Obama administration: Health law’s new rules will increase costs for most small businesses


Several new rules in the Affordable Care Act are expected to drive up health insurance premiums for most small businesses and their employees. (Eric Gay/AP)

Nearly two-thirds of small businesses that currently offer health insurance to their workers will pay more for coverage as a result of new rules in the health care law, as will millions of small-business employees and their family members, according to new estimates released by the Obama administration.

The Centers for Medicare and Medicaid Services, which has spearheaded the implementation of the law, has acknowledged that new rules requiring insurers to offer guaranteed coverage and renewal options to small employers will likely drive up the price of insurance for some companies. So will rules banning insurance companies from varying their rates based on factors like a company’s industry or the age of its employees.

On the other hand, some firms with exceptionally sick or at-risk workers will benefit from those provisions and see their premiums come down under the new rules, which took effect this year.

What we didn’t know was how many small businesses would see their rates rise and how many would see them fall. Now, it’s becoming clear.

“We are estimating that 65 percent of the small firms are expected to experience increases in their premium rates while the remaining 35 percent are anticipated to have rate reductions,” CMS’ Office of the Actuary wrote in a new report. Conversely, “the effect on large employers is expected to be negligible,” because most large companies run their health insurance programs in house.

Officials later point out that, when employers are forced to pay more for their plan, they generally pass on some of those costs to their employees. Similarly, those who see their company’s premiums drop tend to pass on some of the savings to their staff in the form of lower employee contribution payments.

Consequently, according to the estimates, which the agency says are based on industry research and conversations with insurance experts, roughly 11 million of the 17 million individuals who have health care plans through a small employer will see their premiums increase as a result of the new rules on insurers in the law, while 6 million people will enjoy lower premiums.

If accurate, it would continue a steady climb in insurance costs for many small businesses. Ninety-six percent of small businesses say their premiums have increased in the past five years, with the average monthly insurance cost soaring from $590 per employee in 2009 to $1,121 in 2014, according to poll released earlier this month by the National Small Business Association.

CMS officials note that there is “a rather large degree of uncertainty associated” with their latest estimates, as the number of small businesses that offer health insurance going forward and how much they will pay for that coverage will depend on many more factors than the new rules analyzed in their report, including tax breaks for small firms and the success of new online insurance portals.

However, that didn’t stop critics of the law from casting the report as the latest in a long line of evidence that the statute will hurt more small businesses than it helps.

“The Obama administration has finally been forced to disclose what we’ve long feared — the president’s health care law means higher premiums for millions of American workers,” House Speaker John Boehner (R-Ohio) said in a statement about the report. “For all the promises of lower costs for small businesses, the administration now admits that far more of these workers will pay higher than lower premiums under the law.”

House Small Business Committee Chairman Sam Graves (R-Mo.) called it “devastating news” and blasted the administration for waiting nearly four years to publish estimates about the law’s effects on small-business insurance premiums.

In terms of its expected economic footprint, it has been a rough few weeks for the president’s signature law, commonly called Obamacare. First, the Congressional Budget Office reported that the law will prompt roughly 2 million people to exit the workforce, driving down the country’s economic output. And more recently, several states have reported that the law’s new online insurance marketplaces have not attracted many small businesses.

Follow J.D. Harrison and On Small Business on Twitter.

J.D. Harrison covers startups, small business and entrepreneurship, with a focus on public policy, and he manages the Post's On Small Business blog.
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