San Jose Mercury News, June 30, 2012
Now that the U.S. Supreme Court has upheld the health care reform law, one worrisome question is how many businesses will drop insurance for their employees, figuring the newly mandated financial penalty for not offering coverage is less costly than the insurance premiums.
Officials with several business associations contend many small to medium-sized firms are mulling that choice and that some may even decide to shut their doors for good, rather than deal with the law.
Others call that scenario unlikely. While some companies may drop their coverage, they say, it won't be a significant number, and their decisions will have less to do with the law and more with the economy.
"I'm delighted it passed muster with the court," said Michael Rose, co-owner of Semifreddi's bakery of Alameda, which has 123 employees and has offered them insurance for 25 years. "I believe that health care is a human right."
It's unclear if that sentiment is widely held, however. Officials with more than a dozen Bay Area companies didn't respond to requests for interviews.
"There is clearly a tremendous amount of uncertainty" about what businesses will do, the Congressional Budget Office concluded in a report in March, noting that employer surveys on the issue "offer conflicting findings."
While portions of the Patient Protection and Affordable Care Act went into effect in 2010 — including a tax break for businesses with fewer than 25 workers that offer coverage — one highly controversial provision goes into effect in 2014.
Beginning that year, businesses with more than 50 employees that don't offer insurance can be fined $2,000 per worker, though 30 employees will be excluded from the penalty. For example, if a business has 51 employees and doesn't insure them, it could be assessed a $2,000 fine for 21 of the workers, for a total of $42,000.
Currently, about 60 percent of all businesses nationwide provide health insurance, but that percentage varies depending on their size, according to data compiled by the Kaiser Family Foundation.
Among firms with 200 or more workers, 99 percent offer coverage — a figure that has remained relatively constant for at least a decade and that is widely expected to remain at that level after the penalties take effect in 2014. But the rate decreases the smaller companies are, with just 48 percent of companies with fewer than 10 workers providing insurance.
Since companies with 50 or fewer workers aren't subject to the fines, the major concern centers on companies with workforces between 51 and 200. About 91 percent of those businesses insure their workers, according to the California HealthCare Foundation. But many of them may not after 2014, said Steve Graeber, who co-chairs the health insurance committee for the California Small Business Association.
"Probably a lot of them are going to drop their coverage" because in some cases the fines they face are "about half the cost of the insurance," he said, noting that a low-cost insurance plan can easily cost an employer $3,000 to $4,000 per worker annually. Particularly for businesses already in financial trouble, he added, some of them "are just going to say it's money I don't have to spend."
Amanda Austin, director of federal public policy at the National Federation of Independent Business, which has opposed the reform law, added some firms may decide to close down altogether. But she said that will depend on each company's circumstances, and many employers aren't sure what to do because the law is complicated.
"Businesses are really going to have to do some due diligence on how they are going to prepare," she said. "Decisions are going to have to be made."
However, Laurel Lucia, a policy analyst with the Center for Labor Research and Education at UC Berkeley, said she doesn't expect a big drop in job-based coverage, probably no more than 3 percent over the next few years.
Micah Weinberg, a senior policy adviser to the Bay Area Council, was similarly optimistic.
"I think it's largely a myth that employers will drop health insurance" because of the reform law, he said, though some may do so "because they are struggling with the economic downturn." Nonetheless, based on his conversations with employers trying to understand what the law means for them, he said, "this stuff is unnecessarily complicated."