[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
OBAMACARE AND THE SELF-EMPLOYED: WHAT ABOUT US?
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HEARING
before the
SUBCOMMITTEE ON CONTRACTING AND WORKFORCE
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
SECOND SESSION
__________
HEARING HELD
MARCH 6, 2014
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 113-057
Available via the GPO Website: www.fdsys.gov
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Richard Hanna............................................... 1
Hon. Grace Meng.................................................. 2
WITNESSES
Mr. Dean Baker, Center for Economic Policy Research, Co-Director
of the CEPR, Washington, DC.................................... 4
Mr. Todd McCracken, President, National Small Business
Association, Washington, D.C................................... 6
Mr. Alan Schulman, President, Insurance Benefits and Advisors,
LLC, Rockville, MD, testifying on behalf of the Council for
Affordable Health Coverage and the National Health Underwriters
Association.................................................... 7
Mr. Charlie Arnold, President/Owner, Arnold Powerwash, Lewes, DE,
testifying on behalf of the National Association for the Self-
Employed....................................................... 9
APPENDIX
Prepared Statements:
Mr. Dean Baker, Center for Economic Policy Research, Co-
Director of the CEPR, Washington, DC....................... 22
Mr. Todd McCracken, President, National Small Business
Association, Washington, D.C............................... 27
Mr. Alan Schulman, President, Insurance Benefits and
Advisors, LLC, Rockville, MD, testifying on behalf of the
Council for Affordable Health Coverage and the National
Health Underwriters Association............................ 31
Mr. Charlie Arnold, President/Owner, Arnold Powerwash, Lewes,
DE, testifying on behalf of the National Association for
the Self-Employed.......................................... 41
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
None.
OBAMACARE AND THE SELF-EMPLOYED: WHAT ABOUT US?
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THURSDAY, MARCH 6, 2014
House of Representatives,
Committee on Small Business,
Subcommittee on Contracting and Workforce,
Washington, DC.
The Subcommittee met, pursuant to call, at 11:30 a.m., in
Room 2360, Rayburn House Office Building. Hon. Richard Hanna
[chairman of the subcommittee] presiding.
Present: Representatives Hanna, Huelskamp, and Meng.
Chairman HANNA. Good morning. Barely, it is 11:30. Thank
you for being here.
I would like to thank each of our witnesses for taking time
out of their schedules to provide testimony on the ways the
Affordable Care Act is affecting the self-employed. We have an
excellent panel, and I look forward to hearing their testimony
and the discussion to follow.
According to the Office of the Chief Counsel for Advocacy
of the United States Small Business Administration, small
businesses represent 99.7 percent of all businesses, employ 49
percent of all workers in the private sector, and account for
42 percent of the private sector payroll in the United States.
Self-employed folks make up a significant portion of the
businesses. According to the National Association for the Self-
Employed, over 77 percent of small businesses in the United
States are self-employed businesses.
As enacted, ObamaCare, the Affordable Care Act, requires
large employers to offer full-time employees the opportunity to
enroll in an employer-sponsored health care plan or pay a
penalty. The law also requires individuals to enroll in health
care insurance, either on their own or through the plans
offered by their employer or pay a penalty. These requirements
are referred to as the ``employer mandate'' and the
``individual mandate.''
While the administration has delayed the employer mandate
twice, it has not delayed the individual mandate which became
effective on January 1st. Typically, the self-employed purchase
health insurance on the individual or nongroup market and would
be required to carry coverage via the individual mandate.
While meeting with my constituents and reading the
witnesses' testimony, it was clear to me that the Affordable
Healthcare Act, ObamaCare, is causing significant difficulties
for self-employed individuals and small businesses in general.
General confusion, higher prices and shrinking provider
networks are a few of the problems we have consistently heard
about.
Earlier this year, the National Small Business Association
released a study providing evidence that the healthcare law is
having a significant impact on small businesses. Among the key
findings were that 91 percent of respondents experienced
increases in their healthcare plan at their most recent
renewal, and 33 percent said they are purposefully not growing
as a result of the healthcare law. Perhaps most significantly,
the survey reported that the average monthly per-employee cost
of healthcare insurance premiums for small businesses is
$1,120, nearly double what it was five years ago.
While the NSBA survey was for small businesses in general,
a recent NASE survey specifically queried self-employed
individuals and micro businesses. The survey found that nearly
60 percent of respondents believe there is a ``low'' or ``very
low'' chance they will be able to secure affordable and
comprehensive coverage in 2014. Other key findings were that
only 9 percent of those available to visit the website
healthcare.gov, reported they had successfully enrolled in
healthcare insurance plans for 2014, and almost 17 percent of
those who responded indicated that they were foregoing
healthcare insurance altogether in 2014 due to the cost.
Just two weeks ago, the administration's own Center for
Medicare and Medicare Services released a report predicting
that the healthcare law could cause premiums to increase for
nearly two-thirds of small- to medium-sized businesses. The
report stated that 11 million individuals will experience
increases in premiums as a result of the healthcare law.
Clearly, the Affordable Healthcare Act is causing
significant disruptions for American small businesses. What I
hope to do today is identify the specific issues that are most
critical to the self-employed and discuss potential solutions.
Again, I thank you all for being here. I now welcome Ms.
Meng, our ranking member for her opening statement.
Ms. MENG. Thank you, Mr. Chairman.
The Affordable Care Act introduced numerous reforms to the
insurance market for both individuals and businesses. In this
Committee, we focused on the effect the law has on small
business owners. Today's hearing will allow us to turn our
attention to the self-employed. Under the law, these business
owners have access to the individual marketplace rather than
the shop exchanges. Regardless of which market they used to
obtain health insurance, these entrepreneurs remain integral to
our global competitiveness, innovation, and growth, and that is
why considering how the healthcare law affects this group is
critical to their success and the nation's continued recovery.
Prior to the law, the self-employed had to rely primarily
on catastrophic plans. These limited plans provided very basic
coverage, and for that reason many were eliminated. The
individual exchanges took their place. This marketplace
provides guaranteed health benefits and maximizes the ability
to effectively pool participants, resulting in more competition
and lower costs. Over six million uninsured, self-employed
individuals will shop and purchase health insurance on these
new markets. In fact, the most recent enrollment data indicate
that roughly four million people have now signed up for a
private health insurance plan through the marketplaces since
October 1st.
But enrollment has not occurred without a few hiccups. Like
small businesses with employees, the self-employed have faced
some questions in their attempts to enroll. This hearing will
give us a chance to hear some personal experiences with
enrollment and gather information on how it can be improved.
While we know cost is one issue, the ACA is acting to
balance premiums for those who once paid higher rates just for
having a preexisting condition. Through modified community
rating, guaranteed essential health benefits, prohibition of
preexisting condition exclusions, and standardization of cost-
sharing burdens, coverage under the ACA is expected to create
more stable premium pricing.
Despite the stability, many self-employed business owners
may still experience an increase in the cost to buy insurance
coverage. However, these costs are mitigated by premium
subsidies, one advantage of using the individual marketplace to
help offset the cost of premiums. About 11 million uninsured
Americans may be able to pay $100 or less per person for
coverage purchased through the marketplace using the premium
credits. Many of them will be the self-employed who could never
afford coverage before the ACA.
As more Americans gain quality health coverage, job lock
will be reduced. This newfound freedom allows more Americans
the ability to take risks and start their own businesses,
spurring innovation and economic growth. One study estimates
that the ACA will lead to an 11 percent increase in self-
employment. But the fact remains that any impact of the ACA
cannot immediately be known as it takes time to implement the
law and allow employers a chance to enroll. Purchasing health
insurance, regardless of your business structure, is complex,
and many factors must be considered. We are here today to learn
more about those factors. In order to ensure the success of our
self-employed, we must understand the challenges and benefits
the law has for entrepreneurs.
I thank all the witnesses for being here today, and I look
forward to your comments.
Thank you, and I yield back.
Chairman HANNA. In the interest of Mr. Baker's schedule, we
will let the ranking member introduce him.
Ms. MENG. Our next witness is Dean Baker, the co-director
of the Center for Economic and Policy Research in Washington,
D.C. He is frequently cited in economics reporting and major
media outlets, including The New York Times, Washington Post,
CNN, CNBC, and National Public Radio. Mr. Baker has written
several books, his latest being Getting Back to Full
Employment: A Better Bargain for Working People. He previously
worked as a senior economist at the Economic Policy Institute
and an assistant professor at Bucknell University. He has also
worked as a consultant for The World Bank, the Joint Economic
Committee of the U.S. Congress, and the OECD's Trade Union
Advisory Council.
Thank you for testifying today, Mr. Baker.
