One of the prevailing myths of the Affordable Care Act (aka Obamacare) is that it will bankrupt small businesses by forcing them to provide health insurance to their workers.
This myth is perpetuated by the opponents of the Affordable Care Act, as well as the media. A July 28 Associated Press story, for example, said, “Most employers will face fines if they don’t offer coverage for their workers.”
Nothing could be further from the truth. In fact, the Affordable Care Act is designed to help small businesses by curtailing the skyrocketing costs of providing coverage to employees. In addition to access to affordable coverage for existing small businesses, health care reform also could be a boon to aspiring entrepreneurs.
The fact is, most employers WILL NOT be required to offer health insurance. Companies with 50 or fewer employees are specifically exempt from the requirement in the Affordable Care Act. And, U.S. Census and Small Business Administration statistics show that 96 percent of small businesses have fewer than 50 employees.
What about the 4 percent of businesses that will be required to offer health insurance or face fines? How much of a burden will it be on them? Nearly all of those companies already offer health insurance to employees. According to annual employer surveys by the Kaiser Family Foundation, 93 percent of businesses with 50-199 employees and 99 percent of companies with more than 200 employees offer health insurance.
So, the overwhelming majority of businesses will be exempt from the requirement and those that aren’t exempt are likely already offering health insurance. That being the case, what effect will the Affordable Care Act have on small businesses? This isn’t a “wait and see” question. The law already provides benefits for small businesses in the form of tax credits. Employers with 25 or fewer workers can now receive tax credits up to 35 percent of their portion of health insurance premiums.
The state-based health care exchanges will bring even more benefit to small businesses. Companies with fewer than 100 employees will be able to purchase affordable coverage through the small business exchanges beginning in 2014. And, those eligible small businesses that purchase coverage through the exchanges can receive a tax credit up to 50 percent of their premium contribution.
It’s not only existing small businesses that will benefit from Obamacare. Affordable health insurance available through the individual health care exchanges may open the door for aspiring entrepreneurs to make the leap into business.
While many factors influence aspiring entrepreneurs’ decisions to leave corporate America and start their own companies, research by the Kauffman-RAND Institute for Entrepreneurship Public Policy and others suggests that losing company-paid health benefits is a deterrent for some corporate workers who might otherwise start a business. By providing access to affordable individual health insurance, the Affordable Care Act will remove this barrier to innovation and entrepreneurship.
But the loss of corporate health benefits doesn’t just deter aspiring entrepreneurs; it also deters many of the best and brightest employees from taking jobs in small businesses. This makes it harder for small businesses to recruit top talent. Even those small companies that can match corporate wages may have difficulty affording comparable health benefits. A study by the Whitehouse Council of Economic Advisers found small businesses pay about 18 percent more than large businesses for the same health care coverage. The high cost of providing health care coverage puts small businesses at a competitive disadvantage in recruiting the best and brightest workers.
The Affordable Care Act provides solutions that will help small businesses in their recruiting efforts. First, the state-based small business exchanges will provide access to affordable health insurance plans for small employers, allowing them to offer better coverage and more options to prospective employees. Many of those small companies also will receive the additional boost of tax credits to offset premium costs.
Second, access to affordable personal health care coverage through the individual health care exchanges will free employees from the tethers of employer-based coverage and open employment options for them. This will remove barriers to employment even in those small companies that can’t afford to offer health care benefits or choose not to.
Although not perfect, the Affordable Care Act offers a plan for abating the decades-long rise in health care costs for businesses. According to a Kaiser Family Foundation study, health care premium costs for businesses skyrocketed by more than 113 percent from 2001 to 2011.
The status quo before health care reform was unsustainable as small businesses were increasingly unable to meet the high cost of providing coverage. Obamacare may not answer all of the health care challenges facing small business and America, but it’s a start.