by Kim Krisberg
At Palm Beach Groves in Lantana, Fla., a small, seasonal business that ships fresh citrus nationwide, employees have regularly voted between getting a raise or keeping their employer-based health insurance. Health coverage always wins, as many employees' ages and pre-existing conditions would have made it nearly impossible to get coverage on their own.
In her 12 years with Palm Beach Groves, general manager Louisa McQueeney has seen insurance premiums go up anywhere from 12 percent to 32 percent a year. Coverage for her family alone — herself, her husband and daughter — was $1,300 a month with a $5,000 deductible, she tells me. Then last year, premiums went up by less than 1 percent and overall costs went down by $9,000 — a turnaround McQueeney believes is directly because of new regulations and tax credits in the Affordable Care Act (ACA).
"The last couple years, knowing that reform was out there kept us hanging on by a hair," said McQueeney, who's also the company's chief financial officer. "If things went on as they had in the past, it would be unsustainable to continue offering coverage. If the whole law goes away and we're back to where we were, I don't see how we can sustain."
The experience at Palm Beach Groves reflects what many independent researchers predicted would happen under the ACA and runs contrary to some politicians’ assertions that the health reform law is bad for business and will result in more employers dropping employee health insurance. In fact, a new report from the Urban Institute on the topic found that even though "critics frequently characterize the ACA as a threat to American business and to the survival of employer-based health insurance...Objective analysis of the ACA's impact on coverage and costs demonstrates the opposite."
According to the report, for small businesses with fewer than 50 workers — such as Palm Beach Groves — who are exempt from ACA penalties and eligible for premium tax credits, average costs per person insured go down 7.3 percent and overall spending decreases by 1.4 percent. In addition, the increased competition and transparency that state-based health insurance exchanges are expected to bring to the market will be a major boost for small business. (Florida is one of a number of states whose policymakers refuse to set up an exchange, which means federal officials will do it instead). The institute's report states:
Centralizing marketing functions is expected to reduce the costs of selling insurance to the smallest employers. These administrative costs are currently significantly larger, relative to premiums, for small than for large employers. Further, the improved ability to evaluate and compare alternative plans will enhance small employers' ability to get value for their dollar and will enhance their employees' ability to choose a plan appropriate to their needs.
At Portland, Oregon's Hawthorne Auto Clinic, co-owner Jim Houser is looking forward to taking advantage of the state's new insurance exchange. In fact, Houser is a member of a consumer advisory committee that's providing input as Oregon officials create the state's exchange.
At the auto clinic, Houser said premiums doubled from 2001 to 2009 to $100,000 a year for the business' nine employees and their families — "that's totally unsustainable," Houser told me. He said as a small business, he felt he had "no leverage whatsoever" in negotiating coverage for his employees. But with a state-based insurance exchange, he expects he'll have many more options and increased bargaining power.
"We were headed for a really bad situation because we have highly skilled employees who we want to keep," he said. "We were going to have to consider cutting pay or benefits...that really compromises your position as a small business if employees see you as making their lives more difficult."
But last year because of the ACA, Houser's business received a $12,000 tax credit for providing employee coverage, which put the business back to 2007 spending levels ("It was a like a time machine for us," he says), and premiums have declined 3 percent each of the last two years. He noted the unfairness of the current playing field in which some employers offer coverage and others don't: "I'm covering those (uninsured employees) because it's not like they're not getting sick; they're getting sick, going to the ER and their bill gets added onto my insurance premiums...(those employers) are going to have to step up and take responsibility for their own employees."
"We're not in a position to compete with large companies on wages, but what we can offer are benefits...and that's incredibly valuable to a small business," Houser said. "By having good benefits, we attract a loyal, dedicated workforce...the alternative is incredible turnover, and it's really expensive to recruit and hire and train people in a high-tech field like auto repair."
The real business costs of the ACA
The Urban Institute report found that the ACA will increase the number of people covered by employer-sponsored insurance by 2.7 percent, from 151.5 million to 155.6 million (this is a reversal of the trend of the past decade, when employer-sponsored coverage consistently declined). The increase, which will result largely due to employers wanting to avoid tax penalties, is expected among businesses of all sizes, with the largest bump among small businesses.
Employer spending per person insured declines by 7.3 percent for small businesses and stays "virtually unchanged" for large employers, found the report, authored by Linda Blumberg, Matthew Buettgens, Judy Feder and John Holahan. However, mid-size businesses, those with between 101 and 1,000 employees, may experience an increase in per capita spending. The report states in regard to mid-size employers:
The 4.6 percent increase largely reflects penalty costs that hit this group of firms more heavily than larger firms because firms in this group are less likely to offer coverage...than their large firm counterparts. Per capita spending for the vast majority of employers in this group, who already offer coverage, will be unaffected by the penalties.
Kathleen Stoll, director of health policy at Families USA, a health care consumer advocacy group, said the message she gleaned from the Urban Institute report is that the "ACA actually helps more businesses...it means more people will have employer-sponsored coverage and the cost per person will be less, not greater." And Stoll noted that the report doesn't even include the possible trickle-down effect of the law's many cost-containment measures, such as those aiming to improve the delivery of health care services in a way that promotes prevention and reduces poor health outcomes. She said the misplaced notion now circulating that the ACA is bad for business is more "politics than policy."
"We're at a point in our country where the extreme partisan nature of the political debate makes it hard for some to look at the ACA in a neutral way," Stoll told me. "I think a lot of employers care about their workers and (the health reform law) puts them at an advantage for securing the most qualified workers."
At the AFL-CIO, Tom Leibfried, a legislative representative for the union, said there is some concern that employers with large numbers of low- and moderate-wage workers will attempt to game the system to avoid ACA requirements. Most notably, they might try to restructure their workforces by reducing workers' hours below full-time, which means the employer wouldn't incur penalties for not offering health coverage. (In fact, some employers are already trying this.) Leibfried said he's hoping strong enforcement and auditing from the Department of the Treasury will prevent such scheduling manipulation, but he noted that agency guidance on the issue isn't yet up to par.
However, he said he doesn't think the bulk of employers will play such games.
"Most health economists assume that many employers are not very price sensitive and to be competitive on the labor market, they have to offer health benefits," Leibfried told me.
In Waterloo, Iowa, after years of looking for affordable health coverage for its employees, Alpha Express finally secured a group policy near the end of 2009, said ReShonda Young, operations manager for the national courier service. Previously, a group plan for the small business was "so incredibly expensive we simply couldn't do it," Young told me. So instead, the business provided employees with $150 a month to help them secure coverage individually. That method ran up against some walls too, as employees were being denied due to pre-existing conditions.
"I was really surprised at how hard it was to get coverage — I couldn't believe how people were being excluded," she said. "I totally felt like we were at the whim of the insurance company. The policy we have now was the only one we could find that was affordable and would cover pre-existing conditions."
Today, Alpha Express offers coverage to its 12 full-time employees and is looking for a way to cover its part-time workers as well. Young said she's hoping the ACA will help keep things affordable and open up insurance options for the business.
"We're a small company and our employees are kind of like family — you care about them, you get to know their families and your lives become intertwined," she said. "You care about the health of your employees...things happen and when they do, we want to make sure they have the coverage they need to take care of themselves and their families."
Kim Krisberg is a freelance public health writer living in Austin, Texas, and has been writing about public health for a decade.