Think Tank

How Do California Small Business Owners Feel About ACA?

Update: On July 2, the Obama administration announced that it would delay the employer coverage mandate until 2015 to provide businesses with more time to comply with its reporting requirements. 

Almost half of the country’s small business owners predict the Affordable Care Act is going to be bad for their business, according to a Gallup poll released this month.

In a survey of 603 small business owners conducted April 1 through April 5, Gallup researchers found that 48% of the owners surveyed said health reform changes would be bad for their business, compared with 9% who said it would be good and 39% who expect no change.

About four in 10 owners said they were postponing hiring and growth plans, and about one in five said they were laying off employees or cutting workers’ hours. Gallup officials said the survey suggests the ACA could be a significant drag on the U.S. economy over the short term.

How about in California, where the state’s new health insurance exchange — Covered California — is scheduled next month to announce insurers and premium prices in the Small Business Health Options Program (SHOP) exchange?

We asked stakeholders to assess the mood of small business owners In California.

We got responses from:

Once Owners Understand, They See Potential in ACA

As California leads the nation in working to implement the Affordable Care Act, our state’s small businesses are asking good questions about their responsibilities in helping to bring historic change to health care.

Through meetings, forums and reading the results of research like April’s Gallup Poll, Covered California is getting a clearer view of the questions small business owners have about the Affordable Care Act.

While it is clear that many have questions and uncertainties about the Affordable Care Act, we have learned that once small business owners understand the Affordable Care Act, the potential benefits of the law will be readily apparent. 

Covered California’s priority over the next few months is to help small businesses understand the Affordable Care Act. We are about to engage in an aggressive, statewide outreach and education campaign working with chambers of commerce, industry associations and others to explain the law and its benefits to small employers in the state.

We will ensure that small employers realize the Affordable Care Act’s coverage mandates are only applicable to employers with more than 50 employees and clear up other details that may be true for one state, but not California.

The current small group market rules have been in place for more than 20 years, so the confusion created by learning new rules is expected. But, for many small businesses, the changes will only improve their options at renewal. In 2014, small employers are no longer subject to underwriting, a term for the application process which evaluates your risk and applies a premium increase or discount based on the overall group risk. Also, coverage can no longer be denied for pre-existing conditions. 

As we work to educate on the Affordable Care Act, more small employers will realize they are encouraged but not mandated to offer coverage to their employees. More may also realize they might receive a tax credit to help pay for their employee premiums. For many years, some small businesses offered employer-based coverage, even though it is not mandated to attract and retain quality workers and also compete with larger employers that routinely offer employee benefits.  

Covered California believes that as we work to educate small business owners about the Affordable Care Act, more will see how the law will help to retain and attract quality workers and grow their business.

California Attitude 'Markedly More Positive'

Small businesses — some 700,000 of them in the state — are the backbone of the California economy, with 7.2 million employees, plus another 2.6 million self-employed Californians. One of the biggest plusses of the Affordable Care Act was its promise of more affordable health coverage for small businesses and their employees. Yet, partisan ideology and misinformation about the ACA abound and are, no doubt, major contributors to the doom and gloom found in the national Gallup small business owners poll.

In California, the small business community attitude is markedly more positive. Small Business Majority, a California-based national not-for-profit, conducted California polling in 2011, a year after the enactment of the ACA. It found widespread confusion among small business owners about the ACA. Yet, once given basic information about the tax credits that are available and about insurance exchanges — ours called Covered California — more than half said they would likely participate. One-third of small businesses not providing coverage said they would be more likely to provide it if it is offered through an exchange.

In fact, California has decided to do just that, opening the Small Business Health Options program for businesses with fewer than 50 employees in California in October 2013. Covered California, which just announced the plans and proposed rates for its individual policies, will make a comparable announcement regarding the SHOP in June. This program will provide choice for both employers who can select a level of coverage (and thus costs) for its employees, as well as employees who may choose among the plans in that tier. Covered California chose to open the SHOP even though the federal government delayed the requirement that state exchanges do so.

