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    July 2011

    Small BuSineSSandHealtH inSurance:

    One YearafterenactmentOf PPaca

    Small BuSineSSandHealtH inSurance:

    One YearafterenactmentOf PPaca

    http://www.nfib.org/
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    The NFIB Research Foundation is a small business-oriented

    research and information organization afliated with the

    National Federation of Independent Business, the

    nations largest small and independent business advocacy organi-zation. Located in Washington, DC, the Foundations primary

    purpose is to explore the policy-related problems small business

    owners encounter. Its periodic reports include Small Business

    Economic Trends, Small Business Problems and Priorities, and now the

    National Small Business Poll. The Foundation also publishes ad hoc

    reports on issues of concern to small business owners.

    1201 F Street, NW

    Suite 200

    Washington, DC 20004

    nfb.com

    http://www.nfib.com/http://www.nfib.com/
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    One year ater passage o the Patient Protection and Aordable Care Act (PPACA), 42 percent o small employers

    defned as businesses employing 50 or ewer people other than the owner(s) oer employee health insurance. In the

    last 12 months, 1 percent o oering small employers added health insurance as an employee beneft while 4 percent

    o non-oering employers dropped it.

    The number o small employers oering employee health insurance is likely to change little over the next 12 months.

    Virtually no small employer now oering expects to drop health insurance in the next year and virtually no non-

    oering employer expects to add it in that time rame.

    Twenty (20) percent o small employers currently oering expect to signifcantly change their beneft package and/

    or their employees premium cost-share the next time they renew their health insurance plans. Almost all signifcant

    changes expected involve a decrease in benefts, an increase in employee cost-share, or both.

    Since enactment, one in eight (12%) small employers have either had their health insurance plans terminated or been

    told that their plan would not be available in the uture. Plan elimination is the frst major consequence o PPACA

    that small-business owners likely eel.

    Eighteen (18) percent o small employers think they are very amiliar with PPACA and another 40 percent think

    they are somewhat amiliar with the new law.

    By overwhelming margins, small employers who have some knowledge o the new law think that PPACA will not

    reduce the rate o health care (insurance) cost increases, will not reduce the administrative burden, will increase

    taxes, and will add to the ederal defcit. They agree that PPACA will result in more people having health insurance

    coverage, but do not think it will yield a healthier American public.

    The principal actor explaining the PPACA outcomes that small-business owners expect is their current oer/non-

    oer status. Those oering employee health insurance are notably more pessimistic about the new laws projected

    outcomes. Neither the degree o amiliarity with PPACA nor employee size-o-business is associated with theirexpected outcomes.

    Low-wage employees, particularly those experiencing a large premium cost-share, have a powerul incentive to bolt an

    employers health plan or the newly established and heavily subsidized exchanges. Should employees begin to leave

    or an exchange, 26 percent o currently oering small employers are very likely to explore dropping their health

    insurance plans and another 31 percent are somewhat likely to do so.

    A key actor in a small employers decision to drop a current health insurance plan will be the proportion o employees

    who leave their health plan or an exchange. Forty-three (43) percent report that a majority o employees would have

    to leave beore they would drop their plan and 35 claim it would require all o them.

    An estimated 245,000 (out o 5,228,000 employers with ewer than 25 employees) are eligible or a ull PPACA taxcredit. Another estimated 1.165 million are eligible or the partial credit.

    The PPACA tax credit acts almost exclusively as a windall or small employers who currently oer health insur-

    ance rather than as an incentive to encourage its purchase. Considering eligibility and awareness issues, the ull credit

    incents, but does not necessarily change behavior, o only about 2 percent o small employers having ewer than 25

    employees.

    Fity-seven (57) percent o small employers express interest in contributing to defned contribution-type health plans.

    Their interest assumes employees benefting rom their contributions receive equitable tax treatment compared to

    that in employer-sponsored plans.

    executive SummarY

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    SmallBusinessandHealthInsurance:OneYearAfterEnactmentofPPACA

    William J. Dennis, Jr., Senior Research Fellow, NFIB Research Foundation*

    The nationally representative survey on which this report is based was conducted one year

    ater the passage o the Patient Protection and Aordable Care Act (PPACA) in order to

    update small-business owner reaction to its passage, provide current projections or the

    adoption and elimination o health insurance as an employee beneit, and outline expected

    response to market and legal changes that may develop. Health insurance remains a princi-

    pal issue or small employers. It likely will remain near the top o their issue list or a long

    time, i not or its direct impact on its provision as an employee beneit, but or its budget

    and tax implications. Periodic assessments o small business and its relationship to employeehealth care and health care inancing thereore appears in order.

    The survey interviews 750 small employers o irms with 50 or ewer people.1 All

    survey respondents participate in making the irms decisions on employee wages and

    beneits (Q#D4). More detail on the surveys conduct appears in the note below.2

    One year ater enactment o the Patient Protection and Aordable Care Act (PPACA), 42 percent o small

    employing businesses oer employee health insurance (Q. 1). The well-known direct relationship between the numbe

    o people employed in a business and employer oers o health insurance continues with 35 percent o businesses

    employing nine or ewer people oering health insurance, 56 percent o those employing 10 19 people oering, and

    80 percent o those employing 20 50 people doing so.Two other important relationships involving the oer o employee health insurance appear, other actors equal. The

    frst is average wages paid. Small employers who pay higher wages on average are more likely to oer health insurance

    The phenomenon is most pronounced at the bottom o the wage scale where small frms paying an average o $12.50/

    hr. or less ($25,000 per year or less) oer in 19 percent o cases compared to 47 percent in frms paying more.

    The second relationship is the tie between oers o health insurance and decline in employment over the last three

    years. Small frms that lost jobs over the last three years are more likely to oer health insurance than those who either

    grew or had stable employment.3 There are plausible explanations or this phenomenon. One is that small employers

    sacrifced employees or health insurance during the recent recession. Very ew small businesses oering health insur

    Small BuSineSSand HealtH inSurance:One YearafterenactmentOf PPaca

    * denny.dennis@nfb.org

    1 Fity (50) employees was chosen as the small-business size boundary or current survey purposes. The boundary distinguishes employers who must and need

    not oer employee health insurance. Unortunately, the employer mandate in PPACA ails to distinguish between frms with 50 or ewer employees and

    frms with ewer than 50 employees or the laws purposes. Consecutive sentences defne small business dierently. (See, Sec. 1513(c)(2)(A and B)\4980H

    IRC or example.) Given the laws conusion, 50 employees or ewer was selected as the surveys delineation point on the grounds o simplicity.

    2 The data or this report were drawn rom a nationally representative telephone survey o small employers during the latter part o April and the

    frst hal o May, 2011. The survey was conducted or the NFIB Research Foundation by the polling frm Mason-Dixon, Inc. o Columbia, Mary

    land. The sample was drawn rom the fles o Dun & Bradstreet with small employer defned as those employing 50 or ewer people other than

    the owner(s). The survey has a 3.7 margin o error.

    3 On a bi-variate basis, small frms that did not change employment are least likely to oer with growing frms somewhat more likely. Those with

    lost employment are most likely to oer. However, controlling or employment size and average wages, and placing employment change on a

    three-point scale leads to a negative relationship between employment growth and health insurance oers.

    mailto:denny.dennis%40nfib.org?subject=mailto:denny.dennis%40nfib.org?subject=
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    ance eliminated the beneft in the last year as will be noted shortly, presumably a reection o events in the prior two

    years as well. When cost cuts were required, s