A Not So Happy New Year for Small Businesses
On the health care front, 2013 couldn't end fast enough for many small businesses. The year was characterized by confusion and tumult: rising premiums, a one-year delay of the government's online marketplace for small businesses, the exchange rollout debacle, and a general sense of uncertainty over compliance with the behemoth health care law. So 2014 can't possibly be any worse, right? Not so fast.
On January 1, a new tax on health insurers amounting to $101 billion over the next decade takes effect, but it's not the health insurance companies that will take the biggest hit. Rather, small businesses and the individual market will bear the greatest burden. The Wall Street Journal editorial page explains:
IRS regulations published in November excluded "any entity that is a self-insured employer to the extent that such employer self-insures its employees' health risks." Since about four of five employers with more than 500 workers and most union-negotiated health plans are self-insured, they are spared from the tax. So is insurance on behalf of "government entities," such as original Medicare (but not privately run Medicare Advantage).
This political selectivity means the most gold-plated public, private and labor plans are exempt and the tax burden falls on the saps who work for small businesses, the self-employed and individuals—i.e., the people who can least afford it.
The nonpartisan Congressional Budget Office reports the tax will be passed onto consumers, and the Joint Tax Committee and private economists say the tax will boost insurance costs about 2% to 2.5%. This, the National Federation of Independent Business calculates, will shrink hiring by 146,000 to 262,000 jobs over the next decade, with 59% of those losses hitting small business. The bottom line is that the health insurance tax is another drain on the economy imposed by Obamacare and should be eliminated entirely.
The health insurance tax is not the only Obamacare provision that is contributing to rising premiums in 2014. The inability for flexible premium pricing is also adding costs, another Wall Street Journal article notes.
Because insurers will no longer be able to set premiums for small-group plans based on industry, or the health or gender of its staff, many are expecting premiums to rise for employers in industries with lots of young, healthy workers. Meanwhile, moderate rate increases are expected for companies with older and sicker employees, and in higher-risk industries.
Collectively, these changes are a blow to many small businesses already suffering under Obamacare. One such business is a Dodge car dealership in Michigan that was forced to cancel its employees' health plan because it didn't comply with Obamacare. As reported by NBC News Senior Investigative Correspondent Lisa Myers, the small business now provides its employees $2,400 per month apiece to buy their own coverage, but employees are experiencing a severe case of sticker shock at the group plan recommended by the company.
Their deductibles will go from $1,125 this year to $3,000 next year, and maximum out-of-pocket costs jump from $2,250 to $6,350. And for families, those numbers double: to a $6,000 deductible and $12,700 out-of-pocket maximum.
“How is this helping the average American that’s working 40 to 50 hours per week?” said Terry Hardcastle, a salesperson. “How are we supposed to live?
Insurance broker Michael Harp said small businesses, part of what’s known in the industry as the “small group market,” are used to seeing health insurance premiums climb about 10 percent a year, but it’s never before been this dramatic. For Extreme Dodge to have kept deductibles and out-of-pocket costs at last year’s levels, he said, would have cost the dealership almost 50 percent more than last year.
With Obamacare weighing heavily on the minds of small business owners, it's no surprise that the percentage of them who are less optimistic about their future going into 2014 than they were going into 2013 is larger than the percentage who say they are more optimistic.