Benefits Could Go Beyond Small Businesses
The Affordable Care Act will benefit many small businesses, their employees and self-employed Californians, reducing a major obstacle to small business creation and competitiveness.
The law has significant potential to make coverage more affordable in the small group market by reducing administrative costs and increasing bargaining power with insurers through the new exchange, and by providing $4.4 billion in health insurance tax credits to California small businesses over 10 years. We estimate that 450,000 Californians will be eligible for subsidized coverage through their small employer or a family member’s small employer in 2016.
Nearly one million additional self-employed and small business employees who are currently uninsured or purchase coverage in the individual market will be eligible for subsidized coverage in the exchange and another 660,000 will be eligible for Medi-Cal.
These changes should serve to make small businesses more competitive in attracting employees and help open the door to greater entrepreneurship. Expanded access to health care can be expected to raise productivity through improved workers’ health, increase labor-force participation and create better matches of jobs to workers’ skills. Decreased “job-lock” provides the greatest benefit to smaller firms that cannot currently offer coverage comparable to that offered by their larger competitors.
The biggest challenge will be avoiding risk selection between the exchange and the small group market outside of the exchange. Tax credits are only available to businesses that purchase coverage in the exchange, but, unlike with individual coverage, the credits will affect a relatively small part of the total small business market (about 12%).
The law requires insurers to charge the same premiums for any product inside and outside the exchange, but is silent on which levels of coverage are offered outside. If insurers offer lower benefit products in the outside market, it could lead to adverse selection against the exchange. Risk adjustment will mitigate this in part, but is unlikely to fully resolve the problem.
The state Legislature is currently considering legislation to standardize products in the individual market between the exchange and outside market. Further steps will be needed in the small group market as well. The new exchange will have significant market clout from an anticipated 2.5 million to 4.6 million lives in non-group coverage.
In the end, success will depend on using that clout to drive delivery system reform and reduce the overall rate of premium growth. If successful, the benefit would go well beyond small businesses.