Study: Obamacare Costs Are Crippling Businesses
by M.D. Kittle
June 12, 2014
If the hope is for real, sustained recovery, the still-healing U.S. economy can't afford the Affordable Care Act, according to a new analysis.
The costs imposed by the ACA, better known as Obamacare, on small business will hurt hiring, employee compensation, and business growth, according to the report by National Center for Policy Analysis Senior Fellow Devon Herrick.
The NCPA is a nonprofit, nonpartisan public policy research organization based in Dallas.
"The Affordable Care Act contains sweeping changes to the employer-sponsored health insurance market," Herrick said. "Though it was promoted as a way to lessen the problems small businesses experience in providing health coverage, many business owners report that the law is increasing their burdens."
Herrick's analysis finds employers are passing increased healthcare costs on to workers, raising co-payments, boosting the costs of dependent coverage, delaying hiring, and reducing work hours.
That's a big hit to business at large. Nearly two-thirds of Americans with health coverage have employer-sponsored health insurance, which means much of the burden of complying with the ACA falls on the shoulders of business.
Here are some of the findings of the report, which includes a state-specific analysis of employee health insurance for California, Florida, Georgia, Maine, New York, Ohio, Texas and Wisconsin:
The Congressional Budget Office estimates the required coverage for individuals will cost $5,800 a year or more by 2016 — equivalent to an additional $3 per hour "minimum health wage." Family coverage could cost more than twice that amount.
Because businesses with fewer than 50 full-time employees are exempt from the requirement to provide health insurance, those with 50 or more workers are incentivized to cut their workforces, move employees to part-time, or not offer coverage at all. The ACA's $2,000 fine per worker for not providing health insurance is less than the cost of providing it.
While firms were told that their health plans would be "grandfathered," insulating them from regulation, that status is easily lost when plans change. Two-thirds to 80 percent of small-business employer plans will likely lose their grandfathered status. Large, self-insured companies and unions, however, are free to change their third-party administrators and still retain grandfathered status.
According to a survey by Morgan Stanley, premium rates have risen substantially. Firms renewing small group insurance in 2014 saw an 11 percent premium hike. For firms with coverage through BlueCross, the premium increase was almost 16 percent.
Premium increases were much higher in some states than others. Premiums for small group policies renewing in 2014 increased 66 percent in Pennsylvania, 37 percent in California and 34 percent in Indiana. Washington saw premiums rise by an astounding 588 percent.
"Given the official name of Obamacare, the Patient Protection and Affordable Care Act (ACA), one might think its purpose was, at least in part, to make healthcare affordable. If so, it has utterly failed, according to the latest Morgan Stanley survey of insurance brokers," Michael Tennant recently wrote in the New American. "That survey finds that individual and small-group insurance premiums, after falling for a few quarters, began climbing in late 2012 and are now increasing at double-digit — in some states, triple-digit — rates. What's more, the financial-services company's analysts place the blame for the rate hikes almost entirely on Obamacare."
It is important to note, however, that the Morgan Stanley survey includes data for Delaware and New Hampshire that depend on the response of just one broker in each state. The New Hampshire Department of Insurance has reported cost trends more in line with single-digit increases.
But the impacts are real and damaging in the small business sector.
In surveys, the National Federation of Independent Business in Wisconsin has heard from members faced with some tough decisions. One member said their business is looking at a 40 percent increase in premiums.
"We are at 49 employee threshold and would like to expand, but this along with all the other heavy-handed government pressure is really discouraging us from expanding," the business owner said.
Another NFIB member reports premium increases of 86 percent, and other deleterious effects that are just beginning to come to the fore.
"We have cut back our community sponsorships and donations as a direct result of the increased burden," the NFIB member said. "We are considering downsizing our business as a direct result of" Obamacare.
"Our businesses are asking, 'How will Obamacare impact my bottom line? Can I afford to hire another employee? Buy another piece of equipment to grow my business?" said Bill Smith, long-time state director of NFIB/Wisconsin. "And it always comes back to the uncertainty of how a federal program is going to impact their business."
Here's another point that should not be missed: The CBO estimates Obamacare will cost taxpayers $36 billion this year and $1.38 trillion over the decade, beginning next year.
"Journalists noted this (CBO estimate of Obamacare costs) is $5 billion less for this year than CBO had estimated in February; $104 billion less for the following decade. They missed the bigger story. According to CBO's numbers, for each additional person who gains health insurance, Obamacare will cost taxpayers $45,461," wrote Jack Kelly last month in the Pittsburgh Press.
"Our focus on the hardships Obamacare has imposed on many families obscures how badly the taxpayers are getting hosed," he noted.
The White House points to the rapid decline of Americans without health insurance, expected to fall from 42 million to 31 million by the beginning of 2025, according to CBO projections.
A study the State Health Access Data Assistance Center at the University of Minnesota, underwritten by the left-leaning Robert Wood Johnson Foundation, found individuals without health insurance in Minnesota fell from nearly 445,000 to 264,000, a decline of some 40 percent.
That's "mission accomplished" stuff for the Obama administration, but could it come at the cost of higher unemployment and more economic contraction? The U.S. economy shrank in the first quarter, the first noted quarterly contraction in three years. While indicators point to growth ahead, and more robust at that — as high as 4 percent in the second quarter, more burdens on U.S. business certainly can't help the expansion cause.
The impacts, according to the National Center for Policy Analysis, are being felt, and they may just come with a host of negative unintended consequences.
"The Obama administration itself admits that two-thirds of small employers could see a jump in premiums due to provisions of the healthcare law," the study's author notes. "More employers will see insurance cancellations and premium hikes this fall as they are forced to replace lower-cost health benefits with more comprehensive, ACA-compliant coverage."