Under healthcare overhaul, will small businesses benefit?
In a perfect world, Irvine businessman Scott Griffiths says, he hopes to continue offering health insurance to the 42 employees at his chain of high-end men’s hair salons.
But with the full effect of President Obama’s Affordable Care Act approaching, small businesses like his are facing numerous questions and concerns about the future of employee health insurance in California and what it will mean for them.
These come as insurance companies step up efforts to keep their customers and win new ones. Meanwhile, state officials are gearing up for a marketing blitz to explain what’s ahead this fall for companies and workers who may be eager to buy policies and perhaps get subsidies through the state’s new insurance exchange, an online marketplace for purchasing health plans.
“Generally I’m very worried about the amount of regulation and how it continues to erode the condition of the small-business person,” says Griffiths, who acknowledges that he, like others, is far from knowledgeable about exactly what’s ahead. “It’s been so complex and in such a state of flux.”
For now, the owner of Eighteen-Eight, a growing chain of five salons, mostly in Orange County, says he’s taking a wait-and-see approach: “I think it’s one of those things I’ll worry about when the clouds are closer and the rain starts to fall.”
For small businesses that often operate on the edge with slim profit margins and few employees, the effect of the health reform law is only now unfolding. And perhaps no place is that more apparent than Southern California, where smaller enterprises of all kinds dominate the economic landscape.
About half of California’s businesses with three to nine workers provide health coverage for employees through group insurance packages. And an estimated 74% of companies with 10 to 49 workers also offer insurance.
Starting later this year, small employers will be able to continue purchasing group policies directly through insurers or with the help of insurance brokers, buy group policies through the new statewide insurance marketplace called Covered California, or stop offering health insurance altogether. Workers on their own will also be able to continue buying individual policies through insurers or through the new insurance market.
“The long and short of all that is that for small businesses, their world will not change very much come Jan. 1, 2014,” says Peter Lee, executive director of Covered California. One exception, he says, is that small firms buying insurance through the state’s exchange will have more choices than they have had in the past.
Also different is that for the first time, middle-income California families earning less than $92,200 annually who buy health plans through the exchange will be eligible for subsidies to help cover the cost. In addition, more Californians will qualify for Medi-Cal, the state’s health insurance program for people with low income.
For now, anxiety is high across the nation, and information is still scarce.
“In general, small-business owners don’t know much about the law,” says John Arensmeyer, head of Small Business Majority, a national nonprofit organization based in San Francisco.
Despite widespread worries, he says, “there is a lot in the law that’s good for small businesses and virtually nothing that makes it worse than the current situation. It couldn’t be any worse than it has been in recent years with massive, double-digit increases in costs and fewer businesses offering insurance.”
The lack of accurate information can be frustrating for small firms that don’t have the kind of personnel department and other resources that big companies have.
“All the information about the impact of the health reform law on small-business plans so far has been more incendiary than informative,” says Mickey Lutz, chief operating officer of healthcare technology company Vista LifeSciences in Denver. “We’ve learned that there is a lot of misinformation about the act in the news.”
For example, he says, he was mistakenly led to believe that his firm would be penalized financially if he stopped offering insurance to his 12 employees, something his company has done since 2008. But the penalty applies only to businesses with 50 or more workers.
“The biggest misconception about the law is that there is some kind of mandate on small employers, and there isn’t,” says Linda Blumberg, an economist and senior fellow at the Urban Institute, a Washington think tank.
As a result, the majority of American businesses will not be required to offer employee health benefits starting in 2014; 95% of all firms in the United States have fewer than 50 employees, according to the Congressional Budget Office. In fact, some experts are suggesting that smaller businesses may want to wait a year before making any major decisions.
Small businesses historically have struggled to find affordable health insurance, which accounts for their lower participation rates compared with large firms. Only 50% of businesses nationwide with fewer than 10 employees make health benefits available to their workers, according to the Kaiser Family Foundation. That number has been steadily shrinking over the last decade.
“It’s not that small-business owners don’t want to offer insurance,” says Sam Gibbs, a senior vice president of EHealth Inc., an online insurance marketplace. For many, he says, “it’s gotten to the point where they just can’t afford it anymore.”
The cost of insurance tends to be higher for small businesses for a host of reasons, experts say: They face higher administrative expenses than large employers do, and in most states insurers are allowed to charge higher premiums based on the age and health status of employees.
With fewer employees, small companies with older or sicker workers can face steep premiums. And one employee facing a serious illness can drive premiums skyward for the whole company the following year.
With details about insurance policies and their prices unavailable, it’s still impossible for small-business owners to make any firm decisions at this time. So it’s not surprising that the biggest question most business owners have is whether the new law will make health insurance cheaper — or at least help keep costs down.
The answer, experts say, is it depends. Some small firms may see more competition for their business and thus better rates.
On the other hand, insurers will be required in many cases to provide richer benefits. That, along with new premium taxes, surcharges and underwriting reforms in the law, is likely to increase costs, at least in the short term, according to Washington healthcare consultant Robert Laszewski. Small group premiums could rise as much as 10% to 20%, he says.
But the impact of new regulations on cost will probably vary by state and from one employer to the next. According to Gary Bacher, a Washington healthcare lawyer, a small business that on average has younger, healthier employees may see its rates jump now that insurers are prohibited from varying prices based on individual group members’ health.
“On the other side of it, groups with older-than-average employees or that have worse-than-average health status would expect to see a potential reduction in their rates,” Bacher says.
The real promise for lowering costs is down the road when more people are insured, said Lee of Covered California. “Right now, whether you have individual or small-employer or large-employer coverage, you’re paying for the uninsured that go to the emergency room and too many Californians not getting preventative services.”
In the end, bottom-line costs may make the difference for employers and workers.
“I’m hopeful that health reform will put the brakes on those dramatic increases in overall costs,” says Zachary Davis, owner of Penny Ice Creamery in Santa Cruz, who offers health insurance to his 40 employees. “If it doesn’t stop going up at the rate it has been, that really is what could make it impossible for us to continue offering benefits.”
