Small Firms Struggle under Obamacare

August 12, 2014

Businesses with less than 50 employees are not subject to the Affordable Care Act's employer mandate. But as Angus Loten of the Wall Street Journal reports, these small employers are still feeling the effects of the law.

Thousands of very small business owners, such as sole proprietors, lost their small business health insurance plans in the early part of 2014, because the ACA requires "employers" to have a minimum of two full-time employees in order to qualify for group health insurance.

  • The vast majority -- over 78 percent -- of the United States' 28 million small businesses have no employees and therefore must purchase individual, not group, coverage.
  • Some of these business owners who have lost their group plans are finding the individual market to be costly.
  • The Small Business Association of Michigan has 4,000 small business members with health insurance covering 40,000 employees and families. Last year, the association was forced to remove 700 sole proprietors from its plan.

Loten gives the example of one small business -- an engineering firm -- that is struggling to come to terms with the new health regime. Raymond Pezonella provides health insurance for himself and his 30 employees through an Association Health Plan administered by the Builders' Association of Northern Nevada. Altogether, 220 other local businesses are on the plan, and Pezonella's employees pay $1,800 in monthly premiums.

  • Under the Affordable Care Act, however, the Builders' Association is considered a "small group" because no member firm has more than 50 employees and each pay their own rates.
  • Small group status brings with it a new set of rules, including restrictions on premium limits based on risk.
  • According to the executive director of the Builders' Assocation, plan members' premiums are expected to rise an average of 40 percent in 2015.

According to small-business benefits consultant Tony Novak, the majority of small businesses would benefit from cancelling their group health coverage and allowing their employees to purchase their own insurance in the individual market.

Devon Herrick, senior fellow at the NCPA, has written about the employer mandate and its impact on employers with 50 or more employees here.

Source: Angus Loten, "Small Firms Hit by Big Changes in Health Coverage," Wall Street Journal, August 6, 2014.

 

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