Health Insurance, New Taxes for Small Employers

The NFIB (National Federation of Independent Business) has recently published a study, written by Michael J Chow, estimating the effects of the health insurance premium tax included in the ACA on small business employment, (h/t John Goodman). The crux of the argument in the study is that the premium tax will increase health care insurance premiums for employers 2% to 3% above the usual health care inflation driven premium increases. Using their model they contend that the cumulative increase from 2014 when the tax begins to 2020 will be almost $5k per family. This premium increase will fall hardest on small to medium size employers who purchase fully insured health plans, as opposed to larger employers who rely mostly on self insurance plans.

The study then posits that employers have a choice between ‘eating’ these costs or dropping health insurance coverage. The study assumes that employers will opt to retain their health insurance plans. The NFIB utilizes a model called the Business Size Impact Module, (BSIM), to estimate the effect of the tax driven cost increase under this assumption. Using their model, the cost increase will have the effect under various scenarios of reducing private sector employment by 125k to 249k by 2021.

While we don’t have any argument with the effects as modeled, we do disagree with the original assumption that most employers will simply ‘eat’ the extra cost. The increasing cost of offering health insurance for small employers will include not only the usual inflation components and these tax increases, they will also include the significant growing costs in regulatory compliance for employers offering health insurance whether the employer utilizes the exchanges or not.┬áThe question is whether employers will compete for employees by offering costly benefit packages or compete for business by remaining price competitive for the goods and services they offer. We believe that ultimately small employers will need stop offering health insurance in order to survive.