Now that the House GOP American Health Care Act, known as either the AHCA or Trumpcare, depending on your bent and mood, has passed, it's time to consider some practical implications. Although action in the Senate could take time, and changes in the legislation could come, smart planning and risk management suggest understanding what is in the bill.
My colleague Jessica Stillman has looked at some implications for freelance workers. But there are broader issues for small businesses in general.
Early on under the Affordable Care Act (ACA or Obamacare), many small-business owners eliminated health insurance coverage for their employees. It could be cheaper to have employees obtain policies, often with federal subsidies, through the exchanges. Some estimates suggested that upwards of half the people going through the exchanges already had insurance, so the shift may have been significant.
But the exchanges have seen rocky times, with a number of insurers pulling out. They say they needed large enrollments of people new to insurance. The new enrollees were also, on the whole, sicker than anyone expected, with fewer younger and healthier people signing up. Treatment costs were higher, and some insurers claimed their exchange programs were losing money.
The replacement of subsidies with tax credits that would be much smaller, combined with a lack of individual mandate would mean exchanges will be even less inviting. Business owners who want insured employees might need to return to supplying coverage with the additional expenses and impact on profits it will bring.
Although the ACA has been subject to criticism, some of which is justified, one unfair charge has been that it caused medical costs to rise. Mandates for more comprehensive coverage certainly did mean higher premiums, but the real drivers of medical costs have been other things, such as systemic inefficiencies, skyrocketing drug costs, ineffective treatments and follow-up that resulted in significant hospital readmittance levels, and inadequate investment in and use of technology.
Large sections of the ACA addressed many of these problems, using a combination of incentives, mandates, and standard setting. The impact has just begun to be felt, and while costs have increased over the past few years, the rate of increase has been down. The AHCA addresses none of these areas. Some of the most important tools that had begun to show results could be discarded. Ultimately, price and premium increase rates would likely advance to what they once were, causing future expense pressures for businesses.
Abortion is an obviously thorny social topic. The AHCA uses health care funding as a tool to reduce use of the procedure. One of the mechanisms is to change how the small-business health care tax credit works.
Currently, companies with fewer than 25 full-time-equivalent employees and average annual wages of $50,000 that provided health care insurance to employees and covered at least half the cost could get an additional tax credit of 50 percent of the premium payments beyond the ability to deduct premium costs as a business expense. The intent was to give small businesses with low- to moderate-income workers incentives to provide insurance.
Part of the AHCA attempt to restrict abortion is to require any small business claiming the tax credit to provide insurance that pays for abortion only if the mother's life is in jeopardy or in the case of a pregnancy caused by incest or rape. There is no penalty for a company to get a supplemental policy that covers abortion, although those additional insurance costs are not eligible for tax credits.
Without getting into discussions of politics or morality, if that provision passes, many small businesses will have to examine their policies. If the policies allow abortions more generally, the businesses would have to decide whether to keep the tax credit or budget the time and effort needed to find another policy.
Again, the AHCA would have to be passed by the Senate and signed by the president to have the force of law. Although Trump would likely sign, a number of senators have made clear that the path to passage will be complicated and lengthy. However, entrepreneurs should monitor developments to better understand what might happen and to develop strategies to manage their risk.