Will Obamacare be the Death of Small Business?

Affordable Health Care Act - Good or Bad?

Affordable Health Care Act – Good or Bad?

By now you’ve heard just about every argument and claim made for and against Ombamacare. Some say it’s a good thing and we need to give it a chance, others suggest it’s simply a mistake and it needs to be repealed. With so many biased arguments and various sides muddying the waters, it’s difficult to cut through the media clutter and partisan politics to determine what exactly the Affordable Care Act means for small business.

Though the rules and laws are complicated, arguably one of the most polarizing pieces is the employer mandate. This part obligates businesses to provide insurance coverage for their employees beginning in 2014. However, it only requires firms with at least 50 full-time employees to comply, which is really only a tiny fraction of small businesses. It also regulates the kind of insurance companies offer, requires coverage of at least 60% of costs and premiums, and cannot cost more than 9.5% of an employees’ income.

Let’s take a look at some of the numbers and who precisely will be affected. There are approximately 5.7 million small businesses in the U.S.  “Small Businesses” are defined as those firms with fewer than 500 workers. Roughly 97% of this group has less than 50 employees. Therefore, the employer mandate only applies to 3% of small businesses, or approximately 200,000 companies.  The other 97% are not required to provide insurance.

Interestingly enough, most of the businesses that employ 50 or more people already provide some sort of insurance. In fact, 96% do, leaving only 4% that do not. Therefore, the majority of small businesses won’t have to worry about the employee mandate at all.  Those companies needing to be concerned, however, should not ignore the new laws, as compliance is not an option. Fines levied for those not in accordance are $40,000, plus an extra $2,000 per additional full-time employee.

When looking at the issue from a different perspective, Obamacare could be a boon for small business.  First, not having to worry about finding affordable health insurance will make it much easier for people to start businesses and engage their entrepreneurial spirits.  John Arensmeyer, a former small business owner who leads the advocacy group Small Business Majority, recently said in an interview, “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.” Often people stay in jobs they don’t like or aren’t suited for simply for the benefits – a phenomenon called “job lock”.  “With the new law, job lock goes away,” Arensmeyer said. “Anyone who wants to start a business can do so independent of the health-care costs.” Studies show people who are freed from job lock are more likely to undertake something entrepreneurial.  One recent study projects that Obamacare could possibly enable 1.5 million people to become self-employed.

Health care costs have been a long time source of anxiety and could be mitigated or even eliminated with help from the Affordable Care Act.  The fact that most Americans get their health care coverage through their employers is a historical accident.  During World War II when many wages were frozen, companies began offering insurance to help make up for the inability to pay their employees.  Since the war, there have been several failed attempts at creating universal health care coverage.  The current system has worked well enough but leaves small businesses in fear of high premiums or an unstable cost structure at risk of skyrocketing.

Obamacare changes all this. Tax credits offered to small businesses helps them take advantage of some perks larger companies now enjoy.  For example, rules sharply restrict an insurers’ ability to charge a company more based on employees with higher health costs. As well, companies will be able to pool their risks to get better coverage at affordable rates, not only lowering costs, but also helping small businesses worry less about personal health issues and hire based on skills and experience.

A 2009 study by economists John Schmitt and Nathan Lane documented the reality that our small business sector is one of the smallest in the developed world.  Furthermore, the U.S. has one of the lowest self-employment rates, too.  It’s plausible to think that one reason is because we don’t have a universal health care plan.  Changing this might be something small businesses and entrepreneurs can celebrate.