The Affordable Care Act Five Years On: How it affects Small Business

6 minute read

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Five
years after the Affordable Care Act was passed, health insurance experts
continue to debate its merits and dispute its value and impact on small
businesses.

Nancy Clark, owner and president
of the North Conway, N.H.-based marketing and advertising firm, Drive Brand
Studios, is a supporter of the law who believes health insurance is a right,
not a privilege.

Before the Affordable Care Act,
each November she would annually enroll her staff of nine in the only health
plan available because of her rural location. Since the ACA, however, she’s been
able to choose from five insurance carriers online through her state’s Small
business Health Options Program (SHOP).

“It was fantastic to go from
one to five carriers and next year we’ll be able to offer two plan options
through the carrier we select,” she said.
“I’m still paying half the cost of the plans, but I can offer more now. Choice
was one of the basic tenets of the ACA.”

She said her costs have stayed
within her budget and not escalated significantly.

“That’s more than I could say
for the previous 16 years before the ACA. Every year I was faced with double
digit increases,” she recalled, noting that one year premiums rose 28%. “I haven’t
had anything but marginal increases in last two years. The new law is working
for us.”

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[Nancy Clark, Drive brand Studios]

Clark views insurance not just
as an employer responsibility, but a recruitment and retention tool to attract
and keep good employees.

“The more you can help them
stay healthy and prevent problems in the long run, the happier and more
productive they will be,” she said.  “There
have been a lot of naysayers. This law is far from perfect. But it’s a step in
the right direction. At least now we have options.”  

Clark is one of hundreds
of thousands of small business owners grappling with the complexities of the
landmark ACA, also known as Obamacare. Congress have voted to repeal the law
more than 40 times. But the Supreme Court has rejected repeated legal challenges.

Insurance Industry
Issues

Insurers have complained the
law requires them to insure everyone, which meant accepting unknown risks they
claim have proven costly and accelerated a trend of insurance company
consolidations.

Gary Claxton, a vice president
of the Kaiser Family Foundation, said the ACA effect on small businesses has
been minimal to date, mostly because most small firms that had been providing
health insurance under grandfathered plans have continued to renew those
policies.

“We haven’t seen much change
yet,” said Claxton, who tracks healthcare market changes. “We’ll start to see
greater activity in 2016 and 2017 and the grandfathering exemptions expire and
they begin purchasing new policies.”

Matt Glaros, chief strategy officer for Schererville,
Ind.-based insurance brokerage Meyers Glaros Group, said employers have fewer options under the
Affordable Care Act than they did one year ago. But Glaros said the upside is
his firm hasn’t seen many small businesses dropping health insurance coverage
as was predicted.

“It’s getting more
confusing,” he said. “In many cases employers are looking at higher prices and costs
than they ever saw before. While more employees are insured, many are
underinsured and can’t afford to use their insurance because their deductibles are
so high. Most small businesses that are not renewing under grandfathered plans have
seen rate increases.”

Glaros advised small
businesses in the short run to keep their grandfathered health plans or seek
out community-rated plans if they’re priced well.

He said this year if
companies employ more than 50, they must meet minimum essential health coverage
as required under the ACA or pay fines to the federal government. But he
pointed out that requirement doesn’t apply if firms employ fewer than 50.  

David Chase, California director of the small business
advocacy organization, the Small Business Majority, said companies employing
100 or more have had to provide insurance or pay penalties. But Chase, whose
organization represents 40,000 small business owners nationally, said firms employing 50 or under face another change under the ACA.

Loophole Closed

“In the past, many small businesses unable to
offer employer insurance would set up reimbursement arrangements by subsidizing
employees to buy their own insurance on the individual marketplace,” he
explained.                                    
 

But an Internal Revenue Service regulation that took
effect in July 2015 effectively ends that practice, penalizing employers by
imposing fines of $100 per day per employee.                                   

“Employers need to know that practice is no longer allowed and that they
should steer away from it or risk those fines,” he said.

He said that premiums have
increased in the small business insurance market, but noted that they have
generally been low, single digit hikes, not the double digit increases many employers
faced year after year before the ACA.

He said there has also been a slight
uptick of the number of employees covered under employer- sponsored plans.

Chase said the political
rhetoric denouncing the law has impeded understanding and acceptance of its
small business provisions.

“You still find small business
owners struggling to understand the ACA because there has been so much
demagoguing,” he said. “We don’t need lawmakers taking potshots at it, but understanding
it and figuring out how to comply.”

Jack Mozloom, national
media director for the Washington, D.C.-based advocacy organization, the
National Federation of Independent Business (NFIB), said the law has failed to
live up to its promises of lowering healthcare costs. Mozloom, whose
organization represents 350,000 small business owners, said five years after
its passage, “The ACA has delivered all the bad things folks predicted and few
of the good things, at least in terms of the small bus universe.”

Mozloom said a recent
NFIB survey found that 62% of its small business owner members reported
premiums rising again, with many claiming 10% increases, and only 8% saying
premiums had dropped.

He said surveyed NFIB
members also believed their plan choices were limited, not expanded, under the
law.

Disincentives

“The law has generally been a disappointment for small business
owners.  And it’s creating a natural
disincentive for some employers to expand to employ more than 50 employees so
as to avoid the insurance mandates, which is not ideal for our economy.”

Jim Pyles, a healthcare attorney and partner with the
Washington, D.C.-based law firm Powers, Pyles, Sutter & Vervile, said an
integral goal of the ACA was to have insurance plans compete for business and
open access to a broad pool of customers so their costs would not rise too
much. “It’s worked somewhat well, particularly in states with multiple health plans
in states with healthcare exchanges,” Pyles said. “It has not worked as well in
states with little competition. In those states plan costs have tended to rise
more quickly.”

Pyles said that insurers have reported enrolling more
people, but those new customers were sicker and required more services, leading
to higher than expected costs.

“The question is whether we can keep healthcare costs from rising
so much that they become a crushing burden on small businesses,” he said.

Pyles said because of those unexpected high medical costs, health
insurers are at risk.

“They’re trying to figure out if they can survive and how to
do that with wide open liability and limited income,” he said, explaining that
is why so many health plans are merging.

He said that some health plans have figured out that the
costliest patients are those with multiple chronic conditions. Learning how to
treat those patients more effectively to avoid emergency room treatments and
hospitalizations through better prevention, disease management and education help
control costs.

Michael Lujan, co-founder and
chief strategy officer for San Francisco-based Limelight Health, which provides
technical support for insurance agents and the insurance industry, said in
California the majority of small business owners have opted to extend their
grandfathered plans and delay decisions to better understand the law.

“In November and December we
will see many of those groups moving to ACA plans for the first time,” said
Lujan, who is president of the California Association of Health Underwriters.
“In some states as much as 80% of small businesses did early renewals,” he
said.

He said California has seen
very moderate rate increases because it required plans to participate and
compete on pricing. But he conceded that there may be higher deductibles and
out of pocket expenses ahead.

“Many employers will change
from one plan to another and find the (healthcare provider) network more narrow
offering less access to providers than they used to have,” Lujan explained.  

He advised small business
owners to consult insurance agents and brokers, who have invested in seminars
and training on the ACA and have met certification standards to stay informed.

He said the ACA, like Medicare when
it was passed in 1965, was controversial. “Then, as now, there were many
alarmist headlines and predictions of doom. Now Medicare is widely accepted,”
Lujan said.  “And like Medicare, the ACA
will evolve and improve.”