California is leading the nation in implementing and improving upon federal health reform, with Covered California creating standardized plans and soon a massive outreach program to foster large-scale enrollment. Recent listening tours by Small Business Majority found “resounding eagerness” among small business owners to learn about the ACA and its effect on their business. Employees and prospective employees of small businesses along with self-employed Californians are anxious to learn if they can get affordable coverage they can count on, rather than relying on the whims and out-of-reach prices of the current individual market. These folks need affordable health coverage to get and stay healthy. Getting them covered through broad participation in the SHOP will yield a healthy, competitive economy.

California Exchange Will Help Level Playing Field

Across the country and in California, small businesses are gearing up for changes to the health care market coming in 2014. Full implementation of the Affordable Care Act will bring innovative new ways for small businesses to purchase coverage. In fact, many entrepreneurs are already benefiting from provisions in the health care law.

Since 2010, tax credits have been available expressly for small employers to help offset their group coverage costs. Since 2012, the 80/20 rule known as the medical loss ratio has been requiring health insurers to reimburse customers for part of their health premiums if they don’t spend enough of their money on patient care.

These are only a few of the Affordable Care Act’s perks for business owners. According to Small Business Majority’s opinion research, entrepreneurs are happy that the law affords them these benefits. And the majority of California entrepreneurs are also looking forward to when Covered California opens. That’s the health insurance marketplace set to enroll small businesses in new, improved health plans beginning Oct. 1, 2013.

Our polling found that in California, just one in three small businesses with fewer than 50 employees offer health insurance to employees. But, when they are told that California’s marketplace opens in 2014 and it will allow them to shop for health insurance among competing companies either online or via a broker, the proportion of small business owners likely to offer health coverage to their employees jumps to 44%.

Choice of insurance carriers is important, too. More than two-thirds of small business owners planning to offer benefits in 2014 want their employees to be able to choose between multiple insurance carriers. Luckily for them, California recently affirmed that it will speed ahead implementing employee choice on Day 1 of enrollment. This kind of benefit, along with an employer-friendly billing process called premium aggregation, has historically been reserved for large businesses. Small businesses often have no choice but to offer a “one-size fits all” plan with added administrative hurdles. That is about to change.

By including employee choice and premium aggregation, the Affordable Care Act can reverse a longstanding trend that has left small employers on unequal footing for too long. California’s decision to include these exchange features right off the bat will go a long way in helping small businesses offer quality coverage options. That way, they can better compete with large businesses to attract and retain the best employees the state has to offer.

Small Business Benefits in Variety of Ways

In thinking about how the Affordable Care Act will impact small businesses, it is helpful to start with a few data points. Nearly one out of three Californian’s who are self-employed or work for a family business or farm are uninsured. Two out of five purchase coverage through the individual market. Taken together, two-thirds of them will qualify for premium tax credits through Covered California or will be eligible for Medi-Cal.

An estimated two million Californians working for small firms are uninsured and another one million purchase coverage in the individual market. Three out of four will qualify for premium tax credits through Covered California or will be eligible for Medi-Cal.

For all that Americans proclaim the importance of small businesses, according to a 2009 study by the Center for Economic and Policy Research, the United States has a much smaller small business sector than comparable wealthy democracies. As one of the authors, John Schmidt, points out, “In the rest of the world, entrepreneurs who want to start a new business don’t have to think twice about where they and their employees will get health insurance.”

The Affordable Care Act benefits small businesses in a variety of ways. It provides affordable options for coverage for small business owners and their employees. Guaranteed issue and community rating will ensure that no one is denied coverage. The new SHOP exchange will enable employers to offer their employees a choice of plans.

Health insurance has been shown to have positive impacts on worker productivity and labor force participation. There is good evidence that expanded coverage reduces absenteeism and disability-based exits from the workforce. Removing obstacles to access health insurance will open the door to greater entrepreneurship and small business creation, while decreasing “job-lock” so that workers skills better match their positions.

