Will Obamacare Take a Bite Out of Small Business?

May 28, 2013

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The Patient Protection and Affordable Care Act (PPACA or ACA), commonly known as Obamacare, was signed into law by President Barack Obama on March 23, 2010. The law was formulated to increase the rate of health care coverage among Americans and to reduce the cost of health care.

However, small businesses worry that the ACA is going to place extra burdens and costs on them. A Gallup survey of 603 small-business owners in April found that nearly half, 48 percent, think the ACA is going to be bad for their businesses. Thirty-nine percent think it will have no impact on their businesses, and only 9 percent think it will be good for them. Fifty-two percent think the law will reduce the quality of health care for themselves and their employees, and 55 percent expect to have to pay more for health care as a result of the law. Business owners' negative view of the ACA is affecting business decisions: Forty-one percent say they have held off on hiring new employees, and 38 percent say they have pulled back on plans to expand.

Cynthia Magnuson-Allen, senior media manager for health care at the National Federation of Independent Business (NFIB), told IMT in an interview that for more than 20 years the organization's members “have labeled the rising cost of health insurance as the number-one problem they face.” She said, “Small businesses pay as much as 18 percent more than their larger counterparts for equivalent coverage, and this trend will almost certainly be exacerbated by the ACA, which adds new mandates, requirements, taxes, and fees to the small-group health insurance markets -- where most small-business owners purchase products for themselves and their employees.”

President Obama counters such charges by maintaining that the ACA and the state health insurance exchanges it creates are going to be good for small businesses and their employees. In a recent speech, he said that “if you work for just a small company that doesn’t have a lot of leverage with insurance companies, you’re going to have a better deal through these exchanges -- but if you still can't afford it, then you're going to get help reducing your out-of-pocket premiums with the largest health-care tax cut for working families and small businesses in our history.” He charged that opponents of the ACA are “telling tall tales about its impact,” saying that “some small businesses are being told their costs are going to go up, even though they’re exempted from the law or they actually stand to benefit from it.”

The exemption Obama referred to is the 50-employee cutoff. Background information from the federal government says that the ACA “specifically exempts all firms that have fewer than 50 employees -- 96 percent of all firms in the United States or 5.8 million out of 6 million total firms -- from any employer responsibility requirements.” Nearly all companies larger than that already provide insurance. Starting in 2014, employees of small businesses that don't provide health insurance will be able to buy it through the state exchanges. In addition, smaller firms with fewer than 25 employees can be eligible for tax credits if they purchase health insurance for employees.

Magnuson-Allen cautioned that the 50-employee-cutoff provision "is a little more complicated" than what Obama has suggested. She argued that “under the proposed IRS regulations, a full-time employee is anyone who works the equivalent of 30 hours a week on average,” rather than the 40 hours one might assume. “There are also concerns for small-business owners who own multiple businesses,” she told IMT. “One may have 25 employees, one may have 15 and one 20 -- the combined total of 60 means that owner is subject to the mandate, even though they own separate and distinct firms.” She also said that “the regulation is unclear about seasonal workers, which is another issue for many small-business owners, especially those in the hospitality and agricultural sectors.”

A guide from NFIB brings up another argument against the ACA. The group says that, starting in 2014, a new tax on fully funded health insurance products will go into effect. This tax is levied on insurance providers, but NFIB asserts that it will be passed on to businesses in the form of higher premiums. According to the organization, the tax “will raise $8 billion in 2014, rise to $14.3 billion in 2018, and the amount will continue to increase by the rate of premium growth for subsequent years.” Calling this a “small business health insurance tax,” NFIB says it “will cost small businesses and their employees $102 billion in the first 10 years, and over $200 billion in the following 10 years.”

Writing recently in Forbes, Richard Lorenzen, CEO of Fifth Avenue Brands, argued that the ACA benefits small businesses in a manner not often mentioned: “The ugly truth is that one in four small-business owners in the U.S. are uninsured. The number one benefit of the Affordable Care Act for entrepreneurs and business owners is that they can now afford their own health insurance. In fact, the Affordable Care Act will allow 83 percent of currently uninsured small business owners to become eligible for health-care coverage.”

 

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