Obamacare’s effect on small business: An unintended consequence?

For employers, the Affordable Care Act takes two distinct approaches.

First, for small employers (those with 50 or fewer full-time employees), the ACA does not penalize, but rather incentives the purchase of insurance with subsidies available through the Small Business Health Options Program (SHOP). Second, for large employers (those with 51 or more full-time employees), the ACA does very little. Recognizing that the overwhelming majority of these large employers already offer good coverage, the government merely wants to keep it that way.

In essence, the “pay or play” mandate is simply designed to prevent “crowd out” the businesses dropping coverage to save money because their employees can get federally-subsidized coverage via the health insurance marketplace.

But what about a small business that already provides its employees with excellent coverage? Well, in that case, the incentives and penalties get weird, and the window of opportunity for unintended consequences to enter the picture opens wide.

I know of a small business with between 10 and 20 employees that offers excellent benefits. The health insurance coverage has no deductible and no coinsurance. There is a $30-$40 co-pay for physician visits, but that’s it. And, on top of that, the employer pays nearly 100% of the premiums for each individual employee (about $6,000). The catch is, the employees are fully responsible for the cost of dependent (i.e., family) coverage. Given the generous nature of the coverage, this is not inexpensive (about $11,000). In other words, the total cost of this family coverage is approximately $17,000, with the employer paying for $6,000 of it.

On the health insurance marketplace, family coverage in the part of the country where this business is located runs between $7,344 a year for a bronze plan and $10,560 for a gold plan. Even the most expensive gold plan was less expensive that the company’s current coverage. And the coverage could be even cheaper, but because the employees have access to affordable coverage through their employer, they are not eligible for federal subsidies.

However, given that this is a small business, as defined by the ACA, the employer could simply drop coverage without penalty and instruct its employees to shop for subsidized coverage on the exchange. Doing so would save the employer $6,000 per employee and could save the employee anywhere between $0 and $3,700 a year, albeit with somewhat less generous insurance coverage.

So, if this was your company, what would you do? Or, if you were the employee who was told you were no longer getting coverage through your work, but that you could get it more cheaply on your own, how would you react?

Brad Wright is an assistant professor of health management and policy who blogs at Wright on Health.

Comments are moderated before they are published. Please read the comment policy.

  • Tiredoc

    My small business employes 4 people, excluding myself. The subsidy for my company, based on the average salary of my employees excluding myself is 20% of the premium. As the tax benefit is less than 10% compared to simply giving my employees salary, that doesn’t really add that much to the equation.

    The small business plans in my state are identical in cost to the individual plans under Obamacare. If I decline to offer insurance, my employees will receive between a 65% to 100% subsidy depending upon which plan they choose.

    Both my employees and I are better off if I don’t offer health insurance. It’s the same insurance company, the same plan. If I buy it, it costs me and my employees money. If they buy it, they get it for cheaper than if I helped.

    I told my employees that they were going to be on their own last year. Any business with less than 50 employees that continues to offer health insurance is actually harming their employees, both financially and in decreased competitiveness of the company.

    • http://onhealthtech.blogspot.com Margalit Gur-Arie

      Just curious, are you going to increase their salary by the amount you used to spend on their health insurance?

      • Tiredoc

        None of my employees took the company insurance policy.

      • fatherhash

        or as any other small business owner/entrepreneur, tiredoc could choose to expand his practice and employ more people and take care of more patients….his business, his choice.

    • May Wright

      “It’s the same insurance company, the same plan.”

      They’re lucky then. Most 2014 individual plans I’ve seen on the exchange (the only ones people can get subsidies for) have much narrower provider networks than the 2014 individual plans those same companies are offering off-exchange. I have to admit, I’ve never had a company-provided group plan so I don’t know a lot about them – maybe they had narrower provider networks than individual plans did prior to the ACA?

      • Tiredoc

        I started my company in 2011. I can’t grandfather in my small business plan under Obamacare, so either on the individual or small business market it’s Obamacare all the way. Since they’re using the same pool to determine rates, and the coverage is the same (including deductibles), the rates are the same.

