Next up for ObamaCare market disruption: small businesses

The White House may be breathing a little easier lately on ObamaCare, having weathered the initial storms of a still-dysfunctional website and the cancellation of millions of individual policies.  The latter won Barack Obama the Lie of the Year at Politifact (after Politifact had argued for more than two years that Obama hadn’t lied at all in the “you can keep your plan” promise) and the 2013 Mr. Pinocchio Award at the Washington Post. The outrage on all of these probably won’t sustain itself over the Christmas holidays, and if nothing else transpires, the media will begin looking for new stories.

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Or will they? Politico reminds everyone that there are still some big shoes left to drop:

Think the canceled health policies hurt the Obamacare cause? There’s another political time bomb lurking that could explode not too long before next year’s elections: rate hikes for small businesses.

Like the canceled individual health plans, it’s another example of a tradeoff that health care experts have long known about, as the new rules for health insurance prices create winners and losers. But most Americans won’t become aware of it until some small business employees learn that their premiums are going up because of a law called — oops — the Affordable Care Act.

Some will learn the opposite, that their premiums are going down because of the law. But as we saw with the canceled individual health plans, it’s the losers who will get most of the attention.

And the timing will be terrible for Democrats: A lot of those small businesses will have to start dealing with their new prices in October — just in time for Republicans to make it an issue in their mid-term election campaigns.

Why will small business plans be a big political issue? It’s the problem of scale in the employer mandates:

Here’s why: Next year, small business health plans — generally those that cover less than 100 workers — will have to comply with a wide range of new rules, particularly the ones that say employees can’t be charged more if they have health problems. Their premiums will only vary based on their age, whether they have individual or family coverage, what part of the country they live in, and whether they use tobacco — and older workers won’t be able to be charged more than three times as much as younger ones.

Those changes will be helpful to small businesses with older workers and employees with health problems, but they also mean that small firms with younger, healthier workers will have to pay more than they used to. The new small business plans will also have to cover the same set of minimum benefits that individual health plans will have to provide, including pediatric care and mental health and substance abuse services.

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Larger businesses have a better economy of scale for these issues, plus generally a balanced workforce.  Most small businesses of 50-100 workers won’t have that kind of demographic balance. In fact, while larger businesses can absorb the costs of a few really sick employees and dependents, even one hardship case at a firm of 50-100 employees could seriously skew the risk pool for everyone else.  Insurers are going to calculate rates on that basis, and that means everyone will pay more.

That goes for larger businesses too, but the bumps should be shallower. This means that larger firms will gain yet another competitive advantage over smaller firms, both in the labor market (by offering lower costs on premiums and better benefits) and in the consumer market (by keeping their costs of production lower). But the employer mandates are still more likely to have small and medium-sized businesses dumping employee coverage in favor of the fine, and that may even be true of larger firms, as HHS predicted three years ago.  The next big shoe may drop as many as 93 million times.

Update: One commenter notes that the White House will try to move this shoe-drop to past the midterm elections.  They already have — in theory — by moving the mandate enforcement date next year to mid-November rather than October 1. However, these businesses will be planning costs for 2015 in August and September of 2014, not late November, and will demand pricing well ahead of the elections. If they don’t get it, they will probably opt to drop coverage and pay fines, which will be fixed costs on which they can confidently plan the next year’s budget.

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Duane Patterson 11:00 AM | December 26, 2024
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