STATEMENTS OF DEAN BAKER, CO-DIRECTOR, CENTER FOR ECONOMIC
POLICY RESEARCH; TODD MCCRACKEN, PRESIDENT, NATIONAL SMALL
BUSINESS ASSOCIATION; AIAN SCHULMAN, PRESIDENT,INSURANCE
BENEFITS AND ADVISORS, LLC; CHARLIE ARNOLD, PRESIDENT/OWNER,
ARNOLD POWERWASH
STATEMENT OF DEAN BAKER
Mr. BAKER. Thank you, Ranking Member Meng and Chairman
Hanna. I appreciate you accommodating my schedule, and I
apologize that I do have to leave at noon due to an earlier
commitment. So I will have to leave early.
I want to make three main points in my comments. First off,
to expect the Affordable Care Act to end the job lock that
people have felt because of the need for health insurance and
based on research I think that is likely to lead to an increase
in people turning to self-employment on the order of 15 to 25
percent. That removes a major impediment to people taking the
jump to self-employment.
Secondly, it should improve job retention at small
businesses. One of the reasons that workers often leave a
smaller business is that they need healthcare insurance that
smaller businesses often find it difficult to provide. By
allowing people to get affordable insurance through the
individual market, that should relieve one of the major reasons
that good workers often leave a small business.
And the third point is that there has been a big impact on
cost. Costs have slowed rapidly. Clearly, not all of that is
due to the Affordable Care Act, but I think it is fair to say a
substantial portion of it is, and as a result of that I think
small businesses, really all businesses, are paying lower
premiums than would otherwise have been the case.
Now, taking the first point, it is a difficult issue.
Economists often find themselves scratching their heads. How do
you measure this? Because we know that workers are less likely
to leave a job that provides health insurance because in
general those are better jobs, so that is not really news.
Also, it will tend to be the case that you have workers that
value security, so they will look for jobs with healthcare
insurance. So we try to find ways that get around these
factors.
And there have been three recent studies that I think are
especially compelling. In one case, the study took 11 years of
data from the current population survey. That is the main labor
market survey that the Bureau of Labor and Statistics uses, and
it looked at the likelihood of people being self-employed
depending on whether their spouses had health insurance. The
idea being if my spouse has health insurance, I am able to get
health insurance through my spouse, and I found there is a very
big difference. People are much more likely to be self-employed
if their spouse had insurance than if that was not the case.
The other way in which it examined the issue, it looked at
the rate of self-employment. As people turned 65 and became
eligible for Medicare, there is a big jump in self-employment
at that age. There is no comparable jump at age 60, age 55.
Clearly, being eligible for Medicare makes a very big
difference.
A second study that, again, tried to get around the
problems looking at this issue looked at the behavioral risk
factor surveillance system, a very large survey. They had a
sample of over 380,000, and the particular issue they were
looking at was a healthcare reform in the individual market in
New Jersey instituted in 1993. And they looked at the impact of
that on self-employment in New Jersey relative to neighboring
states and the rest of the country, and they found an increase
in self-employment on the order of 11 to 20 percent, a very
large increase.
The third survey involved a very large sample. This was
done with the American Community Survey, a sample of 2.6
million. They were looking at young people, people 19 to 25,
who were newly eligible to be covered by their parents'
insurance because of the Affordable Care Act. And again, they
found a very large chunk in self-employment among that group
relative to people who were just older or just younger,
suggesting that the option of being covered on their parents'
insurance had a very big impact on their willingness to be
self-employed. And I just point out that this is really
striking because this is a group 19 to 25 who think healthcare
insurance is generally not a very important factor, and
nonetheless, they found very strong results.
The second point I was going to make, there are a number of
studies that show that people are more likely to leave a job
that does not have insurance if they have a sudden need for it,
and the usual item to test is if their spouse becomes pregnant.
So you have married men that typically may not have much need
for insurance. Suddenly, they are looking at a situation of a
newborn child. They are very likely to leave their job. Having
the option of getting insurance through the individual market
is likely to decrease the number of people who leave jobs where
they cannot get insurance through their job, which should be a
big benefit to small businesses that lose a lot of good workers
for that reason.
The last point, as I was saying, it is well-known we have
had a sharp slowdown in cost. Healthcare costs, if we look at
Medicare costs, they are about 10 percent lower today than was
projected back in 2008. That is pretty much across the board
the story. I will not say the Affordable Care Act was the whole
reason for the slowdown in cost, but I think it was certainly
an important part of the reason. And what that means is even
though a lot of the reasons the Affordable Care Act might make
specific policies more expensive, in aggregate we are looking
at situation where I think most employers are paying much less
for insurance.
So in conclusion, I would just say I think we will say a
lot more people taking the leap to self-employment. I think we
will look at a situation where small business employers will
find it easier to keep people on the job, and also those that
are providing insurance will be able to do so at a lower cost.
Thank you.
Chairman HANNA. Thank you.
Our next witness is Todd McCracken, president of the
National Small Business Association. Since becoming president
in 1997, he has directed all activities of the advocacy-
oriented association. As director of its government affairs
arm, Mr. McCracken plays a key role in developing the NSBA's
policies on issues. Since coming to the association, Mr.
McCracken has testified before Congress numerous times about
issues ranging from fundamental healthcare reform to tax code
restrictions.
Mr. McCracken, you may begin.
STATEMENT OF TODD MCCRACKEN
Mr. McCRACKEN. Thank you very much, Mr. Chairman.
Thank you for inviting me today. I appreciate the
opportunity to talk about these very important issues that are
somewhat vexing to the small business community, especially to
the self-employed. I will try to summarize my statement, which
I understand will already be submitted into the record.
We are deeply troubled by the ongoing difficulties our
healthcare system creates for small businesses and their
employees, and by the fact that the most recent national effort
to reform the healthcare system has made many of these
difficulties worse.
I would like to summarize a survey that we do on a regular
basis that looks at the issues facing small businesses in the
healthcare arena.
The latest one that we just released last month shows how
America's small business are dealing with rising healthcare
costs, what kind of benefits they offer, and how the Patient
Protection and Affordable Care Act (PPACA) is impacting their
businesses. The survey confirmed what has been widely reported
about healthcare costs for our smallest companies: they are
rising steeply, and entrepreneurs are deeply concerned about
what the future might hold. But we continue to hear that
medical information is down and overall healthcare costs are
rising only slowly, which is certainly good news. Evidence of
such trends are hard to find in the small business community,
and in our recent survey, 91 percent of businesses reported
increases in the health plan premiums at their most recent
renewal and one in four reported premiums going up more than 20
percent.
Since 2009, which is when we started asking this question,
the average per employee health premium has increased by 90
percent. It is key to recognize that during this same period,
growth and profits have largely been stagnant, so it is little
wonder that businesses are focusing on this area of ever-
increasing costs and wondering whether the current system is
one they can continue to afford, and increasingly worried that
the Affordable Care Act will only add to their miseries.
Remember, these costs have real world implications on how
businesses are run. Our survey shows that a third of companies
held off hiring a new employee, and more than half said they
held off on salary increases for employees as a direct result
of higher insurance costs. Of course, these employment
decisions are both a reflection of current costs and a window
into uncertainty about what the future may hold both for the
economy and the healthcare system.
The self-employed, of course, face very distinct issues as
they move forward, and Dr. Baker I think talked about some of
those that the self-employed face. Specifically, sort of
nascent entrepreneurs' indecisions to start a company, and we
have long held that appropriately structured healthcare reform
can actually case the job lock that health insurance imposes on
those folks and free more people up to start companies.
Unfortunately, what we are seeing right now is that while
there is an end to many insurance-rooted practices that have
concerned people, there is also a great deal of uncertainty
about whether the individual mandate will be effective at
bringing in healthier lives and what the overall premiums are
going to be. So the questions now are actually for relatively
healthy, relatively young potential entrepreneurs and they no
longer will be able to buy relatively inexpensive, high
deductible health insurance for themselves. They are going to
have to buy very expensive, much more comprehensive coverage if
they go into the marketplace for themselves. So I think we are
replacing one kind of job lock with another potentially and
that is a little bit concerning.
One of the things that we think we can do to help
ameliorate that a little bit is at least for a while to loosen
those age bands at least until we are clear that the individual
mandate will be effective in stabilizing the overall health
insurance market and that we really will have healthier risks
subsidizing the higher risks. And we also think it is really
important for Congress to provide some equity for the self-
employed through the tax code. I mean, right now most people do
not realize this, but if you have a job and your employer pays
for your premium, and even the part of your premium that you
pay as an employee, all of that is tax tree. Not just for your
income taxes but for your FICA taxes. It is totally pretax. But
if you are a self-employed person providing insurance, your own
portion of that is not exempt from FICA tax. Self-employed pay
both halves of the FICA tax and the self-employment tax. It is
15 percent that they pay on their health premiums that no one
else in the workforce pays for their employer-provided health
coverage. So we would like to see that corrected, and that
would give you a 15 percent discount essentially for the self-
employed on the health insurance right off the top.
