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Small businesses have been at the center of the Obamacare debate since the Affordable Care Act (ACA) first became law in 2010, so it should come as no surprise that some of the biggest changes proposed by the recently-revealed reform bill involve business owners.
The American Health Care Act (AHCA), the White House-backed replacement bill, is much shorter than its ACA counterpart, standing at 66 pages currently. The major changes in the bill would have a major impact on small business owners — both the “49ers” often cited by ACA opponents who say the mandate for businesses with 50 or more employees to provide coverage to their employees is forcing them to keep their business smaller than they’d like, as well as entrepreneurs who have been struggling to find affordable personal coverage on the public marketplace while they launch a business on a tight budget.
Here are the major impacts the bill (in its current state) would have on small business owners and how the small business community has received the proposed changes.
1. Elimination of the Employer Mandate Penalty
Obamacare mandated that employers with more than 50 full-time employees must provide a healthcare plan for their staff. There are certain requirements on what these plans must cover and if companies opt not to provide that coverage, they are subject to hefty penalties to the U.S. government. Under the proposed reform bill, the mandate won’t be repealed, technically, but the penalty will be set to $0, effectively removing the mandate for business owners.
“Repealing the employer mandate won’t impact the vast majority of small businesses since they aren’t subject to it anyway, and 96% of businesses with more than 50 employees already offered health insurance before the mandate,” Rhea Aguinaldo, Northern California Outreach Manager for Small Business Majority said. “The bottom line for small business owners is that they have benefited from the ACA, and many of the proposals in the American Health Care Act will make things worse for small employers because it will throw the insurance market into chaos and increase the costs/availability of insurance plans for businesses. Lawmakers would be better off bolstering the ACA than overhauling it.”
2. No More Individual Mandate
Individuals who don’t have health insurance will no longer have to pay tax penalties for lack of coverage. For many small business owners who don’t provide an employer-sponsored plan because of the cost or because they have too few employees and aren’t required to include it, this may come as a big relief. Under the mandate, if you went without health insurance for more than three months in 2016, the penalty was $695 per adult and $347.50 per child (a family’s penalty is capped at $2,085), or 2.5% of your household income above the tax return filing threshold for your filing status – whichever is greater. There are some exceptions to the fee.
Instead of the individual mandate, the new plan does have a 30% premium penalty that the uninsured will have to pay their insurance company if they’ve had a gap in coverage. The goal of this penalty is to encourage Americans to have continuous coverage.
“The effort is a good first step and America’s smallest business community – the self-employed and micro-businesses – applaud efforts to eliminate the unfair individual mandate, while preserving key safeguards from the prohibition on the ban on pre-existing conditions to ensuring coverage to age 26 and lifetime coverage caps,” Katie Vlietstra, Vice President of Public Affairs and Government Relations for the National Association for the Self-Employed (NASE), said in a statement last week. She also urged lawmakers to provide tax credits to incentivize Americans to get insured instead of punishing them for not having coverage.
The Bottom Line: Cost
Small business advocacy groups are split on some of the proposed reforms under the AHCA, as are many small business owners themselves. It could impact the small business community very differently, depending on the size of your business and your personal health care options if you don’t offer employer coverage. As Aguinaldo points out, many very small shops have taken advantage of the Medicaid expansion under the ACA while their income is low as they grow their business. But larger small businesses may be struggling to grow under the cost of increasing premiums, which they share with employees (for the most part — some small businesses cover 100% of premiums for employees).
According to a 2016 study by the Kaiser Family Foundation, employers take on the majority of premium costs for employees. On average, employees with single coverage paid 18% of their premiums, while employees with family coverage paid 30%. For small businesses, employees often paid larger shares of their premiums, however, topping 50% at times for family coverage from small businesses.
Cost is king for small businesses when it comes down to deciding which plans to offer employees or whether to offer coverage at all. It’s a perk most employees want, since employers tend to cover at least a portion of the premium cost, but small businesses can really struggle with the cost of providing premium coverage.
And increased healthcare costs can have a major impact on your small business. Besides the obvious impact it can have on your bottom line and profitability as a company — that money has to come from somewhere, after all — it can also impact your ability to access business credit when you need it. Cash flow is one of the most important things, next to your personal and business credit scores, that lenders examine when you apply for a business loan. If your cash flow is being eaten up by costs like healthcare premiums, it can hamper your ability to get a loan to grow your business when you need it. You can read this guide to cash flow to get a better understanding of what lenders look for in the underwriting process, and you can check your personal and business credit scores for free on Nav.com to see where you stand before you apply for a loan.
Will the American Health Care Act help or hurt your small business? Share your story in the comments below, we want to hear from you!
This article was originally written on March 13, 2017 and updated on March 21, 2017.
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