Is the Affordable Health Care Act Beneficial for Large and Small Businesses?

Abstract

Health care costs have been a major subject of debate due to the fact that in recent decades they have doubled and will continue to do so into the next decade at the very least. In addition, solutions were desperately needed to lower the vast number of uninsured Americans. Many experts believed that the answers laid in a revision of employer-based health care coverage and an innovative expansion of Medicaid. The first section of this paper reviews the recent history of solutions that have been put forth by experts and organizations. The following section briefly reviews its effectiveness. Finally, an extensive analysis of the recently passed Affordable Health Care Act is provided with an emphasis on its effect on large and small businesses. The purpose of writing this paper is to examine whether or not the Affordable Health Care Act is, in fact, the best solution to the health care crisis in the United States and question its benefits for American businesses.

Is the Affordable Health Care Act Beneficial for Large and Small Businesses?

The mounting issues of health care in the United States have been at a near crisis level for decades now. Since the mid-1970s, government and private health care expenditure have more than doubled, a reality that many experts predict will continue at least into the next decade. Health care expenditure currently accounts for $2.2 trillion or roughly one-sixth of the U.S. economy. According to most experts, unfortunately, this number may actually increase to $4.1 trillion by 2016.

A significant amount of government health care spending has come in the form of tax subsidies. While these tax breaks may, in fact, greatly aid in the lowering of private health care costs, they may also reduce the amount of available government funding for other health care programs. As for employer-provided health insurance, the tax break for businesses for these benefits is, indeed, the largest government tax break in the country. In addition, the government also funds employer-provided insurance in the form of a Social Security tax break with state governments exempting income tax revenue in this case as well. The overall revenue set aside for tax subsidies amounts to in excess of $250 billion annually (Steuerle, 2007). Of course, the U.S. citizens who benefit the most from these subsidies are those with high-income level jobs with a reduction of their income taxes approximately $3000 (Steuerle, 2007). Middle and lower-class families, on the other hand, receive between half to a quarter of this amount, generally.

Eugene Steuerle, a senior fellow at the Urban Institute, offers an alternative viewpoint in a 2007 analysis. According to Steuerle, much of the money spent on tax subsidies could, instead, go towards preventable health programs-- more immunizations, additional services for the elderly, for example-- thus, reducing the need for chronic disease care and generally expensive health care treatments.

In the previous decade, there have been numerous solutions to the health care problem put forth by health care experts and analytical organizations. One popular solution put the focus of attention squarely on employer-based health care systems. In a 2002 testimony before the Committee on Education and the Workforce, Henry M. J. Kramer, Jr. outlined a potential plan to reduce the number of uninsured Americans based on the findings researched by the Healthcare Leadership Council (HLC). By their calculations, in excess of 80 percent of uninsured Americans, roughly 33 million at the time, were members of families that contained at least one active worker. In addition, a majority of uninsured workers were employed by small businesses (Steuerle, 2007). Companies that had fewer than a dozen workers offered health care benefits only 53 percent of the time, while those with 25 to 100 offered benefits roughly 22 percent of the time. But worst of all, companies with approximately 500 to 1000 workers only offered health care benefits 11 percent of the time (Steuerle, 2007). This reality was, of course, mainly due to the significant cost of health coverage for both small businesses and private individuals. However, in many cases, the cost was not always the deciding factor.

For many small businesses that did not provide health care coverage, the main issue was due to a lack of awareness of the low-cost health insurance options that were available to them. Much of this lack of awareness was based on a fear of the complexities of such options.

The Healthcare Leadership Council, subsequently, offered several viable solutions. For one, health care benefits for the employed should more often be extended to their families. This would significantly reduce the number of the more than 33 million family members who are uninsured (Steuerle, 2007). In addition, the HLC offered a solution to help overcome the lack of awareness and the fear of the complexities of health care coverage for small businesses through regional initiatives that would be aimed at small businesses in particular.

Another solution put forth by the HLC was to increase the number of tax credits for lower-income workers. This solution was believed to be helpful in that it offers lower-income workers a greater variety of options when searching for health coverage that suited their needs. As was stated before, the tax exemption benefitted higher-income employees more than the lower-income ones. This solution would have significantly closed that gap.

According to the HLC's findings, at the time, Medicaid, although significantly effective in most instances, had reached its apex in effectiveness in lowering the number of uninsured. However, an expansion of Medicaid seemed out of the question due to the deteriorating economic realities of many states with Medicaid benefits comprising the largest amount of state expenditure generally. The HLC concluded that such a state of economic affairs required innovative solutions to the problem of Medicare expansion. For instance, S-CHIP funds could be combined with employer pensions as was the case with Virginia's FAMIS program.

The HLC strongly asserted that increased tax incentives, improved public programs, and outreach to small businesses and working families would lay a solid foundation in the quest to ensure the maximum amount of Americans. With some of these measures put in place along with other solutions, in the decade since the HLC's research project's findings were reported, the amount of U.S. citizens with some form of health insurance increased from over 260 million to in excess of 263 million with the number of uninsured decreased by more than 600,000 in 2012 (Steuerle, 2007). However, according to a 2013 Huffington Post article, the picture remained dismal for lower-income families. Roughly 25 percent of low-income workers making less than $25,000 per year remained uninsured in sharp contrast to those making above $75,000 with an uninsured rate of 7.9 percent. In addition, the number of U.S. citizens with private health care coverage rose by approximately 1 million between 2011 and 2012, a rate considered insignificant by experts.

