Small employers are often portrayed in the media as down on the Affordable Care Act, anxious that it will raise their costs and expose them to greater regulation. And opponents of the law like to claim that it will “kill jobs” and cause people to lose the coverage they have.
Of course, providing health insurance to their workers has always been voluntary on the part of small employers, and it will continue to be voluntary under the ACA (employers with under 50 employees face no penalty for failing to provide coverage). But many small business owners provide health insurance to employees because it helps them recruit and retain a healthy and productive workforce, and they’ll continue to do so post-ACA if it is in their business interest to do so.
No one has a crystal ball, so a lot of the rhetoric about whether employers will or won’t continue to offer coverage, or whether they’ll cut jobs or hours, is sheer speculation. But an interesting survey by the National Federation of Independent Business (NFIB), a trade group representing small employers, provides some possible hints. The NFIB opposed the ACA when it was debated in Congress and has consistently called for its repeal and replacement. However, its survey of small businesses reveals findings that refute the dire claims ACA opponents have been making.
Claim #1: The ACA Will Cause Small Employers to Drop Coverage
Actually, this survey finds that, reversing a decade-long trend, more small employers “definitely” or “probably” will offer their employees health coverage than those who intend to drop coverage. Specifically, 3 percent of small employers who don’t currently offer coverage say they “definitely” will next year, and 10% say they “probably” will. In contrast, just 2 percent of small employers who do currently offer say they will definitely drop coverage and 5 percent say they probably will.
Claim #2: The ACA Will Cause Small Businesses to Cut Their Workforce
According to the NFIB survey, only 13 percent of small businesses report that they pursued an employee “contraction” strategy within the last 12 months. And significantly, the survey’s author states: “it seems clear that many of those reductions are not tied to the ACA, though the survey specifically mentioned it. Other factors [such as profitability] often appear more important or are the actual reason.” In addition, about half of the businesses reporting size reduction do not currently offer health insurance, so changes to health insurance rules under the ACA won’t affect them anyway.
Claim #3: The ACA Will Cause Small Businesses to Cut Employees’ Hours
Here again, the survey refutes the claim. Only thirteen percent of small businesses report an intention to cut the hours of part-time employees, and no more than half of the planned cuts are associated with the ACA. In fact, the correlation between health insurance and cuts in employee hours was opposite of what ACA opponents have been predicting: more employers who do not offer insurance planned to cut employee hours than those that do offer insurance (16 percent vs. 12 percent). The authors conclude: “Plans to reduce employee hours seem strongly tied to profitability rather than ACA.”
Claim #4: The ACA Will Increase Costs for Small Businesses
The survey does confirm what we’ve all known for a long time – premium costs have been climbing for small businesses. In this survey, 64 percent reported that they paid more per employee for health insurance this year than they did last year. The average increase was about 12 percent. But nothing in the survey connects those cost increases with the reforms in the ACA. In fact, the ACA may actually be contributing to a moderation in the long-term trend of cost increases, with national spending on health care hitting a new low for the fourth consecutive year.
Claim #5: The ACA Will Cause Small Businesses to Self-Insure
Admittedly, it wasn’t ACA opponents raising concerns that small employers might turn to self-insurance to escape the ACA’s insurance rules, it was a number of policy wonks and consumer advocates – including myself. However, this survey suggests that small employers are not shifting to self-insurance in any significant way – at least not yet. But, the report’s authors note that “interest is rising.” Four percent of small employers currently self-insure, and it is more common in mid-sized businesses (with 50-100 employees). Four percent say they are “highly” likely to switch to self-insurance and 7 percent say it’s “somewhat” likely. Interestingly, while the NFIB’s report acknowledges that self-insurance can be a “good deal” for some small employers, it also says, “[s]mall business advocates should be concerned if the lion’s share of good risks suddenly opts for self-insurance.” This is because, as the Urban Institute has projected, those businesses that continue to buy insurance – those with older and sicker workers – will be stuck with significant premium increases and many may drop coverage as a result.
As with much of the public debate around the ACA, it can be difficult to separate the rhetoric from the reality when it comes to claims of how the ACA will impact small businesses. The NFIB survey provides a useful snapshot of how small employers’ business decisions may – or may not – be affected by the ACA.