I will stop there and welcome your questions. Thank you.
Chairman HANNA. Thank you.
Up next is Alan Schulman, president of Insurance Benefits
and Advisors in Rockville, Maryland. Founded in 1989, his
company is a full service employee benefit firm working with
clients in size from two to 1,000. Mr. Schulman advises,
implements, and services all employee benefits, including
health, dental, life, long-term care, and disability insurance
for his clients.
Mr. Schulman, you may begin.
STATEMENT OF ALAN SCHULMAN
Mr. SCHULMAN. Thank you, Chairman Hanna.
Good morning. My name is Alan Schulman, and I am a self-
employed health insurance agent from Rockville, Maryland. I
represent my professional association, the National Association
of Health Underwriters, and my client, the Council for
Affordable Health Care. I help my clients purchase health
coverage and service those benefit plans all year. Almost all
of my clients are self-employed or have less than 50 employees.
Thank you for inviting me to testify.
The impact of health reform on small business owners is
often downplayed because we do not have to follow the employer
mandate. Really, though, we are in the middle of a seismic
shift due to health reform, and for us, no new requirements
have been delayed.
I will focus today on three key issues. For many small
business owners, most of the impact of the law will not be
fully felt until this coming fall. The new rules and related
cost increases are changing small business health plan options.
Owners are seriously reevaluating coverage. There are practical
and bipartisan solutions to the problems faced by small
businesses. Small employers renew their health plans year-
round, and most small group changes take effect on the
anniversary of the businesses' plan year in 2014. Last year, a
variety of circumstances caused many small employers to switch
their anniversary date to December 1. Eighty percent of my
clients switched. These employers will not really experience
health reform until this coming September and October when they
start reviewing their new health plan options for the year
ahead.
President Obama famously campaigned on ``If you like your
health plan you can keep it.'' Millions with individual
coverage realized that was not exactly true on January 1. Many
more small employers will find out that over the course of this
year, too, and most of them this coming fall.
A big and unexpected change for small employers is the cost
to modify community rating and the new national Health
insurance premium tax or the HIP. There are some bipartisan
bills to fix these cost drivers, including H.R. 763 to repeal
the HIP and H.R. 544 to fix the law's current, very narrow age
bands.
However, the way HHS has implemented the age bands is
causing a separate big problem for very small employers, too.
Before health reform, rates did not reflect the ages of all the
employees in a group, but employers and employees never felt
the breakdown because they always got a composite rate, so all
employees were caused the same average price. Composite rates
were both an administrative convenience and an important
protection against age discrimination. Now, due to the way the
age band rules were written by HHS, it is virtually impossible
for a carrier to give an employer a composite rate.
Here is a real life example. Due to HIPAA privacy
constraints I can only give you the basics of this group. The
employer has between 20-30 employees. Last year, the single
composite rate for everyone in the group, whose ages range from
early 20s to mid-50s, was approximately 300 a month per
employee. The employer paid about two-thirds of the single
coverage cost for all employees. Last month, I shopped for a
group plan looking at all of the health plan options available
in the state of Maryland. The best scenario for fully-insured
group coverage had a rate of approximately 325 a month for the
youngest employee, and over 900 a month for those employees in
their 50s. Naturally, the employer was extremely distressed,
and not just about the increased costs. The idea of explaining
to the older employees how much more they will have to pay is
unsettling, and my client was worried about legal costs should
an employee file a complaint. My client considered dropping
coverage, but ultimately moved to a level funding arrangement
exempt from both the age bands and the hit.
This scenario is going to happen to small business owners
nationwide each month this year, with most learning about the
problem next fall when they go to renew their current coverage
and find out they cannot. Prices will be increasing and plan
options are also going to change. The new law imposes a
deductible cap of 2,000/4,000 for small employers only, which
will make it much harder for employers to offer consumer-
directed health plan options.
I want to make this point clear. The cap only applies to
small groups. It has no peer requirement for individuals or
companies like IBM. House Bill 2995, a bill to repeal the cap,
has been introduced by Congressman Tom Reed, a republican, and
Mike Thompson, a democrat.
CAHC commissioned a study by Avalere showing that it would
help employers retain coverage, thereby lowering premium
subsidy costs by 1.2 million over 10 years. My hope is that
every member of this Committee will cosponsor the bill and that
Congress will take action to restore health plan choice options
for small employers.
Another problematic change for small employers is the out-
of-pocket limit cap, which is being implemented in a way that
conflicts with time-tested benefit practices. The essential
health benefit requirements for pediatric vision and dental are
barely understandable to benefit professionals and issuers. For
the small employer just trying to run his or her company, they
are mind-blowing.
Large employer concerns may command more media and
regulatory attention, but health reforms compliance and cost
burdening is causing a ton of anxiety and disruption for self-
employed guys like me, too. It is making employers change their
hiring practices, explore other ways of providing coverage the
private market may offer and consider dropping coverage
altogether. But I have highlighted the bipartisan solution to
some of these problems. My hope is that republicans and
democrats can rally around these solutions because small
businesses and the self-employed are facing real problems right
now.
Thank you for the opportunity to testify, and I welcome any
of your questions.
Chairman HANNA. Thank you, Mr. Schulman.
Our next witness is Charlie Arnold, president and owner of
Arnold Powerwash in Lewes, Delaware, which does both commercial
and residential cleaning of all types of exterior surfaces. He
is on the board of directors for Powerwashers of North America,
holding the positions of secretary and environmental chairman
of the Eastern United States, as well as being an author and
instructor for certification classes.
I thank you for being here, Mr. Arnold. You may begin.
STATEMENT OF CHARLIE ARNOLD
Mr. ARNOLD. Thank you, Chairman Hanna and Ranking Member
Meng, and the members of the Subcommittee. Thank you for the
opportunity to share today the impact the Affordable Care Act
is having on small businesses and the self-employed.
My name is Charlie Arnold and I am president and owner of
Arnold Powerwash LLC, located in Lewes, Delaware. It is a
family-owned professional powerwash company organized in
commercial and rental divisions, cleaning all types of exterior
surfaces, along with fleet washing and dry ice blasting.
Like many self-employed, I wear various hats--from being a
small business owner to a community leader. In addition to
owning and operating Arnold Powerwash, I am also proud to serve
as Pastor of Seaside Church, director of Emergency Services for
1-800-Boardup, director of sales for E-Clean Magazine, and I
volunteer as EMS captain for Lewes Fire Department and past EMS
chief. I also served as vice president of Powerwashers of North
America, and finally, it is my role on the member council for
the National Association of Self-Employed (NASE) that I am
offering my testimony today.
NASE is our nation's leading advocate and resource for
America's 23 million self-employed micro business owners. It is
in all of these roles that I am able to provide a unique
perspective and first-hand experience regarding the impact the
Affordable Care Act has had on nearly 23 million self-employed
Americans, the largest potential consumers of ObamaCare. Until
recently, I found myself ignoring the Affordable Care Act
because I have insurance coverage that I am happy with, but I
found out that it may change June 1st. I am a business owner
with fewer than 50 employees. My employees have insurance that
are provided elsewhere. Therefore, I thought it would have no
impact on my business or me, but I was wrong. My eyes have been
opened and I see the devastating effect that AC is causing
because it is not based upon lies, opinions, ideas, or rumors
but upon what I have been told personally in the last two weeks
especially by other business owners and their employees.
Quickly put, real skyrocketing premiums with increases ranging
from $300 to $1,600 a month, partially because of the new age-
banding pricing, a fact based upon letters in my possession, it
is causing not just fear but terrified households and
realistically means less discretionary income, which translates
into much less job opportunities for my business.
One proposed answer has been tax credits, but they cannot
replace what you do not have in the first place. Fear causes
lack of confidence, which causes stagnation in the marketplace.
I would also like to reemphasize in the recent conducted survey
by NASE that 60 percent of the respondents said that they
thought there was a low or very low chance that they would be
able to secure both affordable and comprehensive coverage in
2014.
Last year, my business dropped over 50 percent because
people were afraid of the economy. I could graph the drop in
business every time the government talked about budget problems
and could not make a decision. This year, people are not only
afraid, they are terrified, because all of a sudden they have
an average of $500 a person a month being taken out from under
them by mandate to pay for health coverage, and $500 is the
average cost to clean a house in my business. The bottom line
is the United States government has become my greatest
competitor last year and this year.
