Small businesses are the engines of the American economy, but it’s getting to the point where it is almost impossible for them to get ahead.
Soaring health costs are negatively impacting their ability to compete and still offer affordable health coverage for their employees. Since 2004, the average annual family premium in small firms increased 69 percent. Family insurance premiums for small firms increased from $9,950 in 2003 to $16,834 in 2014, according to the Kaiser Family Foundation. The problem is the economy rose at just a fraction of premium increases, creating an affordability gap many find too difficult to surmount.
As result of rising medical costs, benefit mandates, and new Affordable Care Act rules, health insurance premium increases are expected to skyrocket in the years ahead. In 2016 alone, we estimate small businesses can expect premium jumps of 10 to 20 percent on average. Many will experience even steeper rate increases.
Congress has an incredible opportunity to pass legislation that is supported by both Democrats and Republicans that would provide much-needed relief to small businesses. These changes will lower health costs and cut red tape, a goal both parties share. The question is, will Congress lead, or will partisan politics trump commonsense reforms?
(1) Protect and Preserve the Small Group Market
Next year, the ACA will change the definition of the small group market to include employers with up to 100 employees – an increase from the current definition of up to 50 employees. This change will force many companies, which have historically been defined as a “large group,” into the “small group market” for the purpose of buying health insurance.
As a result, these companies will have to comply with new mandates, like benefits, rating rules, and actuarial value requirements that will drive up premiums. According to an Oliver Wyman report, if the small group definition moves to 100, premiums could increase by approximately 18 percent. This is unacceptable, and it doesn’t have to be this way.
The Protecting Affordable Coverage for Employees Act will avoid this unnecessary 18 percent increase in premiums and allow employees to keep their existing health insurance plans. This bipartisan, bicameral legislation will provide states with the flexibility to increase the small group market from 50 to 100 if they choose, but remove the requirement that forces states to change the small group definition.
This means that states’ rights will be preserved when it comes to the small group definition. So, if the State of Nevada or the State of Kentucky want to keep their small group market at 1-50 employees, because that is what works best their residents, then these states will be able to do so. States will also have the flexibility to modify the definition if the need arises.
(2) Allow Employers to Use Health Reimbursement Arrangements
Small business owners with less than 50 employees are not subject to the employer mandate, but the IRS is punishing them with crippling fines if they help their employees with their health care costs by offering Health Reimbursement Arrangements. HRAs are nothing new. They’ve been around for several decades and allow employers to provide tax free health dollars to help defray costs associated with health insurance or medical expenses.
The IRS says HRAs are really group health plans, not accounts, and must therefore comply with all of the Affordable Care Act’s rules. But HRAs aren’t health plans, and so they fail the ACA’s annual and lifetime limit tests, among others. As a result, businesses are faced with IRS fines of $100 per day per employee if they continue to offer an HRA without a major medical benefit. That totals $36,500 per employee, up to $500,000 in total, or 18 times more than the penalty for dropping coverage.
What small business owners will continue to offer additional assistance? None, and employees will pay more in out-of-pocket expenses for health insurance and other medical costs as a result.
The bipartisan Small Business Healthcare Relief Act will allow employers to offer HRAs to employees for the payment of premiums or for qualified medical expenses associated with insurance coverage without facing an outrageous fine.
(3) Simplify Onerous and Time Consuming Reporting Requirements
New regulations under the ACA saddle businesses with additional requirements to report to the IRS information about the health insurance coverage they offer to their employees and their dependents. Small businesses simply do not have the resources and personnel to dedicate to these types of compliance matters.
The Commonsense Reporting and Verification Act and the Commonsense Reporting Act of 2015 will significantly reduce the burdensome employer mandate reporting requirements under the ACA for businesses, and at the same time, take steps to improve privacy protections for individuals and families.
All three bills are bipartisan, have been fully vetted and will save taxpayers, businesses or consumers real money. When voters ask what has been done to help small businesses and their workers better afford health coverage, there is no doubt that these three bipartisan health care bills should be part of the answer.
Joel White is the President of the Council for Affordable Health Coverage, a multi-stakeholder advocacy organization founded in 2001 that is dedicated to lowering health costs.