While some improvements had been made in the past decade, clearly more drastic measures had to be put in place. After an extensive and bitter debate, the Affordable Health Care Act, otherwise known as Obamacare, went into effect. It is estimated that within the first year of Obamacare expansion, 14 million uninsured people will finally receive coverage. This Act is expected to significantly reduce the number of uninsured Americans over the next decade which stood at 48 million at the time of its passing.

Despite the obvious benefits of Obamacare for millions of Americans, some experts see it as a source of controversy and inconvenience for small businesses. In a 2013 Forbes Magazine article, Scott Gottlieb pinpoints the issues small businesses face under the new health care laws. Expensive mandates issued under Obamacare drove some small businesses to take advantage of a loophole in the Obamacare text. Once their present health care coverage expires, they will be faced with the choice of finding insurance that complies with Obamacare that would greatly increase the amount of health coverage costs for these small businesses or place their employees under the Obamacare exchange. For most insurance companies, the small market which includes small businesses is a lucrative portion of their revenue. As a result, they will make great efforts to maintain their customers in these sectors. Unfortunately, they will be powerless in helping small businesses avoid the new increases in costs under Obamacare. Many small businesses will cancel their existing plans which will result in substantial increases in insurance premiums for other small businesses.

Ironically, according to David Nather’s 2013 Politico article, some business owners who once praised Obamacare in its initial stages now see it as a potential detriment to businesses. Obamacare offered a promise to small businesses that it would enable them to provide cheaper health care coverage to their employees through their own health exchanges. Instead, many of these exchanges will be ineffectual in offering workers a range of health care options in 2014. This effectively handicaps one of its primary aims. In addition, due to the fact that smaller businesses have fewer human resources than large corporations, it will be more difficult for them to manage the new rules and requirements or to capitalize on various cost-saving deductions such as implementing mandatory fitness programs for employees.

Obamacare promised to aid large corporations in easing the burden of ever-increasing health care costs. Unfortunately, it has also lead to burdens when it comes to compliance issues. These issues include a new system of reporting requirements, employer notices for workers and higher costs in the form of new taxes and fees. But most burdensome of all are the approaching penalties for generous health care plans also known as the Cadillac tax.

Although these penalties do not begin to take effect until 2018, corporate executives are already feeling the pressure of their impending demands. These measures were put in place to discourage companies from providing an excessive amount of health care coverage. The rationale behind this measure was ensuring that employees whose health care costs were significantly reduced thanks to their company coverage would not abuse the system, overusing medical care without concern for the costs which would result in a sharp rise in health care spending overall. These measures will impose a 40 percent tax hike on all corporate health coverage that exceeds $10,000 for individuals and $27,000 for families. These measures already have employers scrambling to conceive plans that would offset their additional costs.

While many small business owners are griping about certain aspects of Obamacare and its effects on their bottom line, many experts blame a lack of understanding on their part for these concerns. According to the experts, there are many benefits for small businesses to look forward to. For example, the advantages of “small-business health exchanges” will be significant. They will offer comparative plans that small businesses can purchase at competitive prices. In addition, they will provide flexibility to small businesses employing fewer than 50 workers in the form of the capability of spreading their major medical expenses in light of the fact that they will be placed in the same category with larger businesses, thus enabling them to take advantage of their combined purchasing power (Employer Health Benefits Survey, 2013).

While there are many detractors on the subject of Obamacare among small and large business owners, many employers do not share their sentiments. In fact, they see it as a great benefit to businesses in the long run. John Arensmeyer, founder and CEO of an international e-commerce company clarified these beliefs when he stated, “The benefits far outweigh the costs. There’s been a lot of confusion…. There’s been more heat than light on the subject.” (Nather, 2013). Much of the dissension concerning Obamacare has come, of course, from Republican voices that have labeled it as a potential “job killer”. However, economists so far see no evidence supporting these concerns. One example pointed to by the Republicans as proof of Obamacare’s harmful effects on employment is the cutbacks made by UPS which is directly blamed on Obamacare. However, a UPS spokesperson refuted this assertion, iterating that such financial reductions were actually a result of the growing health care costs which would have occurred regardless of Obamacare.

Many other experts believe that in the long run, the Affordable Health Care Act will be of enormous benefit for small business owners. This is due to the fact that it will eventually make the process for obtaining health insurance for employees of small businesses significantly less expensive than previously. The Affordable Health Care Act, in this instance, will promote entrepreneurship and, hopefully, aid in America’s quest to recover its former economic success.

References

Employer Health Benefits Survey. (2013). Summary of Findings, The Henry J. Kaiser Foundation

Gottlieb, S. (n.d.) Thousands of Small Businesses Will Also Start Losing Their Current Health Policies Under Obamacare. Here’s Why. Forbes Magazine, Forbes.com, web.

Nather, D., (2013). How Obamacare affects businesses—large and small. Politico, Politico.com, web.

Steuerle, E. (2007). Is Health Spending out of Control? NCPA Brief Analysis, National Center for Policy Analysis.

Young, J. (2013). 48 Million Americans Are Uninsured Ahead Of Obamacare Changes. Huffington Post, Huffingtonpost.com, web.