to the law; opponents suspect it’s greater.
But the 2014 freight train is already rumbling down the tracks and affecting small businesses. Any small business renewing its insurance policy has to buy it from an insurer who must price the uncertainty over 2014 into the premiums it charges. In some markets, insurers have withdrawn, leaving businesses with fewer choices—making a hash of the promise from the law’s proponents who said, “If you like your insurance, you can keep it.” (An NFIB survey reported that since enactment, 12 percent of small employers have had their health insurance plans terminated or been told that their plan would not be available in the future.)
No one knows how rapidly provider costs and premiums will rise in 2014 and thereafter, or whether the state health exchanges will actually function or how heavy the employer mandate penalties will be. An unknown number of small businesses are currently hesitating to hire new employees, to start new lines of business or to expand old lines.
The law makes it difficult to predict the costs of running a business. When a business reaches 50 full-time employees (or full-time equivalents), it may owe employer mandate penalties. The reaction of many small businesses has been to stay well below that 50 mark—even if there are potentially great expansion opportunities to be had. Typically, businesses can’t (or won’t) hire people and grow their businesses now and then shrink back down by January 1, 2014. This is one reason that small business growth has remained stagnant in recent years.
Oh, and after reading this analysis, some may be tempted to ask, “But what about the law’s small business health insurance tax credit?” If you are tempted to ask this, please read my earlier post,“Cashews on the Hindenburg.” Not much consolation for the guy on the tracks, I’m afraid.