For Small Business Owners, The ObamaCare Reality Bites
By Sally C. Pipes
More than 40 percent of small businesses have frozen hiring because of ObamaCare, according to a new poll from Gallup. A fifth have actually cut their workforces as a direct result of the health care reform law.
That’s not exactly the future President Obama forecast in 2009, when he told an audience of small-business owners that his health care reform package was “being written with the interests of Americans like you and your employees in mind.” He boasted that he had “no doubt [the law] would benefit millions of small businesses.”
Instead, small-business owners are learning that ObamaCare will drive the cost of insurance up without providing the choice of policies it promised. The law intended to make purchasing insurance easier for small businesses by creating exchanges, where firms could band together with their peers in one statewide risk pool—and thus leverage their buying power to secure lower premiums and access to a wide variety of plans. The Congressional Budget Office projected that two million people would get insurance through the small-business exchanges.
Insurers would compete for small businesses’ allegiance, driving down prices further. Employers would name a benefits level, and then their employees could choose from among several plan options at that level. Under the status quo, by contrast, they may be stuck with the plan their employer picks for them—if they even get insurance at all.
But the exchanges aren’t unfolding as planned.
For starters, it’s not clear that the exchanges will be ready by the October 1 deadline set by ObamaCare. Creating these government-directed insurance marketplaces in all 50 states plus the District of Columbia has proved far more complicated than bureaucrats anticipated.
Maryland, which was one of the first states to embrace ObamaCare, announced in April that it would delay the launch of its small-business exchange by at least three months. A recent Government Accountability Office report said that all 16 states and the District of Columbia building their own exchanges are behind schedule—missing deadlines on 44 percent of the key activities needed to get them up and running. In Oregon, the state’s largest health insurer and three others are steering clear of the state exchange designed to serve small employers.*
In the mad dash to get the exchanges built, officials are cutting corners. The promised choice of plans has been the first casualty. This June, the federal government announced that every business owner shopping in the 33 federally run exchanges will have to pick one plan for all his full-time employees.
In some states, there may only be one choice for every single small business in the state—as insurers have been reluctant to participate. Just one insurer signed up to provide small-business coverage in Washington’s exchange. Ditto for New Hampshire and North Carolina. In Mississippi, not a single insurance company has signed up for the federally run exchange. That lack of competition will no doubt yield higher premiums. ObamaCare’s many mandates will exacerbate their upward march.
The health care reform law requires all policies to cover preventive care free of charge—along with a host of other “essential” benefits. Policies cannot cap annual or lifetime health care spending, and annual deductibles cannot exceed $2,000 for an individual or $4,000 for a family in the small-group market.
Businesses are starting to see the result of all these mandates and regulations. An analysis of 11 states by the insurer WellPoint projects that small-group premiums will jump an average of 13-23 percent.
In Rhode Island, insurers want to boost small business premiums by 14 percent, on average. Maryland’s biggest insurer, CareFirst BlueCross BlueShield, is pushing for an average small-business rate hike of 15 percent. And a survey by the American Action Forum earlier this year found that major insurers in five big cities were expecting small-business premiums to more than double for small firms with healthier employees. So rather than freeing small businesses from the burden of having to manage their own health benefits, ObamaCare has raised the prices they’ll pay and limited their options.
It’s no wonder that small businesses are cutting benefits, putting off hiring—or even firing workers. A quarter of small firms say they’re considering whether to drop insurance coverage, and 18 percent have reduced their employees’ hours to part-time. Thirty-eight percent say that ObamaCare has caused them to pull “back on their plans to grow their business.” So much for writing the law with the “interests” of small businesses and their employees in mind.
The Obama Administration just announced that they’d delay the implementation of the employer mandate, which would require all businesses with more than 50 full-time employees to offer health insurance. Hopefully, ObamaCare’s small-business exchanges will be the next component of the law to be delayed.
* “Insurers skip Oregon’s small employer insurance exchange—for now,” Business Journal, May 3, 2013 (http://www.bizjournals.com/portland/blog/2013/05/insurers-steer-clear-of-oregons-small.html?page=all).
Sally C. Pipes is President, CEO, and Taube Fellow in Health Care Studies at the Pacific Research Institute in San Francisco. She is a guest contributor for Cascade Policy Institute. A version of this article was originally published by Forbes.