Oct 8, 2013

Affordable Care Act: Good for Small Businesses?

I found a great and incredibly thoughtful article in the New Yorker by James Surowiercki, who provides a real and honest perspective on the impact of the Affordable Care Act (aka ACA, Obamacare) and small businesses.  Personally, I've found arguments against Obamacare to be wildly slanted with unsubstantiated claims and fear pandering.  For instance, to say that small businesses will not hire employees because of the ACA is asinine.  A small business will hire people if there is an increased demand for its products or services ... period.  Introduce me to a small business owners who will say, "Yes, I have growing demand for my business, but I won't grow because of Obamacare", and I'll introduce you to ten who would LOVE to have that problem.  Anyway, here are some of the takeaways from Mr. Surowierchi's analysis.

To demonstrate the overall impact of the ACA on small businesses, consider this:
  • 96% of US small businesses are under 50 employees and not remotely affected by the law.  And 90% of employers above this limited already offer health insurance.  Only about 3% of the businesses in the US will fall into the "gray zone", so the effect on the small business economy will be tiny.
So how can the ACA actually be GOOD for small businesses?
  • It will now be easier for individuals to start companies.  As an entrepreneur with a family, I can completely relate to what John Arensmeyer of the Small Business Majority pointed out:
“In the U.S., we pride ourselves on our entrepreneurial spirit, but we’ve had this bizarre disincentive in the system that’s kept people from starting new businesses.” Purely for the sake of health insurance, people stay in jobs they aren’t suited to - a phenomenon that economists call "job lock". “With the new law, job lock goes away. Anyone who wants to start a business can do so independent of the health-care costs.  Studies show that people who are freed from job lock (for instance, when they start qualifying for Medicare) are more likely to undertake something entrepreneurial, and one recent study projects that Obamacare could enable 1.5 million people to become self-employed."
In general, I am still bewildered that businesses are responsible for individuals' health care in the first place.  Businesses aren't required to provide for employees' car insurance, life insurance, etcetera, so how is that the are required to cover health insurance?  Mr. Surowiecki summarized this phenomena as follows:
  • The fact that most Americans get their insurance through work is a historical accident: during the Second World War, wages were frozen, so companies began offering health insurance instead. After the war, attempts to create universal heath care were stymied by conservatives and doctors, and Congress gave corporations tax incentives to keep providing insurance. The system has worked well enough for big employers, since large workforces make possible the pooling of risk that any healthy insurance market requires.
But this system no longer works and in general is unfair and creates a competitive disadvantage for small businesses.  The ACA could ultimately level the playing field, however, making it easier for small businesses to compete with larger corporations in this regard.  Again, Mr. Surowiecki explains
  • The ACA will help small businesses with health-care costs, making it easier and more competitive for those who wish to offer coverage to its employees.  Insurance companies will no longer be able to create negative "experience ratings" for small business, which in the past would negatively affect premiums.  For instance, a small business that employs mostly women was, in the past, charged more for its healthcare.  And, in cases when an employer has an "at risk" employee, for instance a mother who gives birth to a child with diabetes, the insurer can no longer hike up rates or discontinues coverage for the entire organization.
So, in the end, we'll just have to wait and see how the ACA plays out.  As a big fan of Amazon.com and other web-based shopping sites, I am excited to see how the competitive online market affects pricing ... just as soon as HealthCare.gov works out its bugs!  Seriously, guys, you say there are 10 million people without healthcare, but didn't plan on 10 million people hits on the site???  #PlanningFail

Have any thoughts on the topic?  If they are civil and constructive, please share below: