Small Businesses Deserve More from Healthcare Reform
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By Janet Trautwein
President Obama marked the recent conclusion of open enrollment in the federal healthcare law's insurance exchanges with a celebration at the White House. The administration exceeded its goal of signing 7 million Americans up for insurance coverage.
Many small business owners are in a less festive mood. They're dealing with burdensome new rules, taxes, and premium hikes.
Fortunately, several measures that would offer small businesses relief from spiraling health costs are pending before Congress.
For many small firms, insurance is more expensive than ever. In a recent survey, 91 percent reported that their insurance costs rose following their latest renewal. A February report from the Centers for Medicare and Medicaid Services estimated that premiums would rise for two-thirds of workers at small businesses -- roughly 11 million Americans.
One reason for these price increases is the federal healthcare law's annual $8-billion fee on health insurance providers. Carriers will have to pass this added expense on to employers -- and consequently, their workers. Premiums are expected to increase by as much as $160 per person this year.
New federal "community rating" rules may also lead to higher premiums and create administrative headaches for small business owners. These rules do not allow insurers to charge older workers any more than three times what younger ones pay. The goal is to protect older workers -- and ensure that they have affordable coverage.
But in the small group market, community rating could have the opposite effect.
Prior to passage of the Affordable Care Act (ACA), insurers often charged small employers a uniform "composite rate," which took the overall age breakdown of the employees into account -- and did not reveal the details to employers or staff. In effect, the premium for each employee was the same, regardless of age.
But the ACA's community rating rules essentially bar insurers from issuing composite rates. Every employee's premium corresponds to his or her age.
Imagine explaining to a 60-year old employee that her monthly premium will be $900 while her younger colleague's will be $325.
And if the employer offers a set amount toward coverage for each employee -- or a percentage of the premium -- that older worker would have to pay more for coverage than she did pre-ACA. Employers could end up facing charges of age discrimination.
Fortunately, a bipartisan group of lawmakers in the House of Representatives has offered a measure that would moderate the rate shocks that small businesses may face. The bill would allow states to determine the appropriate ratio between premiums for the young and those for the old. In states that failed to act, a five-to-one ratio would be imposed, meaning that no person could be charged more than five times what any other person was charged.
This ratio more closely reflects the actual cost of care for the young and the old. Such a reform could also allow insurers to re-institute "composite rates" for small businesses, and thus achieve one of the primary goals of community rating.
Another group of lawmakers would like to get rid of the annual fee on health insurance providers. According to consultancy Oliver Wyman, such a move would ward off a 2.3 percent hike in premiums this year. That translates to savings of nearly $500 per family per year.
By making insurance more affordable, these measures would encourage more small firms to retain coverage for their workers. And that saves taxpayers money by keeping small business workers out of the exchanges, where they could qualify for subsidized coverage. The total savings to the federal government? More than a billion dollars over the next decade.
But those savings can only come about if Congress acts -- and soon. A recent survey found that 15 percent of small-business owners are considering dropping coverage altogether in order to cut costs.
Lawmakers can't risk that outcome. With open enrollment now behind us, the Obama Administration needs to turn its attention to the small business market. Small firms need relief from skyrocketing health costs. Lawmakers must find a way to provide it to them.
Janet Trautwein is CEO of the National Association of Health Underwriters.
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