        • Mike

          Obamacare is not affecting the small business market yet, is it? I thought that the business mandate didn’t take effect until 2015? There were supposed to be Obamacare exchanges for small businesses the same way there are for individuals, but Obama unilaterally decided to give businesses a break until after the 2014 elections. So how can you compare Obamacare small business rates (which don’t exist yet, as there is no exchange yet) with Obamacare individual policies?

  • May Wright

    That’s going to be the next wave of “sticker shock” (and “broken promise shock”). Because Obama delayed the business mandate till 2015, right now it’s just those of us on individual market who are feeling the pain, and we’re apparently a small enough cohort that our pain and inconvenience don’t matter. But sometime next year, when employers start arranging their affairs to achieve compliance in 2015, I think there’s going to be a whole new wave of people finding out that the oft-repeated “if you like your plan, you can keep your plan; if you like your doctor, you can keep your doctor” mantra was just pretty words.

  • James_04

    Except that they’re getting huge employer (taxpayer -funded) subsidies to do so.

    Their only taxpayer subsidies should be based on their income, just like it is for the rest of us. I earn >400% federal poverty level, so I get no taxpayer subsidies, I get to pay the whole premium bill myself. If they’re earning >400% over the poverty line, they shouldn’t should taxpayer subsidies either.

    Congress created the Obamacare exchanges, they’re forcing the rest of us onto them, and WE don’t get taxpayer subsidies to pay for them unless we are low income. Make the chefs eat their cooking, I say, make them buy insurance on the exchanges without taxpayer subsidies, make them live by the rules they’re enforcing for the rest of us, and maybe they’ll be forced to think twice about what kind of ingredients they’re putting into the swill.

    Due to their actions, I have to pay more money for less financial protection and a much smaller range of doctors and hospitals I’m allowed to utilize, and I’m responsible for 100% of the tab unless I earn <400% poverty line. They and their families should be forced to eat the same soap sandwich they're making me eat.

    • southerndoc1

      “Except that they’re getting huge employer (taxpayer -funded) subsidies to do so.”

      To replace the employer-provided insurance (that every other federal employee has and that the majority of Americans have) that was taken away from them by the Grassley amendment.

      • James_04

        Congress’s actions have caused many other Americans to lose their health insurance. It’s only fair that they suffer too. They can’t get away with putting us on rations while putting their champagne-and-caviar meals plans on our tab, or at least they shouldn’t be able to.

        • southerndoc1

          See reply above.

      • southerndoc1

        I really don’t care what happens to the Congress critters: they can all pull a Cruz and hitch a ride on their spouse’s 40K tax-payer subsidized insurance.
        What is grotesquely unfair is the way the Repubcans have treated and want to continue to treat the hundreds of congressional staffers. Many of them are young, starting families, and making 25-30k per year. They took these jobs with the understanding that they would receive health insurance from their employer. Now, by law, they are the only group of people in the country who, under any circumstances, cannot receive insurance through their employer. Not to making them whole by subsidizing them to the same degree that they were when they accepted these jobs is pettiness of the highest degree.

    • Brad Wright

      That’s also incorrect. Please read this: http://www.factcheck.org/2013/08/no-special-subsidy-for-congress/

    • southerndoc1

      If you’re self-insured, as you imply, there’s no requirement that you buy insurance on the exchanges (as Congress and their staff are now required to do). You can still work with a broker to find a policy.

      • James_04

        Can I get taxpayers to subsidize 73% of my tab, the same as well-off members of Congress are doing?

        And yes, I can still work with a broker to find a policy that’s kinda-sorta-almost as good as the policy Obama killed. So far, no luck. They’re all MUCH more expensive, more limited in their provider networks, and two insurers have stopped offering individual policies in my county altogether.

  • James_04

    “So yeah point fingers at who is really responsible, the American public, it’s our fault.”

    Not a single Republican voted for the Democrats’ PPACA bill. Not one. This is a pure product of the Democrat Party and the Democrat Party only. Any failings in this pure partisan Democrat piece of legislation are not the fault of the whole American public, only of those who voted those Democrats into office.

    If Obamacare had been the rip-roaring success all the Democrats and their media cronies claimed it was going to be, you can bet that they wouldn’t have given the GOP an ounce of credit for that.

    You DID build this, Democrats, it’s all yours!

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