Nov 18, 2015 - 12:00pm

How Obamacare Has Been a Flop for Small Businesses


Senior Editor, Digital Content

President Obama’s health care law has been a headache for so many small businesses in the five years it’s been law. Costly mandates and high taxes are to blame.

For instance, many business owners were hopeful that the SHOP (Small Business Health Options Program) exchanges—when they weren’t delayed--would offer affordable health plan options. However, Sally Pipes of the Pacific Research Institute writes that it’s been a failure for small businesses:

Earlier this year, the Congressional Budget Office projected that a million people would enroll. Instead, 85,000 workers from 11,000 companies have done so. Those 85,000 represent less than 1 percent of all workers covered by small-group plans outside Obamacare’s exchanges.

Many states’ SHOP exchanges are ghost towns. In Kentucky, only 92 employers signed up. Washington, Minnesota, Maryland, and Idaho all saw fewer than 200 workers enroll.

The promise that workers would be able to choose from a range of health plans has not been kept. In many states, there are fewer plans offered inside the SHOP exchange than on the private market outside. In several states, there’s only one.

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As for keeping premiums down, it’s failed to do that too:

Most haven’t ventured onto the SHOP exchanges because the plans available are more expensive than the ones they already have.

In California, for example, an estimated 7 out of 10 companies have kept their original coverage rather than switch to plans that have received Obamacare’s seal of approval.

“Most of the small group plans that had larger-than-average rate increases by switching to ACA plans [instead] grandmothered their plans” to avoid increases in costs, said Patrick Burns, president of the California Assn. of Health Insurance Underwriters, in an interview with The Los Angeles Times.

High premiums stem from costly health care law mandates, Pipes writes:

The law’s essential health benefits mandates, for instance, require insurers to cover services in at least 10 different categories, even if a person has no need for, say, maternity care.

SHOP-approved plans must also comport with the law’s rules on actuarial values, which dictate the percentage of overall costs that a policy must cover.

Finally, Obamacare limits what insurers can consider when setting rates to geographic location, the size of one’s family, age, and tobacco usage. And it puts all small groups in the same risk pool — so firms with healthier workforces pay much more for coverage than they if they were underwritten on their own.

Thanks to these mandates, insurers have little choice but to raise their prices.

While the SHOPs have been flops, the health care law’s higher taxes have been burdening small businesses.

Obamacare’s Health Insurance Tax (HIT), went into effect in 2014 and imposes a tax on health plans sold on the fully-insured market, 86% of which is made up of small businesses.

The National Federation of Independent Business has said that as many as 286,000 jobs will be lost because of the HIT. Most (57%) coming from small businesses.  

The tax doesn’t sit well with small business owners. According to a poll by the Stop the HIT Coalition, two-thirds of them with between five and forty-nine employees say their health plan costs will increase because of the HIT, and 55% of all small business owners surveyed said their health plan costs to rise because of the tax.  

The tax’s higher costs will force small businesses to make painful adjustments. Nearly eight-in-ten (78%) say rising health insurance costs will push them to either reduce health plan coverage for their employees, stop hiring workers, or cut back on growing their businesses.

Washington needs to deliver as dose of legislative aspirin to ease small business owners’ health plan pain.

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About the Author

About the Author

Sean Hackbarth
Senior Editor, Digital Content

Sean writes about public policies affecting businesses including energy, health care, and regulations. When not battling those making it harder for free enterprise to succeed, he raves about all things Wisconsin (his home state) and religiously follows the Green Bay Packers.