Should Small Businesses Really Fear Obamacare?
The official plaintiff in the Obamacare case was the main small-business lobbying organization. In fact, the new health care law should be a boon to entrepreneurs.
Is Obamacare as bad for small business as the NFIB makes it out to be?
Photo by Spencer Platt/Getty Images.
The landmark health care case decided last week by the Supreme Court was a win for the Obama administration and a loss for the Republican Party. But the official plaintiff in the case wasn’t a Republican congressional leader or even one of the conservative attorneys general whose activism fueled the litigation. It was the National Federation of Independent Businesses, a small-business membership organization and lobbying group that strongly opposed the law.
So is defeat a disaster for small business? Almost certainly not, though it may prove to be a disaster for NFIB’s main policy priority of low taxes.
The bill in fact contains substantial benefits (some might even say giveaways) for small businesses. That starts with a program already under way to offer special subsidies to firms with fewer than 25 employees that want to offer health benefits. As long as your employees earn less than $50,000 on average (law firms, medical practices, and other elite professional partnership are thus ineligible), you can get a tax credit to defray 35 percent of the cost of the insurance if you’re a for-profit firm, and 25 percent if you’re a nonprofit. When the law really gets rolling in 2014, those subsidies rise to 50 percent for for-profits and 35 percent for nonprofits.
Firms with fewer than 50 employees are also exempt from the “employer responsibility” provision of the law that otherwise constitutes the biggest business burden in the legislation.The Affordable Care Act (in)famously requires that all individuals who don’t receive insurance from their employer or from a government program such as Medicare or Medicaid must buy their own insurance on a regulated exchange. Subsidies will be provided to those for whom such insurance wouldn’t be affordable. That could be seen as, in effect, penalizing firms that already offer insurance to their workers. To offset this, the law stipulates that companies whose employees receive subsidies to buy exchange plans must pay a financial penalty. That is supposed to deter firms from responding to the law by simply dropping existing insurance coverage. But the ACA doesn’t make small businesses pay that penalty.
Put the special subsidies and the exemption together, and the result is a law that’s pretty clearly a good deal for small businesses.
More broadly, the bill should encourage the formation of new smaller firms. Insurance is based on the concept of pooling risks. One reason most nonretired people get insurance through their employers is that a workplace constitutes a nice risk pool. It’s a whole bunch of people who are linked together by something that has little to do with their health status. This tendency is further reenforced by a generous tax subsidy to companies that pay their employees partially in the form of health insurance. But a newborn firm with just a handful of employees is not a good risk pool and will have trouble putting together a viable insurance plan if any of its workers are ill. That means only people with small health needs or large savings can afford to take the risk of entrepreneurship in America. The Affordable Care Act sets up large state-wide risk pools where anyone, regardless of health status, will be able to buy affordable coverage. That should be a boon to firm formation.
So what accounts for NFIB’s hostility to the ACA? The NFIB is an unusually ideological membership organization that generally hews to a small-government agenda rather than a small-business agenda.
NFIB, for example, doesn’t lobby against the online retailers’ exemption from sales taxes or any other issue where there is a tension between the anti-tax agenda and the small-business agenda. Instead, it’s very focused—like Grover Norquist’s Americans for Tax Reform or the Republican Party as a whole—on low taxes, especially on high-income individuals. Not coincidentally, it’s received large amounts of money from Karl Rove’s super PAC, which viewed it as a good face to put on the anti-Obamacare agenda. Thanks to the magic of self-selection, small firms whose owners are Democrats probably just don’t join, leaving behind an association of Republican businessmen who share the general Republican view that progressive taxes and generous social welfare spending are bad for the overall economy.
And make no mistake, the health care bill is, all things considered, the largest income-redistribution program enacted in decades. It collects taxes from the prosperous and offers new Medicaid benefits to the near poor and provides sliding-scale subsidies to a broad range of families earning below the median income. There’s plenty to like about that, but also plenty to dislike if you’re the sort of prosperous person who owns or manages a small or medium-sized firm. The debate about the broad economic consequences of higher and more progressive taxes has raged for decades and will keep doing so forever. But there’s no doubting the basic fact that people don’t like being asked to pay more. The Obama administration’s version of health insurance reform has asked the rich to do just that, and for most businessmen that reality will weigh heavily on their thinking about it. But viewed narrowly as a reform to the insurance market the law—and especially the controversial mandate used to enable people to get insurance without working for a large company—should serve small firms quite well.