Greater liability and greater ACA penalty liability may be
imposed upon my company because I lease my employees. Not only
have my direct costs to lease employees gone up 3 percent, but
based on the interpretations of the law, my cost to lease these
employees may go up, containing the cost of providing the ACA
coverage, even though I only have two full-time employees and
seven part-time seasonal employees. I am glad, however, that
the U.S. House passed a much needed one-year extension for the
compliance for small businesses and individuals. It never makes
sense to me as a small business owner why large businesses
always get the breaks when small businesses make up the
majority of the businesses in America. There are far more
people like me than CEOs like at GM. The majority of jobs and
the spreading of wealth take place at the small and micro
business level. The constraints also placed upon the usage of
Health Reimbursement Arrangements (HRA) has made them almost
unusable. Unless I provide ACA coverage for my employees, then
I cannot offer them help for any other health-related expenses,
which makes no sense to me. It seems to me that a little help
is better than none, but it seems like as it is written now and
rulings have been put in place, that it is another all or
nothing idea which helps no one because it will default to
nothing.
The simple effect of consumer reforms need to stay in
place, like not being declined for pre-existing conditions, no
lifetime limit on coverages, and caps on out-of-pocket
expenses. We must work together to overcome these fears, the
mis-conceptions and the wrong interpretations of the ACA
causing such great confusion.
I, on the behalf of the National Association of Self-
Employed, thank you for the opportunity to offer the self-
employed perspective on how the ACA has impacted our community.
Chairman HANNA. Thank you. Thank you very much.
Mr. McCracken, a couple things. Mr. Baker mentioned--I am
glad he is still here--the portability. Okay, good thing.
Everybody likes it. Do we need the Affordable Healthcare Act to
have portability, which has apparently become one of the major
defenses of this act?
Second thing, how can an act or a healthcare law that
represents close to 18-20 percent of the economy, and we have
seen increasing costs up until recently, but how--and Mr.
Baker, I will give you a chance to respond--how can it possibly
be that a healthcare law that has only been in existence for a
very short period of time can make the claim that it has,
indeed, cut costs?
And thirdly, we talk about job lock and we mentioned--Mr.
Baker mentioned that people 65 and older are going into
businesses of their own, but I mean, that is probably the most
logical thing to do at 65 if you are healthy and interested
after you have retired from a full-time job and perhaps are on
Medicare. So Mr. McCracken?
Mr. McCRACKEN. Yeah. I think on the last point it did
strike me as certainly I know a lot of people who retire from
work and then do a little bit of consulting and they are
therefore, that does strike me that is the likelier explanation
for a big jump in self-employment at retirement than health
insurance, although plainly health insurance could play a role
for some people.
The job lock issues, I do not think we have to have the
Affordable Care Act as currently structured to deal with the
job lock. In fact, the high costs that come with the Affordable
Care Act because of the high level of benefits and so forth and
the very tight rating bands really do make us concerned whether
the individual mandate will even be effective in achieving
anything close to universal coverage and should be that
individual mandate that helps to create the right kind of
market forces to enable the kinds of insurance reforms.
Chairman HANNA. To that end though, is it not also true
that the four million people that have already signed up for
the most part already had insurance?
Mr. McCRACKEN. I believe that is the case. I do not have
those exact numbers but I think a lot of people have moved from
one form of coverage to another.
Chairman HANNA. Go ahead. I am sorry.
Mr. McCRACKEN. But certainly, job lock is an issue, and if
we can get the right kind of affordable coverage available
broadly that is not always tied to a workplace, that clearly
would help the small business community. I do not think there
is any doubt about that. I do not think there should be any
debate about that. But the question is is this kind of
performance going to get us there? And we do not think so.
Chairman HANNA. In the interest of Mr. Baker's schedule,
Ms. Meng?
Ms. MENG. Thank you, Mr. Chairman. I know that Mr. Baker
has to leave soon. I apologize. I will momentarily have to
leave also. We are in the middle of a markup on a bill
regarding Ukraine in the Foreign Affairs Committee, but I will
be back.
Mr. Baker, the Affordable Care Act contains some provisions
that may increase the cost of coverage, while many others, like
the small business tax credits, the availability of the
exchanges and premium subsidies hold costs down. All things
considered, do you believe the ACA has helped expand coverage
for the self-employed who have previously been completely shut
out of traditional markets?
Mr. BAKER. Well, I would say my assessment at this point is
almost certainly yes. You know, just to refer back to a couple
of the points Representative Hanna raised, the efforts to have
portability, these go back, you know, at least a quarter
century. We passed COBRA back, I think it was 1985, if I
remember correctly, and then there was the Health Insurance
Portability and Affordability Act I think in 1995 or
thereabout. And those were somewhat beneficial but those did
not solve the problem clearly, and we have a lot of data
showing that. So I think that allowing this portability, and
again, getting back to your point about allowing people with
small businesses, allowing people the freedom to start small
businesses and not have to worry about getting affordable
health insurance, I think that is a very big net positive.
And then also in terms of the healthcare cost, again, it is
well documented healthcare costs have slowed sharply. Many
provisions of the Affordable Care Act came in as early as 2011.
Among other things there was a limit on a requirement that
there was a medical loss ratio of at least 80 percent. I know
my own think tank, we received rebates from our insurer for
both 2011-2012 because of that provision, and also, again, how
much this is due to the Affordable Care Act or not, I cannot
really say. Our costs actually increased much, much less. We
were used to double-digit price increases through most of last
decade, and we have had very slow increases in the cost of our
insurance.
And just the last point on age 65, of course people will
take the opportunity when they retire, but most people actually
retire well before 65. The median age at which people start to
collect their social security benefits is 62 and 11 months. It
might be 63 now but it is well below 65. So that would not
explain this break that we see. There is a big jump when people
turn age 65 and quality for Medicare.
Chairman HANNA. Thank you.
Mr. McCracken--Mr. Huelskamp?
Mr. HUELSKAMP. Yeah, quick question if I could before Mr.
Baker leaves, and I do not know if Mr. McCracken answered that
but the other two gentlemen did, what do you do--Mr. McCracken,
do you have employees? And how do you handle insurance for
them?
Mr. McCRACKEN. Well, we are named ``association'', but we
are essentially a small business and we provide health
insurance for our employees.
Mr. HUELSKAMP. Okay. And Mr. Baker, yourself?
Mr. BAKER. Yeah, we have insurance at our workplace for
roughly 20 people, and we have had insurance pretty much since
we started in 1999.
Mr. HUELSKAMP. And your premium increases, do they match
what I have heard for other small businesses?
Mr. BAKER. We have been very pleased with our increases the
last three years. They have been somewhere in the area of 2
percent. I will not vouch for that exact number but it was in
that ballpark where in 2008, 2009, 2010 we were looking at
double-digit increases, and again, I am not trying to say the
Affordable Care Act explains that falloff, but we have very
little to complain about in terms of recent price increases.
Mr. HUELSKAMP. Great. I appreciate that. I know you are
leaving.
Mr. Arnold, I appreciate your testimony from--is that
Lewes, Delaware? Is that how you pronounce that?
Mr. ARNOLD. Lewes.
Mr. HUELSKAMP. Lewes.
Mr. ARNOLD. Yes.
Mr. HUELSKAMP. Population 2,797? That is kind of what I am
used to as well.
But Mr. Arnold, we have seen with this administration in
the last number of months, 29 times I think is the latest count
where the administration simply waived some executive wand and
made changes particularly for large employers. If you had to
pick one that you would like the president and the
administration to waive their wand again, which one would you
pick to say this is the most troublesome aspect for the next 12
months for small businesses and your association that you
represent?
Mr. ARNOLD. Because of some of the information that is
coming forward now, I would say this extension of the deadline
for small businesses and individuals because there still is so
much myth and misunderstanding out there that I cannot tell you
that I can be completely compliant. I need the extension.
Mr. HUELSKAMP. And that is what I hear from a lot of the
small businesses. Even if they are trying to comply, they are
not certain if they can, and they certainly cannot afford it in
many cases. For folks that are worried about a job trap, I am
worried about small business men and women actually trying to
make their payroll and meet their obligations they feel to
their employers. It has become exceedingly difficult. And maybe
it is obviously different across the states if you are under 35
in Kansas and you are self-employed, your penalty for being
self-employed was a 100 percent increase of your premiums on
January 1st. And who would want to step into that situation?
And that is an incredible burden, so I appreciate the real-life
experience.
Lastly, on the self-employed tax plan--I am not sure if Mr.
Schulman or Mr. McCracken brought that up, but I was not here
when the previous majority passed the president's healthcare
plan. Any explanation why they left such a significant penalty
on small businesses on the owners? This is just amazing and
shocking that they would leave that penalty in place when they
had an opportunity to change that.