The Affordable Care Act also brings some costs to businesses. Higher plan standards will raise costs for some. Firms with fifty or more full time equivalent workers will need to provide coverage or pay a penalty. Since the penalty only applies to employees working thirty hours a week or more, some employers will have an incentive to keep part-time workers hours under that threshold.

On balance the law is good for the economy and good for small businesses. The Bay Area Council Economic Institute estimates the law will increase employment in the state by 100,000. That sounds about right. Hawaii and San Francisco provide instructive examples on the economic effects of employer requirements. In both cases they have much stronger employer requirements than are included in the Affordable Care Act. In neither case did they have a negative impact on employment.

Reform Good for Entrepreneurship, Small Business

Last year, the Bay Area Council Economic Institute released a study — for which I was a co-author — that predicted that putting the Affordable Care Act in place would lead to a net gain of nearly 100,000 jobs for the state. One particularly beneficial impact of the law is the extent to which it reduces “job lock,” in which people stay with a job because they need the health insurance. This is one major way in which the reform law will have a positive impact on small businesses, the vast majority of which, in California and elsewhere, are sole proprietorships without employees.

All of these entrepreneurs will now be guaranteed to be able to get health insurance, and most will receive generous subsidies from the federal government to help cover their costs. Very small businesses that provide insurance will also get assistance in the form of tax credits of up to 50% for two years. Larger small businesses will also benefit from the law, though not necessarily those portions that were aimed directly at them. Many of these firms do not provide health insurance for part-time or other classes of employees. These workers will now be able to access health insurance through Covered California, and insurance coverage makes people more likely to be present and productive on the job.

The small group or “SHOP” exchange will provide another option for businesses under 50 full-time employees, increasing competition. It is important to emphasize, though, that there have been significant additional compliance burdens placed, in particular, on businesses with more than 50 full-time equivalent employees; the “pay or play” requirement for these employers may be the most complicated policy ever developed by the federal government.

Ironically, though, much of this complexity is attributable to the government attempting to be more flexible, providing safe harbors for employers as they transition to the post-ACA world. HHS has been especially responsive to small business concerns, waving some reporting requirements indefinitely.

One thing on which Democrats and Republicans should be able to agree is to make it easier for small businesses to provide quality, affordable health insurance for their employees. Hopefully we can begin to work across party lines to enhance those elements of the law that help small businesses, and modify those that create unnecessary burdens.

Small Business Owners Uncertain About ACA Implementation

When asked about how the Affordable Care Act will affect small business owners in California and across the nation, there are two responses — “I don’t know,” and “We’ll see.”

There is a great deal of uncertainty right now across the board about the ACA, not the least of which is the ultimate cost of the implementation. With a change so mammoth and complex, it is really hard to determine what the final outcome will be. And there is really no way of knowing whether it will be good, bad or indifferent.

How will it change people’s behavior? I don’t know. What I do know is that hardly any small business owners think that it will help them. A recent Gallup Poll indicated that only 9% of small-business owners thought that the ACA would help their businesses — while over five times that number thought it would be bad.

While we’re at it, only 13% of small business owners thought the ACA would improve health care, and only 5% thought it would lower their businesses’ health care spending. In the lead-up to the law’s passage, we heard time and again that it was all about helping small business. Now, uncertainty is prevalent and few think the law will benefit small business.

When you own a small business, any increased costs have to be absorbed somewhere — either by increasing income or decreasing expenses in other areas. With the passage of Prop 30 last November in California, not to mention the passage of many local tax measures, small business owners are already facing increased costs of doing business. For many, profit margins are already so squeezed that it’s barely worthwhile staying in business. Add the ACA and the reality is that many may not be able to absorb any additional costs. And the ultimate result may be that they have no other option but to close their doors.

At the end of the day, however, the ACA is the law of the land and small business needs to be prepared. Here at NFIB, we stand ready to help our members comply with the law.