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Why Small Business Wants Repeal of ObamaCare

Wednesday, February 2, 2011

The law is unpopular among small business owners because it is not making employee health insurance more affordable.

One of the major goals of the Patient Protection and Affordable Care Act (aka “ObamaCare”) was for more small companies to provide employee health insurance, since far fewer small businesses than large businesses offer it. According to the Kaiser Family Foundation, almost 100 percent of businesses with 200 or more employees offer them health insurance, but only 68 percent with more than two and fewer than 200 employees do. And a Discover Small Business Watch survey reveals that only 8 percent of businesses with two or three employees offer employee health insurance, while only 3 percent of companies with one employee provide it.

Unless very small businesses are encouraged to offer employee health insurance, we will not get close to 100 percent of private employers providing insurance. According to data from the U.S. Small Business Administration, businesses with no more than nine workers accounted for 79 percent of all U.S. companies with employees in 2007, and those with four or fewer employees accounted for 61 percent.

To encourage small business owners to offer employee health benefits, the new law offers tax credits to help pay for them, with the largest credit going to micro businesses that employ fewer than 10 employees. Some observers have argued that these tax credits encourage small business owners to start providing employee health insurance, but I disagree.

Unless very small businesses are encouraged to offer employee health insurance, we will not be able to get close to 100 percent of private employers providing insurance.

If the law’s tax credits help small business owners, then why do these business owners favor repealing the law? The January 2011 Discover survey shows that 55 percent of owners favor repealing the healthcare law and 36 percent oppose repeal. Moreover, despite the availability of tax credits encouraging small business owners to provide health insurance, 46 percent of them feel that the new law will hurt their business, and only 27 percent think it will help.

The negative view of the law does not reflect a lack of concern about health insurance. Roughly 59 percent of those surveyed believe that healthcare costs negatively impact their businesses, and only 32 percent believe these costs have no impact. Moreover, 69 percent of business owners say it is difficult to find affordable healthcare for themselves and their families.

These numbers have changed little from before the law was enacted. Back in 2007, 67 percent of owners said it was difficult to find affordable health insurance. Clearly, the passage of the law and accompanying tax credits did nothing to change small business owners’ perceptions that health insurance is largely unaffordable.

In the last year the average employee’s share of healthcare premiums rose 1.2 percentage points to 15.1 percent of the total cost.

This view probably reflects the fact that the law has not slowed the rise in healthcare premiums. Health Benefit News reported that changes in the COBRA policies under the law actually led to a higher than forecast increase in private business’s spending on health benefits in 2010.

Despite the new law, small business owners must still pass on a greater share of healthcare costs to their employees. According to the Kaiser Family Foundation, the average employee’s share of healthcare premiums rose 1.2 percentage points to 15.1 percent of the total cost in the last year. In businesses with fewer than 200 employees, the average worker contribution for people with single coverage rose from $625 to $865 per year.

Some have argued that the tax credits have helped increase the number of small companies providing health benefits to their workers. For instance, The Wall Street Journal wrote that “the number of small businesses offering health insurance to workers is projected to increase sharply this year, recent data show, a shift that researchers attribute to a tax credit in the health law.”

But newly released data from the Discover survey reject this claim. In January 2010, before ObamaCare was passed, 12 percent of small business owners surveyed by Discover offered employee health insurance. In January 2011, after the tax credits had been put in place, only 10 percent of the owners queried offered it.

The passage of the law and the tax credits that accompany it did nothing to change small business owners’ perceptions that health insurance is largely unaffordable.

American Express Open Small Business Monitor—which measures bigger small businesses than Discover, including companies with up to 100 employees—said that the share of small companies providing workers with health insurance decreased by 21 percentage points between March 2009 (before the new law was passed) and September 2010 (after the law was enacted and the tax credits had become available).

Some supporters of the law have pointed to Kaiser Family Foundation figures, which showed that the share of the smallest businesses providing employee health insurance jumped 13 percentage points between 2009 and 2010. But the fine print in the Foundation’s report shows that the rise in the percentage of small companies offering employee health insurance is a mathematical artifact of the increased failure rate of small businesses during the Great Recession. The disappearance of more companies that did not offer insurance has lifted the share of companies providing insurance for reasons having nothing to do with small business owners’ response to the new law.

The law is unpopular among small business owners because it is not making employee health insurance more affordable. Despite the tax credits offered, the share of small businesses providing insurance is still dropping. Facing continued increases in premiums despite the law’s passage, small business owners are still passing on a greater share of costs to their employees. It is no wonder so many of them think the law is adversely impacting their businesses and should be repealed.

Scott Shane is the A. Malachi Mixon III Professor of Entrepreneurial Studies at Case Western Reserve University.

FURTHER READING: Shane compares “Small Business, Big Regulatory Burden,” discusses “Small Businesses and Big Unintended Consequences,” and explains “Why Small Business Owners Trust the Tea Party.” AEI’s Kevin A. Hassett says a “Divided Washington Is What U.S. Economy Needs,” notes “The Small Business Tax Hike and the 97 Percent Fallacy” with Alan D. Viard, and says “ObamaCare Only Gets Worse Upon Further Review.”

Image by Rob Green/Bergman Group.

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