Mr. McCRACKEN. Well, yeah, I think it comes down to
priorities in terms of the revenues. We advocated strongly for
that being included. It has been a disparity in the tax code
for quite a number of years and we have been arguing for its
change for a very long time. There was a very brief period in
2000--I lose track of time--2010, I think, 2011, where we
actually did achieve some measure of equity there for a short
period of time. It expired after a year, and we think we need
to restore that.
Mr. HUELSKAMP. Okay. All right. Thank you, Mr. Chairman. I
yield back. I appreciate it.
Chairman HANNA. Thank you.
Mr. McCracken, the administration's latest unilateral
change--not the one last night but the one last week--delayed
the requirement that coverage meet minimum coverage standards.
Does this delay not come after many small business owners had
already purchased more expensive coverage? How do we make them
whole and how does this affect them?
Mr. McCRACKEN. Yeah, it comes out to lots of decisions have
already been made unfortunately. Unbalance is probably better
to have that decision than not to have had that decision, but
it is rather late in the game. It probably is going to have a
relatively negligible impact in the real marketplace as a
result of that fact. I frankly am not quite sure what we do
about it moving forward and what would be the best.
Chairman HANNA. So, I mean, the idea is that compliance has
become its own penalty.
Mr. McCRACKEN. There is something to that. And meanwhile,
the compliance with the overall way to purchase insurance has
been lost in the mix is already a very low penalty and that is
really our biggest ultimate concern is that we are requiring
insurers to guarantee coverage to everybody, regardless of
their past coverage, regardless of their past health
experience, and within a relatively narrow age band. And if we
do not see significant progress towards getting everyone into
this market, it is going to become unaffordable for most people
who are trying to buy coverage, and that is ultimately our
biggest concern. And the whole thing is simply going to
collapse.
Chairman HANNA. Mr. Schulman, how have the many
cancelations and postponements that the administration has
announced been difficult for you and insurance professionals
like yourself? What have you seen on the street?
Mr. SCHULMAN. Not speaking specifically to that, but what I
do see on the street after reading everybody's studies and
surveys is in December I received in my group a 73 percent
increase. In January, the group I mentioned in my testimony was
a 62 percent increase. I am leaving here to see a restaurant in
D.C. with a 43 percent increase. Yesterday, I received three
client renewals for May. The lowest one was a 43 percent
increase. They ranged in the 60s, and another one in the 80s. I
believe that everything that is going on, the committees, all
the talk, all the back and forth, is spending money that is
rolling back into the ACA.
Chairman HANNA. Have you seen any decreases at all on any
of your clients?
Mr. SCHULMAN. Mr. Hanna, I did not get time to say anything
to Mr. Baker, but in the last 24 months I have not delivered a
renewal that was reduced, not increased.
Chairman HANNA. How many renewals would that be?
Mr. SCHULMAN. In the last 24 months I have delivered to
each of my clients, twice every 12 months, 100 renewals. So,
and again, I am glad to send to anyone on the Committee with
names redacted, we can leave the zip code so we can see this is
Maryland, D.C.----
Chairman HANNA. But to get this straight, your business, in
all your client base, you have not seen a single reduction in
cost?
Mr. SCHULMAN. No, sir.
Chairman HANNA. My goodness.
Mr. SCHULMAN. And to the beginning of your question, the
delays add more confusion, more problems at the workforce for
all these people that are represented here, and myself, because
as soon as you get ready to do one thing there is a change from
last night or two weeks ago. So it has all been negative to the
end-user which is where I interface with a renewal----
Chairman HANNA. Have you seen anyone go out of business
over this? Have you--other than threats, anxiety, have you seen
anyone actually say, ``I am out. I cannot do it''?
Mr. SCHULMAN. A couple groups that were just in the twos I
have seen decide to just let go of their employees and try to
go it literally on their own.
Chairman HANNA. So you have seen in some cases a loss of
employment?
Mr. SCHULMAN. Two groups in the last 12 months, clients of
mine have done that.
Chairman HANNA. And do you know from your experience
talking to other people that do what you do, is this fairly
widespread?
Mr. SCHULMAN. Yes. Recently, about three weeks ago, the
National Association of Health Underwriters had their annual
capitol conference here on Capitol Hill, and brokers from as
far as Alaska, Washington are there, and we also have a
convention once a year we meet. And every single person I speak
to has that issue.
Chairman HANNA. Thank you.
Mr. Arnold, as you know, the employer mandate has been
postponed but the individual mandate, which requires
individuals to purchase health insurance has not, which is what
we are talking about. We voted yesterday to delay the
individual mandate but we have to wait on action from the
Senate and the president. Do you think it is fair that self-
employed, small business owners, who must obtain insurance on
the individual exchange have been excluded? I guess that is
kind of a loaded question, but we do that around here.
Mr. ARNOLD. Yeah, it truly is unfair. Again, why are the
larger businesses getting the breaks when small business does
not? Larger businesses have a greater percentage of their cash
flow to be able to deal with different things, a small business
does not have wiggle room to be able to deal with any kind of
new issues that come up, especially when they blindside you
like they are right now.
Chairman HANNA. Mr. McCracken, how many people in the
country are like Mr. Arnold--individual, self-employed,
smaller, sometimes single proprietorships?
Mr. McCRACKEN. I believe there are about 11 million self-
employed people who derive their primary income from self-
employment, and there is another at least that many who do some
level of self-employment activity that may have other sources
of income as well.
Chairman HANNA. So they are left hanging through this?
Mr. McCRACKEN. That is right.
Chairman HANNA. They really are not part of the--they are
not being given latitude through relief from the individual
mandate, and yet in some strange way they are also not
considered part of that. Is that----
Mr. McCRACKEN. Yeah, there are lots of places, particularly
in our tax code, where business owners, even if they are
single, are not considered ``employees,'' and we define lots of
various kinds of benefits around going to employees, which is a
lot of the issues around the self-employment tax and health
insurance that I described before.
Chairman HANNA. Mr. McCracken, is there anything--I mean,
you have such a wide network, what would you envision an
effective healthcare system look like? If you want to limit it
just to portability, which is clearly kind of the fallback
support for this healthcare law, it seems to me there are lots
of ways to provide portability. And of course, we have heard of
a couple.
Mr. McCRACKEN. There are lots of them. We have been
committed to having a private healthcare marketplace, and there
was a time we started about healthcare reform more seriously in
2009 and we were hopefully optimistic because we do think it
should revolve around the individual and we do think that
providing portability so that people can make decisions about
employment regardless of their healthcare situation makes a lot
of sense. So we do think a system in which individuals take
primary responsibility, but employer can still have incentives
to offer coverage makes a lot of sense, which from our
perspective looks something like what we have.
The problem is as the efforts to create the log out rolling
the levels of required benefits, the tightness of the rating
rules and everything else added a great deal of expense to the
system. So we have essentially shacked individuals who they
mandate to a really expensive system, and now we are wondering
why they are not jumping to buy it in the face of a $195
penalty or something.
Chairman HANNA. Which apparently we do not have the
mechanism to collect.
Mr. McCRACKEN. It is in some level, again, for a very high
level it is the right framework but very, very poorly designed
to actually function.
Chairman HANNA. Mr. Schulman, do you want to weigh in?
Mr. SCHULMAN. Thank you.
Hard to know where to start. Certainly, everything Mr.
McCracken said and just the whole approach to this I believe is
going to leave more people uninsured. The exchanges are a
nightmare. People that know how to enroll health insurance are
having trouble with the exchanges. Client groups just do not
know what to do or where to go.
A very quick example just to illustrate what does happen to
business, you mentioned businesses that are dropping coverage.
A client of mine that had insurance a few years ago had to give
it up because their business went down with the economy. They
called me and said, ``We are ready again.'' I went and met with
them in December. Now, normally, I would have enrolled their
three employees in about 48 hours in a computer in my office
with my staff. They would have had temporary ID cards about two
weeks later. It all would have gone perfect in D.C. Well, my
office manager reminded me, ``Alan, this is an old group for
you but it is a new group in the system, so they have to go
through the D.C. exchange.'' It took from December 27 to
January 15 to enroll them. On January 15, my office manager
said to me, ``Alan, you have to call the group and tell the
employees now that I have the group enrolled, they have to
individually go into the exchange with their password and set
themselves up.'' I said, ``No, Monica. You will email the
group. You will get their social security number, their
password, and all their information, and you will go in and
enroll them because that is what we do.'' Now, Monica tells me
three days later, ``Well, everything is done and it is fine,
but you promised them a January effective date.'' I said, ``So
they will have February?'' I said, ``It is all done January
27th. I can understand they will not have a January date.''
