Can Obamacare really "save small businesses some serious money?"
From the Houston Chronicle:
“Our whole industry believes this is the next big change, and like any change, there will be winners and losers from an industry standpoint,” he told me. “But this is a net win for small-business owners — they’re not going to make this change because they are losing, they are going to do it because it’s an economic advantage.”
Before you start griping about how Obamacare is hurting the American people, the change makes sense for the workers too. A typical group insurance premium for a family of four is $16,834 a year, and on average employers will pay about $4,823 of that total, according to a new study from the nonpartisan Kaiser Family Foundation, which conducts health care research. That means the employee pays $12,011 a year for health insurance.
But families of four making less than $95,000 a year qualify for a subsidy under the Affordable Care Act. The federal government reports that a family making $50,000 a year will only have to pay $3,384 through the exchange, while the employer is not penalized as long as the firm has less than 50 full-time employees.
Huh? A "net-win for small-business owners?" We will see about that. Let's start with these "winners and losers" the article mentioned. Who will they be?
What about businesses with more than 50 employees NOT currently offering benefits? These are the guys scrambling to put their plans in place before the January 1st, 2015 deadline (if they have 100 or more employees) or resigning themselves to just pay the penalty (not a good move, by the way). Are they in the winners or losers column? They have a brand new cost without any new revenue to cover it. How will they pay for this new cost? Dollars that were formerly considered profit last year will now go toward new benefits costs or penalties. Sounds like a loser to me.
What about business with more than 50 employees that are currently offering benefits? The overwhelming majority of these guys are already in compliance with the law. So, I guess they should be enjoying the lower premiums that were promised when the ACA was passed, right? Nope. Medical inflation continues unabated. Now, they are paying brand new taxes in the form of the transitional reinsurance fee, something called the PCORI fee, the medical provider tax, and the medical device tax. Didn't you know that the ACA was one of the largest tax increases in American history? Sounds like another loser to me.
What about small business? The article mentioned that the ACA will be a "net-win" for them. How so? Let's start with small businesses with health plans right now. If they are under 50 employees, they are considering whether they should keep their current non-compliant ACA plan (the one that was supposed to cancel last year, but that the Obama Administration allowed them to keep for another year because of that little promise that "if you like your plan, you can keep your plan" that turned out to be a big fat lie) or switch to a community-rated ACA compliant plan. Is this a win?
Take my own small business. We faced that choice October 1st. Accept the double-digit increase to keep our existing plan or switch to an ACA compliant plan that was the same price with a $5000 deductible (increase of $1500 from our current deductible of $3500) or an ACA compliant plan that had a $3000 deductible ($500 lower than our current one) for a 42% increase? We ate the increase on our old plan. For 80% of our insureds, community rating and ACA compliance means stomaching average 15% to 20% rate increase for a plan that has higher cost-sharing burdens for employees. This is considered "winning" only in Charlie Sheen's world!
Apparently, "winning" in the Houston Chronicle's Chris Tomlinson world is simply dropping our plan entirely and sending out our employees to buy insurance for themselves. I guess I would save all that money I am spending on benefits (as long as I stay under 50). That sounds nice in theory, but my employees most certainly factor in the cost of those benefits in their compensation (albeit, undervalued) and they are going to want an offset if I just take it away. My actual savings will be much less than the after tax cost of the benefits.
Are my employees better off?
The pricing on the exchange is not any better than the renewal options I was offered. My options were community-rated based on the age of my employees. My employees will have premiums set on the basis of their age as well. The older ones (i.e., 50 and over) will not fair well (again, losers). They will pay much more than the composite (ie, pooled) rates paid by the employer. My younger employees might actually pay less, but the loss of my subsidy for their employee-only premum will be significant and may more than offset their savings (in addition, we offer a significant HSA contribution for our employees, but I am setting that aside). So, how will my employees be better off exactly?
Ah, the subsidies! You know, the tax-payer funded subsidy that the ACA makes everyone making up to 400% of federal poverty level eligible to receive? Depending on their household income (not just what I pay them), some of my employees may be eligible for a federal subsidy IF, AND ONLY IF, I DO NOT offer them insurance. That is the dirty little secret about the subsidies. You only get them if you have no "affordable" offer of insurance (costing less than 9.5% of your income for employee-only coverage). If I offer my employees free insurance, they will lose the access to the subsidy for themselves AND their dependents. So, the answer is clear! I shouldn't penalize my employees by offering them insurance, right?
Well, as I said above, SOME of my employees may be eligible for a federal subsidy, NOT ALL. This is where it gets complicated and simplistic analyses get thrown out the window. In typical fashion, the Chronicle reports: "Companies with a lot of high earners more than $95,000 a year — will not want to submit their employees to the individual market because they won’t get subsidies. Migrating to the individual market is for hardware stores, not engineering firms."
Do you know of an engineering firm where everyone makes $95,000? Does it not have any staff? Are all of them highly paid engineers? Is it true that NO ONE makes over $75,000 a year in the hardware store business? It is not that simple for small businesses. We have highly paid employees AND lowly paid employees. Some will be eligible for subsidies without an offer of insurance. Some will not. We have not even started talking about what offers the spouse might have for insurance. How will an employer decide to ditch his benefit plan if his most highly paid employees still want him to keep it? The point is that it is very complicated and the ACA is not making it easier for most small businesses, much less saving them "serious money." Yet, the Chronicle article offers an insight into exactly the kind of simplistic thinking that gave birth to the ACA.
The individual market is also no picnic. If you go through the exchange (and you must to get a subsidy), your networks can be extremely narrow. Buyer beware is the name of the game. We are seeing providers opt out of exchange networks because of low reimbursement rates. This kind of information is not obvious when the employee is shopping on their own. Moreover, they are new to this marketplace and it is complicated. HR professionals and businesses that have been providing benefits for years have developed a certain expertise about employee expectations for benefit plans and their costs. Telling your employees to go out and pick a benefit plan for the first time from 100 different choices is sort of like telling your husband to go pick out bra. Odds are he will come back with the cheapest one and it will NOT be a good fit.
Are there any winners? Yes, there are. Small groups with extremely poor health experience are reaping the benefits of community rating. Their past claims and current medical conditions no longer matter. In addition, individuals with current and past medical issues are enjoying the ban on preexisting exclusions. They too are able to get health insurance policies that approach affordable for the first time. Finally, individuals that fall within the subsidy eligibility limits (200% of poverty level and below) have access to significant subsidies for themselves and their families as long as they never go to work on a full-time basis for someone that offers benefits. These are the "winners" under the ACA so far. They all have one thing in common, the ACA is the vehicle that is making other people pay for the actual costs of their medical care.
A net win? You decide.