Of all of the politically contentious issues being debated in Connecticut right now between the candidates running for office, Barack Obama’s healthcare initiative is perhaps the one that is the most polarizing. As small business owners and entrepreneurs, this issue is one that brings into focus the collision of idealism and practicalities.
What follows is an interview with Amanda Austin, Director of Federal Policy in the Senate for the National Federation of Independent Business (NFIB). NFIB defines itself as being the “voice of small business” and as such, very much lobbies and advocates strongly for the issues that impact the small business person.
- NFIB is strongly opposed to the healthcare legislation
Healthcare coverage is not free. Someone is going to pay if there are requirements on individuals and businesses to pay into the healthcare system
1) What exactly are the new Health Care laws and why should a business owner care about them?
ANSWER: The federal “Patient Protection and Affordable Care Act” was enacted by Congress in March of this year. The centerpiece of President Obama’s domestic agenda, the new law imposed 2,700 pages of new rules and taxes on businesses that have already resulted in higher insurance costs and will no doubt drive them higher. Just as alarming, the law authorizes the federal government for the first time in history to order private American citizens to purchase a commercial service (a health insurance plan) regardless of whether they want it, or whether they can afford it. On behalf of its members, who are deeply concerned by the substantial new costs and the unprecedented personal mandate, NFIB this year became the only business organization in the country to challenge the law in federal court.
2) How does the new Health Care laws impact the entrepreneur and his/her family?
ANSWER: Small business has been struggling with rising healthcare costs for decades. But the new healthcare law is not the answer – it simply compounds current problems and makes healthcare even more expensive for small businesses. Costing nearly a trillion dollars, the new law will send health insurance costs soaring, increase the cost of doing business and set our economic recovery backward with destructive policies
Under the new law, employers can expect a variety of new taxes, new mandates, new rules and, of course, increased healthcare costs. New rules on what will be deemed “qualified” coverage will go into effect in 2014 called “minimum essential coverage.” This is a federal floor of coverage that will satisfy the individual mandate discussed above. Small business will most likely be “buying up” on coverage, possibly forcing some businesses that already provide insurance to pay more to comply or be faced with difficult decisions about whether to continue to offer coverage. For larger firms, an “employer mandate” in the form of a ‘free rider penalty’ will take effect in 2014. This is a confusing and extremely complicated formula taking into account part-time workers along with a federal affordability standard for what employees can afford. Both the part-time count and the affordability standard can trigger penalties for employers upwards of $2,000 or $3,000 per employee.
In terms of new taxes and fees that small businesses can expect – they will come in a variety of forms: from new payroll taxes, to Medicare taxes to paperwork compliance to new taxes being pushed onto fully-insured plans. The new $14 billion+ tax on health insurance is an especially egregious tax, since it directly and specifically hits small businesses and individuals. Considering that the majority of small businesses purchase fully insured plans, they will be subject to this tax and its $billion price tag. Big businesses and unions were specifically exempted.
The penalty of $2,000 per worker levied on small businesses with more than 50 workers that can’t afford to provide healthcare (and which have workers accessing the exchange) is another indirect tax. Medicare payroll taxes will also increase to 2.35 percent and there is a new 3.8 percent Medicare tax on non-wage income like dividends, interest and capital gains.
Ultimately, the cost of private insurance will increase for everyone as carriers and medical providers build into their premiums and fee schedules the substantially higher cost of compliance (this is already happening in a number of states, as noted above). Individuals who do not now purchase insurance will be forced to do so under threat of financial penalty. And, with 32 million newly covered individuals and no increase in the supply of medical providers, facilities, equipment or medicine, access to quality care for Americans could be restricted.
3) How has the new law impacted the insurance companies? Service providers (Doctors, Hospitals, etc.)?
ANSWER: NFIB cannot speak for insurance companies, but news articles from across the country dating back to June report on numerous carriers applying for rate increases made necessary by the new mandates under which they must operate. Insurance rates have already begun to climb. Remember that the CBO warned that cost increases were to be expected in the small group market specifically. That prediction appears to have been accurate. This is exactly the opposite of the reform small businesses needed and wanted.
4) What can small business owners/entrepreneurs do to minimize costs/maximize coverage for themselves and their employees?
ANSWER: Healthcare coverage is not free. Someone is going to pay if there are requirements on individuals and businesses to pay into the healthcare system. As the employer, if your employees go into the exchange, you’ll be left with a portion of that bill to help cover your workers. The biggest worry is that these exchanges will be highly regulatory in nature and private products will not be priced well for purchase. Ideally there would be a healthy mix inside and outside the exchanges that would foster competition within both markets. Government-run markets are rarely so efficient. In fact, we have seen what has happened in Massachusetts, whose system is sort of like a prototype for the new healthcare law: as soon as the system was erected it plunged into financial trouble because many more people than anticipated spilled into the exchanges and costs rapidly spiraled out of control.
Defenders of the federal program often argue that tax credits will help offset higher costs. But not everyone will receive a tax credit. Tax credits for employees (individuals and families) and are only available to people who meet strict income level requirements. They are also temporary and they do nothing to reduce the overall cost of health care. They merely provide temporary relief without reforming the cost structure. We have created a tax credit calculator (www.nfib.com/creditcalculator) that can help determine whether a business owner will qualify for a credit or not – sadly, the feedback we have received is that the credit is far too limited in scope to help the amount of people the Administration once claimed.
5) Does the new law change how entrepreneurs will use HSAs? Are there other tips or techniques you are seeing/recommend small business owners do to take advantage of the new law?
ANSWER: HSAs will still exist but there will be limits on single and family deductibles ($2,000 for single and $4,000 for family) and limits on how much you can put in accounts like flexible spending accounts (limited to $2,500 annually under PPACA). Both of these combined really put the brakes on these products that are meant to be consumer-oriented and really allow the individual or employer choices. Overall the bill moves farther away from putting the consumer in control and closer to a European-style entitlement program.
6) Do you have any statistics or insight into how the new law is likely to impact hiring? Benefits offered? Etc.?
ANSWER: It’s difficult to find data on this. But the new law is loaded with perverse incentives that could certainly result in less hiring and slower growth. Cost is one of the greatest predictors of whether a business will offer and maintain benefits. Higher costs for hiring workers will naturally result in fewer new jobs. Additionally, thresholds for many of the mandates and fees fall on calculations for full-time equivalent employees, often resulting in firms deciding to limit their number of employees in order to minimize additional costs and taxes.
While clearly an issue that cuts to the core of many small business operators’ ability to meet expenses, expand, grow, and hire new people – this issue will ripple through the upcoming elections and well beyond.