They said, ``No.'' She said, ``You have not been reading your
emails from the D.C. Exchange, Alan.'' I said, ``Well, what is
it?'' She said, ``They will be effective April 1.'' What do you
tell that employer and the two young ladies that are off their
parents insurance now and are waiting for their insurance to be
effective, have doctors' appointments that they certainly
changed from January to February, but now they will be
effective April 1. Why? That to me is not getting people----
Chairman HANNA. Do you have a sense of how the fines to
employers will affect their willingness to--Mr. McCracken, you
are smiling so we are on the same plane here, but affect their
willingness or how they incentivize employers to maintain their
own historical insurance plans.
Mr. McCRACKEN. I do not think they affect them one way or
the other honestly because--in essence, one of the essential
problems was it is very difficult for employers who are over
that threshold where they may face a penalty to assess whether
or not they are going to have a penalty or not until it is
actually imposed because of the enormous complexity of the law
and there is no way for an employer to know what the household
income is of any given employee. They only know what they pay
them. There are rules where you are looking back at what people
made last year, but applying it to what the situation is this
year. So I think employers in that boat are simply going to try
to do the calculations as best they can and the fine is the
fine. I think that has to be the way they approach it.
Chairman HANNA. Mr. Schulman?
Mr. SCHULMAN. Another example, but first I will mention
there are play or pay calculators that have been developed by a
lot of entities where you can put in scenarios for an employer,
and I definitely agree with Mr. McCracken. The employers are
looking at it, but I do not think it is really going to matter
to them. Either they are going to or they are not. And what is
worse is every time they spend the time to do it, to look at
the cost calculators to see what it costs to play in the market
or pay the penalty, they scratch their head and they go,
``Well, I will wait and see what happens,'' and it keeps
getting delayed.
But another example I will give you is that I have a blue
collar group in Virginia that all of their employees are
roofers and these gentlemen do not speak our language, do not
understand it, and they are totally confused about healthcare.
Well, they are going to pay individual penalties come April
because they are not enrolled in any healthcare. This group is
actually going to get health insurance for these employees and
ask them to contribute what their fine is, instead of them
being fined because this employer cares to have health
insurance in his company. He is already building into every new
bid to the consumer a cost for that employee's health
insurance.
Chairman HANNA. Can you tell me--anybody, Mr. Arnold, maybe
you can weigh in--I will make the assumption that the marginal
gain to hiring a new employee with the kinds of healthcare
issues that the three of you are talking about are reduced?
Increased? What do you think? As opposed to say overtime or we
know about the 40 hour to 30 hour issue. How have you seen that
play out, if you have, Mr. Arnold? If not, anyone?
Mr. ARNOLD. The reality of what Mr. Baker said a while ago,
and I am sorry he is not here, but with all due respect, I do
not know what planet that gentleman is from because what he was
telling us a while ago about job security and increasing people
staying in small businesses is exactly the opposite. For
example, my cardiologist. He has 25 employees. He paid 100
percent of all their medical costs, their out-of-pocket costs
and everything until recently. They just went through the
renewal process that the gentleman here was describing, and
their cost went up ridiculously high, anywhere from $300 per
person to the $1,600. That is where those numbers came from.
This one lady had been working for the cardiologist for 10
years. She was a good employee, but now her rate has gone up
$500. That is what she makes in a week. And so she is now faced
with either paying the $500 additional a month or quitting work
and paying to get her insurance through her husband's insurance
because evidently he has not gone through the renewal process
yet and she can get it for a $35 increase. So she is not going
to be working at the cardiologist's office anymore.
I experienced the same thing in my own business where I
cannot increase their pay enough for them to be able to help
them to pay those exorbitant costs, even if they go to the
personal exchange, and so one of my employees left that had
been with me three years, was a top employee, to go work for a
larger restaurant firm so that he could get insurance paid for
by them. So the idea of the ACA helping small business keep
employees is absolutely ridiculous because it is not happening;
it is the opposite.
Chairman HANNA. Mr. McCracken, anything left you want to
talk about? We have time here.
Mr. McCRACKEN. I am not sure I have a lot to add to that,
but certainly, if we could have a system where employees and
workers have a sense of security, I think it would give people
an additional reason to think about leaving employment and
starting their own business because that is one of the chief
concerns--how am I going to find health insurance? And at some
level the ACA does address how he can find health insurance,
but of course the other piece of it is how am I going to afford
health insurance? And I think that is the side of things where
people are still deeply concerned and where the law continues
to fall down a bit. If you are going into self-employment you
might think maybe I can get one of these subsidies for health
insurance because they are being pretty generous, but you do
not know what you are going to make when you go into self-
employment. And you really do not know what that individual
market is going to look like because people have seen the
bungled rollouts of the exchanges and they hear all the news, I
think appropriately positioned that the individual markets, no
one can really predict what those premiums are going to look
like because of the fragility of those markets and the likely
inability of individual mandate to truly bring all the right
risks into one pool.
Chairman HANNA. And that does not seem to be happening now
either, does it--people signing up?
Mr. McCRACKEN. It does not seem to be.
Chairman HANNA. Thank you.
Go ahead, Mr. Schulman.
Mr. SCHULMAN. I would like to take this opportunity to
thank you. I will try not to be too long here but this is my
passion.
There is a handful of things that are immediate and
absolutely should be done. And some example is the age bands.
The composite rating is the way it should be. The age bands are
much too narrow. A perfect example is everyone in this room. If
we averaged the age here we would come up with X number, yet we
all would pay the same premium. However, if we left it the way
it is now, the youngest person in this room could be paying the
lowest premium, and us in our 60s could be paying the highest
premium. I could be perfectly, absolutely lucky ironman but the
young person in the room could have diabetes, could have
Crohn's, could have God forbid anything. They are paying the
most. It does not make sense.
The second thing is these mental plans. If I sat with every
person in this room and did a survey of them, what do you think
a deductible, copay, coinsurance, what would that be? I would
have to graph it out and come back to the Committee because
every person in this room would have a different idea of their
healthcare.
Blue Cross Blue Shield owns this marketplace--that is just
how it is, The Greater Washington Metropolitan area, Northern
Virginia, D.C., Maryland suburbs--so I am usually selling Blue
Cross Blue Shield. They have 83 percent of the market. I used
to be able to go to a group of five people in Maryland or D.C.
or Virginia and they could choose three plans. And they would
say, ``Why, Alan?'' I would say, ``Well, you are old and have
children at home and you are probably running to the
pediatrician all the time.'' ``Did my wife talk to you?''
``Yeah.'' ``Well, you probably want a copay plan and you do not
mind paying a little more premium.'' You said, ``Yeah, she does
not want to deal with deductibles.'' Yet, the 24-year-old that
just ran a marathon, he says, ``No, I do not want to pay $300 a
month. I want to pay $150 a month. Give me a 1,500
deductible.'' Then you get to another sheet after 100 plans on
a sheet. You get to a sheet of about 20 prescription plans. So
for 100 a month, you could have a prescription plan that had a
250 deductible. Well, if you did not want a 250 and you just
wanted the copays, you could pay 175 a month, take away the
deductible, have a copay. All of that has been snatched from
America. You have been told you can have platinum, gold,
silver, bronze, and now we are considering a copper plan. But I
have gone from taking groups of three to 30 to a real
constructive conversation of how do you think your healthcare
should work to literally give them again a choice of three
plans and three prescription plans so that you might satisfy
this whole room somehow. There is not any way conceivable to do
that now.
Chairman HANNA. So it is limited choice?
Mr. SCHULMAN. Limited choice.
Chairman HANNA. Limited competition. In your experience, it
has increased cost. Thank you.
Mr. SCHULMAN. You are welcome.
Chairman HANNA. It is a philosophy in search of a plan that
I think it probably did not find.
Mr. Arnold?
Mr. ARNOLD. Yes, sir. I would like to applaud what he just
said. The idea of changing from this--and I do not know where
it came from--the age banding to the composite pricing probably
would be the most significant suggestion I have heard
throughout this whole thing about how it would help reduce the
ridiculous increase in the cost. As a small business owner, I
do not understand how something that is entitled the Affordable
Care Act is so unaffordable. The cost is so bad and so high,
people just flat cannot do it.
Chairman HANNA. Mr. McCracken, if some people do not sign
up that dynamic is not going to change, is it?
Mr. McCRACKEN. No, it is not.
Chairman HANNA. I mean, that is the key to this. And your
key, Mr. Schulman, is that maybe some of those people are not
paying--because of the banding, are not paying perhaps what
they should?
Mr. SCHULMAN. Correct.
Chairman HANNA. So that could be a permanent condition as
long as you entice young people at a very, very low rate that
that will have the net effect, and we have seen that have the
net effect of increasing disproportionately cost to older
people. But who can argue--I mean, I would say personally
people with preexisting conditions should certainly have access
to good healthcare.
