By James Wigderson
Special Guest Perspective for the MacIver Institute
A press release last week from our friends at Citizen Action of Wisconsin notes a disturbing trend. The press release refers to a study by the Robert Wood Johnson Foundation showing that the number of Wisconsinites covered by employer-sponsored insurance (ESI) has declined, especially for small businesses:
“The dramatic decline in the number of small Wisconsin firms providing health insurance to their employees reveals a system under tremendous stress from health insurance hyperinflation,” said Robert Kraig, Executive Director of Citizen Action of Wisconsin. “This new research underscores the critical importance of Wisconsin fully implementing national health care reform.
“The Affordable Care Act guarantees affordable coverage for people who do not have access to health insurance at work and provides affordable coverage options for small employers.”
Frankly, fact of the matter is that the economy, despite the billions spent on stimulus, continues to sputter. If the economy is struggling, small businesses are struggling to stay afloat. Another reason there has been a “dramatic decline in small businesses providing health insurance” may be the fact that there has been a dramatic decline in the number of small businesses that have survived. Keep in mind, you can’t offer your employees health insurance if you go out of business.
But let’s examine WCA’s claims and proposed solution.
This is like noting there is a shortage of ice cubes on the Titanic and deciding to speed up towards the iceberg.
To be fair, the report by the Robert Wood Johnson Foundation does not make any specific policy recommendations. The report, “establishes a state-level baseline for monitoring key trends in ESI into the future,” and is a, “baseline for monitoring how the Affordable Care Act (ACA) will affect key ESI indicators at the state level.” It does not endorse the ACA, but provides a snapshot of where we are now.
The prescription of ACA is Citizen Action’s. But in Citizen Action’s enthusiasm for President Barack Obama’s ACA, they are forgetting that employees of small businesses will likely see a further decline in ESI, and that more people will be moving to government-run health insurance as a result.
For example, the report notes an increasing number of dependents of employees losing coverage nationally:
“Nearly three-fifths (57%) of the decline in ESI was in dependent coverage (Figure 6), and most of the erosion of dependent coverage occurred in moderate-income families (Table 5). Among families with any ESI coverage, the percentage that had all family members enrolled in ESI declined; not surprisingly, since employee contributions to premiums are typically much larger for family coverage than for employee-only coverage, this decline in “whole-family” ESI coverage was larger for low and moderate income families.”
Under the ACA, this trend will only accelerate. A small business owner will face higher insurance premiums because of the ACA mandates. These mandates include coverage for “dependents” up to age 26 and no waiting periods for pre-existing conditions. If the small business owner’s insurance plan loses it’s “grandfathered” status, then the ESI will have to include coverage of 100% of a number of mandated preventative care measures.
Rather than pay the increased family premium costs, the employer may elect to drop dependent coverage entirely, or the employee may not be able to afford his or her share of the increased premium cost. Either way, the total ESI will decline even further.
It gets worse for the small business owner and the employees. The ACA also increases the Medicare hospital insurance part of the payroll tax on wages and self-employment income in excess of $200,000 ($250,000 joint) by 0.9 percentage points. This will actually affect small businesses because the hospital insurance tax applies to “flow-through income” of small businesses filing taxes as individuals, almost $16 billion of the total $18 billion of revenue expected from the new tax. This new tax will directly affect the business’ bottom lines, and likely result in fewer employees hired, and those that are hired will likely have lower wages.
The ACA does provide a credit to small businesses to contribute towards their employees’ premium costs. But that credit is short-lived – only six years at the most. The credit also provides a perverse incentive to hiring because of a reduction in the credit with a larger number of employees.
Two recent surveys indicate that ACA will accelerate the trend of employers moving away from ESI. Consulting firm McKinsey & Co. did a survey and discovered that almost a third of private-sector employers will drop their employee insurance coverage when the ACA government-managed insurance exchanges start in 2014. While the survey has been attacked as an outlier, a report by PricewaterhouseCoopers in May showed nearly half of employers will drop coverage for employees, putting them into the government-run exchanges.
While we can suspect that Citizen Action would not mind a trend towards a greater government role in providing health care coverage, policy makers at the state and federal levels concerned with tightening finances might not be so sanguine about such an outcome.
But it’s also a betrayal of one of the basic promises by Obama regarding his health care plan. As a candidate for president, Obama promised Americans that if they like their health insurance plan, they would get to keep it. Citizen Action may not mind this broken promise by the president, but the American public will.
Wigderson is a veteran participant and observer of Wisconsin politics. He and his family live in Waukesha County and his commentary can also be found at Wigderson Library & Pub.