Impact of health care challenge in Supreme Court on small businesses

In September 2011, the National Federation of Independent Business (NFIB) filed a petition asking the U.S. Supreme Court to review the constitutionality of the Patient Protection and Affordable Care Act (PPACA). The NFIB argues that the uncertainty regarding the potential economic impacts of the health care law is taking a toll on both big and small businesses in their financial planning, making them hesitant to hire or expand. Particularly at issue is whether the individual mandate requiring individuals to obtain health care coverage exceeds the Congress' constitutional authority.

In November 2011, the U.S. Supreme Court agreed to hear the petition presented by the NFIB in addition to 26 states. The U.S. Supreme Court references the fact that the Eleventh Circuit and Sixth Circuit had issued directly conflicting final judgments on the constitutionality of the individual mandate provision. The question presented is, if the individual mandate were to be declared unconstitutional, would the entire health care act have to be invalidated, since it is non-severable from the individual mandate?

While the key point of the petition to the U.S. Supreme Court is the constitutionality of the individual mandate, an overriding concern for small businesses is the cost impact the health care law could have. In a letter dated May 16, 2011, to Rep. Charles Boustany, the NFIB expressed its support for a House bill to repeal the small business health insurance tax included in the PPACA.

The NFIB argues that the estimated tax of $87 billion on health insurance companies from 2014 to 2020 would be passed on to small businesses and their employees. According to the NFIB, this is because the tax falls on fully insured markets and not the self-insured market. The fully insured market is where almost all small businesses and sole proprietors purchase their health insurance. The self-insured market generally corresponds to large businesses, labor unions, and government.

As pointed out by Karen E. Klein in an article for Bloomberg Businessweek, a tax credit in the health care plan could help small businesses with the cost. Businesses with fewer than 26 employees that pay average annual wages of less than $50,000 and pay more than half the cost of employees' health benefits can claim a tax credit of up to 35 percent of the cost of the health insurance premiums through the 2013 tax year and up to 50 percent in 2014.

Businesses that do not provide health care coverage could face a severe penalty starting in 2014. Employers with 50 or more employees would pay a penalty of $2,000 per employee. As indicated in Klein's article, this could cause small businesses that are expanding to adjust their plans if they are facing the 50-employee threshold. They could decide to break up their operations into separate companies or hire more part-time workers.

As explained by Nina Totenberg and Julie Rovner for NPR, one of the key outcomes of the Supreme Court case is the extent of the ruling. If the individual mandate were to be ruled unconstitutional, other provisions could be affected, some of which are already providing benefits. Another possibility is that the Supreme Court could determine that it cannot rule on provisions that do not take effect until 2014.

A potential complication in the NFIB's case, as reported by Eric Markowitz for Inc. in December 2011, is that Mary Brown, one of the lead plaintiffs, recently filed for bankruptcy. The question is whether Brown still has standing in the case now that her business has been closed. The NFIB has argued that its standing was established by many individual small business owners. Therefore, the NFIB and Kaj Ahlburg, the other lead plaintiff, have standing. The NFIB also argues that Brown still has standing because she does not have health insurance and does not want to be forced to buy it.

Assuming the case proceeds, and provided the Supreme Court determines that a ruling does not have to be postponed, its ruling will most likely be welcomed by businesses. The ruling will provide some degree of certainty, and when businesses know what to expect, they can plan for it. If the health care law remains intact and costs are indeed passed on to businesses, the businesses with the narrowest margins will be the most impacted. The market determines what businesses can charge for their products and services, and any additional costs will affect the bottom line.


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