Mr. SCHULMAN. To affordable health care. This act is not
going to accomplish that.
Chairman HANNA. Thank you. That is probably the note that
we can end on.
I want to thank you all for being here today. We have seen
that the implementation of the healthcare law has been
problematic, to say the least. American small businesses
deserve fair and equitable access to comprehensive and
affordable healthcare, but clearly, the Affordable Healthcare
Act is causing significant disruptions for American small
businesses.
While many parts of the law have been unilaterally delayed,
particularly the employer mandate, it seems that the smallest
of the small firms that purchase insurance on the individual
markets have been neglected. I hope that the administration
takes note of this. These issues are not going away and we here
on the Small Business Committee will continue to maintain
active oversight on all of these issues.
I ask unanimous consent that members have five legislative
days to submit statements and supporting materials.
Without objection, so ordered.
This hearing is now adjourned. Thank you very much.
[Whereupon, at 12:28 p.m., the Subcommittee was adjourned.]
A P P E N D I X
The Impact of the Affordable Care Act on Self-Employment
Testimony of Dean Baker
Co-Director, Center for Economic and Policy Research
Before the
U.S. House Committee on Small Business
Subcommittee on Contracting and Workforce
AT the hearing on
Obamacare and the Self-Employed: What About Us?
March 6, 2014
----------------------------------------------------------
--
Thank you, Chairman Hanna and Ranking Member Meng, for
inviting me to address the Subcommittee on the impact of the
Affordable Care Act (ACA) on self-employment. I will make three
points in my testimony.
1) There is considerable research showing that the
fear of losing health insurance coverage discourages
workers from leaving a job that provides insurance to
start their own business. By allowing workers to get
affordable insurance through the individual market the
ACA will substantially increase the rate of small
business formation.
2) There is also evidence that workers leave jobs
that do not provide insurance to get jobs that do
provide insurance. Since many small businesses have
found it difficult to provide insurance for their
workers, their ability to get insurance through the
individual market should make it easier for small
businesses to retain workers.
3) The rate of health care cost growth has slowed
sharply over the last six years. While the exact
reasons for this slowdown are disputed, it is almost
certain that the ACA played some role. This slowdown in
health care cost growth has reduced the burden for many
small businesses that provide insurance.
For these reasons, the ACA is likely to prove to be a
strong net positive for small businesses, leading more to be
started and making it easier for the existing businesses to
prosper.
The Impact of Employer-Provided Insurance on Self-
Employment
There is an extensive literature examining the impact of
employer-provided health insurance (EPHI) on self-employment.
The basic issue is whether workers fear the prospect of being
uninsured and therefore are less likely to leave a job that
offers health insurance to start their own business than would
be the case if they were not dependent on their job for
insurance. While studies using data from the 1980s were
inconclusive on this issue, several recent studies found strong
evidence showing that EPHI discouraged workers from starting
their own businesses.
For example, a recent study pooled eleven years of data
from the Bureau of Labor Statistics' Current Population Survey
(CPS) (1996-2006) to determine whether workers with EPHI were
more likely to experiment with self-employment if they were
able to get insurance through their spouse than if they had no
alternative source of health insurance.\1\ As a result of
pooling so many years of data from the CPS, the study was able
to get a very large sample, with 81,214 employed men and 75,317
employed women between the ages of 25-64. In statistical tests
that controlled for a variety of personal characteristics (e.g.
education, age, industry), the analysis found sharply lower
rates of transitions to self-employment among workers with a
EPHI who could not get insurance through their spouse. This
result held up across a number of different specifications,
which indicates that it was not driven by a statistical fluke.
---------------------------------------------------------------------------
\1\ Fairlie, Robert W., Kanika Kapur, and Susan Gates. 2011. ``Is
Employer-Based Health Insurance a Barrier to Entrepreneurship?''
Journal of Health Economics, vol 30, pp. 142-162.
The study then examined the rate at which workers started
new businesses as they turned age 65 and became eligible for
Medicare coverage. The study found a sharp increase in the rate
of self-employment as workers reached the age of Medicare
eligibility. There was no comparable upturn in self-employment
around other landmark birthdays, such as age 55 or 75,
suggesting that hitting the age of Medicare eligibility was the
key factor. Once workers were no longer dependent on their job
for insurance, they were more willing to try their chances with
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starting a new business.
Another recent study examined whether the creation of
Individual Health Coverage Plan in New Jersey in 1993 led to an
increase in self-employment compared with neighboring states
and the rest of the country.\2\ This study used the Behavioral
Risk Factor Surveillance System (BRFSS) for the years 1991 to
1996 to determine if there was a difference in the rate of
self-emp0loyment in New Jersey in these years compared with
those in surrounding states and the rest of the country. The
study looked at individuals between the ages of 25-59. This
gave a sample size of 18,409 for the Pennsylvania comparison,
40,880 for the Mid-Atlantic states, 66,893 for the Northeast
region, and 382,670 for the comparison with the country as a
whole.
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\2\ DeCicca, Phillip. 2010. ``Health Insurance Availability and
Entrepreneurship,'' Upjohn Institute Working Paper, no 10-167.
The analysis found solid support in each case for an
increase in self-employment in New Jersey relative to the
comparison group. The implied increase in self-employment from
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the insurance reform was between 16-20 percent.
Finally, a recent study examined whether the ACA's
requirement that children up to the age of 26 could remain on
their parents' insurance policy increased the rate of self-
employment among workers between the ages of 19-25.\3\ The
study used the Census Bureau's American Community Survey to
compare the change in rates of self-employment among this age
group in the period just after the provision just took effect,
with changes in self-employment rates among workers a little
younger or older (ages 17-19 and 27-33) who would not be
affected by the provision. This gave them a sample of
2,637,376.
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\3\ Baily, James. 2013. ``Health Insurance and the Supply of
Entrepreneurs: New Evidence from the Affordable Care Act's Dependent
Coverage Mandate.'' Available at SSRN: http://ssrn.com/abstract=2230099
The study consistently found evidence of an increase in
self-employment among the affected age group in a variety of
specifications. The implied increase in self-employment was 13-
24 percent. This result is especially striking since this is an
age group in which we would not expect health care insurance to
---------------------------------------------------------------------------
be an especially important consideration.
These three studies examined the impact of EPHI on self-
employment using very different tests and completely different
data sources. In all three cases the sample sizes were quite
large. (By comparison, some of the earlier studies had samples
with around 1000 workers.) Based on the findings of these and
other studies, it is reasonable to conclude that the ACA will
increase self-employment by between 15-25 percent when its
effects are fully felt in the next few years.
The Impact of the ACA on Job Retention at Small Businesses
The overwhelming majority of large businesses provide
insurance to their workers. Many small businesses find it
difficult or impossible to provide insurance to their
employees. This is partly due to the fact that a smaller pool
of workers is likely to face higher costs and also simply a
result of the fact that arranging insurance can involve a
substantial commitment of a business owner's time. However, not
providing insurance can leave small businesses at a serious
disadvantage in hiring and retaining workers compared with
larger competitors.
Several studies have examined a ``job push'' pattern, where
workers leave jobs with which they were otherwise satisfied in
order to find a job that provides health insurance. This
pattern was most closely examined in a 1997 study that used the
National Longitudinal Youth Survey.\4\ This study examined job
changes among men between the ages of 20-27 in 1989. The sample
had 5,305 job spells.
---------------------------------------------------------------------------
\4\ Anderson, Patricia M. 1997. ``The Effect of Employer-Provided
Health Insurance on Job Mobility: Job Lock or Job Push?'' Unpublished
Paper, Dartmouth College.
This study found that married men working at jobs without
EPHI were substantially more likely to quit their jobs when
their spouse became pregnant. This would seem to imply that
workers became more concerned about finding insurance through
an employer when they suddenly faced a greater need for in
insurance. While most of the research on this topic has focused
on the extent to which EPHI discourages workers from leaving a
job where they have insurance, this study and others provide
evidence that the need to get insurance is also an important
factor leading workers to leave jobs that do not offer
---------------------------------------------------------------------------
insurance.
For this reason, the ACA should be an important factor in
leveling the playing field for many small businesses. Since
workers will now be able to buy affordable insurance in the
individual market, they will not feel the need to leave jobs
that don't provide insurance in order to make their families
secure.
The Impact of the ACA on Health Care Costs
There has been a lot of attention given to the ways in
which the ACA may lead to higher insurance costs. Specifically,
by setting minimum standards for acceptable policies, there
will be cases where individuals or employers have to pay more
than they did when they held policies that did not meet these
standards. While there are cases where the ACA has caused some
policies to cost more, it is important to note that this is
against a backdrop of sharp slowdown in health care costs.
Health care costs have consistently risen as share of GDP for
more than sixty years. Their share of GDP has been virtually
flat in the last four years and actually fell slightly in 2013.
To get an idea of how important this slowdown in health
care costs has been, in 2008 the Congressional Budget Office
projected that the country would spend $671 billion Medicare in
2014.\5\ The most recent projections show that the government
will spend just $603 billion in 2014, a savings of 10.1
percent.\6\ Most other areas of health care spending have seen
a comparable slowing of costs. This means that most health
insurance policies will cost less in 2014, even with the
requirements imposed by the ACA, than if health care costs had
continued on their previous trajectory and the ACA had not been
passed. If this slower growth persists then the savings will be
even larger through time.
---------------------------------------------------------------------------
\5\ Congressional Budget Office, The Budget and Economic Outlook:
Fiscal Years 2008-2018, Table 3-1.
\6\ Congressional Budget Office, The Budget and Economic Outlook:
Fiscal Years 2014-2024, Table 3-1.
At this point the causes of the slowdown in health care
cost growth are not clear. While the economic downturn in 2008
was undoubtedly a factor in the slowdown, the recession can't
explain why cost growth has remained slow even as the economy
has recovered in the last few years. It will take longer to
determine the extent to which cost containment provisions in
the ACA have been responsible for slowing the growth in health
care costs, but they almost certainly played some role in this
---------------------------------------------------------------------------
dramatic reduction in the pace of health care inflation.
This is certainly good news for employers who provide
health insurance coverage. Most immediately this has lessened
an important source of cost pressure on businesses. In
principle, this slower pace of cost growth should allow workers
to earn higher wages in the years ahead.
Conclusion
The main motivation for the ACA was to extend insurance
coverage to people who did not have it; however the law will
also have important implications for the labor market. A
substantial body of research implies that workers who
previously felt tied to their jobs because of the need to get
insurance from their employers will now more readily change
jobs. Many more workers will also be willing to experiment with
starting their own businesses.
In addition, many workers had previously left jobs that did
not offer insurance in order to find a job that did. Now that
workers are able to get insurance in the individual market,
more workers will remain employed at small businesses that are
not able to offer insurance.
Finally, there has been a sharp slowdown in health care
cost growth over the last six years. The ACA was one of the
factors behind this slowing of health care inflation. This has
substantially reduced the cost of most insurance policies
compared with their prior path. This will lead to large savings
for businesses that provide insurance.
For these three reasons, the ACA has been a substantial
benefit for small businesses. This will become more apparent as
the impact of the law is increasingly felt over the next few
years.
Statement of Todd McCracken, President and CEO
National Small Business Association
Before the House Small Business Subcommittee on Contracting and
Workforce
United States House of Representatives
March 6, 2014
Mr. Chairman, and Members of the Subcommittee:
I am Todd McCracken, President and CEO of the National
Small Business Association (NSBA). The NSBA is the nation's
oldest small-business association, focusing on advocacy for
small companies since our beginnings in 1937.
Thank you for inviting us to speak today about one of the
most vexing problems facing small businesses, the enormous
costs and ongoing uncertainty surrounding our health insurance
system. NSBA has long ranked health care reform and cost
containment as one our highest priorities. We are deeply
troubled by the ongoing difficulties our health care system
creates for small businesses and their employees, and by the
fact that the most recent national effort to reform the health
care system has made many of these difficulties even worse.
Escalating Small Business Health Insurance Costs
In February, NSBA released its 2014 Small Business Health
Care Survey which shows how America's small businesses are
dealing with rising health care costs, what kind of benefits
they offer and how the Patient Protection and Affordable Care
Act (PPACA) is impacting their businesses. The survey confirmed
what has been widely reported about health care costs for our
smallest companies: they are rising steeply, and entrepreneurs
are deeply concerned about what the future might hold.
Unfortunately, these rising costs are not new. Small firms have
been facing, oftentimes, double-digit increases in the cost of
their health care over the past two decades. Unfortunately,
PPACA has done little to stem these increases, and could
actually make it worse for many small firms.
Though we continue to hear that medical inflation is down
and overall health care costs are rising only slowly, evidence
of such trends is hard to find in the small-business community.
In the NSBA survey, 91 percent of businesses reported increases
in their health plan premiums at their most recent health
insurance renewal, with one in four being hit with increases
exceeding 20 percent.
Since 2009 (the first time NSBA conducted a similar health
care survey), the average per-employee health premium reported
in the survey has increased by 90-percent. During this same
period, growth and profits have been stagnant. It is little
wonder that small-business owners are focused on this cost
center, openly wondering whether the current regime is a system
they can continue to afford, and increasingly worried that
PPACA will only add to their miseries.
Remember, these costs have real-world implications: the
NSBA survey shows that one-third of small businesses held off
on hiring a new employee and more than half say they held off
on salary increases for employees as a direct result of high
insurance costs. Of course, these employment decisions are both
a reflection of current costs and a window into uncertainty
about what the future may hold, both for the economy and the
health care system.
Despite its volatile costs and complexity, health insurance
is a key component to small firms' benefits package. The NSBA
survey also found that while the majority of employers think
offering health insurance is very important to recruiting and
retaining good employees, just 51 percent of the smallest firms
are able to offer health benefit. Of the 70 percent of small
firms overall that do offer health insurance, the majority
report paying for more than half of the cost of their
employees' plans.
Today the average monthly per-employee cost of health
insurance premiums for a small firm is $1,121. When asked in
2009 for the estimated monthly cost of their health benefits
package, per employee, small firms reported $590 per month.
The Self-Employed and the Individual Health Insurance
Market
Of course, we are here today to explore those particular
and unique issues faced by our smallest members, the self-
employed. These business owners generally do not have
employees, so they purchase their health insurance in the
individual market in the vast majority of states. These markets
are undergoing the most significant changes as a result of
PPACA.
Though the degree of change varies according to the rules
previously existing in a state, PPACA has brought three areas
of significant reform to the health insurance market place:
1. Rating Rules. PPACA has imposed much tighter ``age
bands'' than previously existed in most states,
limiting the variation of premiums between the oldest
and youngest policy-holders. At the same time, the law
eliminates the ability of insurers to rate on the basis
of health status. While these changes ameliorate
premiums for some older and sicker individuals, average
premiums for most actually rise, in some cases quite
steeply.
2. Guaranteed Issue. The law requires insurers to
accept all applicants regardless of health status (and
then set premiums without regard to health status; see
above). While this provision--in theory--is necessary
to achieve universal coverage under an individual
mandate system, it clearly increases premiums by
allowing some to circumvent the mandate and only
purchase insurance once they ``need'' it. It is still
an open question to what degree the individual mandate
will limit this behavior.
3. Minimum Benefit Requirements. PPACA imposes
mandatory benefit requirements that are greater than
had been imposed by many states, and greater than
individuals might otherwise have purchased for
themselves. By imposing these additional costs, the law
makes it less likely that younger and healthier
individuals will see the ``value'' in purchasing
coverage, leaving higher average premiums for the rest
of the market. These requirements have also been a
prime driver in the cancellation of current policies,
since they do not meet the new PPACA minimum benefits.
In combination with the individual mandate, the rules
outlined above create a scenario where most health insurance
premiums in most places for most individuals--and the self-
employed--are going up, at the same time that small businesses
are being crunched to find savings and reduce spending across
the board. The confluence of these forces requires our nation's
self-employed individuals to make very difficult choices. And
when combined with the bungled roll-out that so far has
characterized PPACA and the exchanges, small businesses have
little faith in the potential for improvement and an ultimate
positive outcome.
The highs costs and complexity they face today, combined
with enormous uncertainty around any future improvement, have
conspired to make many small businesses re-think whether their
companies should continue to be entangled in the provision of
health insurance. Of course, there is no such choice for our
nation's self-employed. Whether health insurance is an
individual or employer responsibility, they cannot avoid
participation. So, how can we improve the current law, so that
it keeps costs in check and better meets the needs of most of
the self-employed?
Solutions for the Self-Employed
While we would like to see a ``do-over'' of this law, we
think the following reforms are key changes that could
specifically improve the law for the self-employed in the near-
term:
Adjust Rating Bands. The current 3:1 allowable age
rating ratio is a primary factor in driving up premiums for
current policy-holders. It would be wise to widen these age
bands (perhaps to 5:1) at least until the efficacy of the
employer mandate can be evaluated over time. The narrower the
rating bands, the higher the average premiums will be. And the
biggest increase in premiums will be for younger (and likely
healthier) workers, putting a finger on the scale of their
cost/benefit analysis for purchasing coverage. Will the mandate
be sufficient to keep these individuals in the market? We
simply don't know. Until we have a clear sense of the effect of
the mandate, we should not give more incentives for healthier
individuals to flee the market.
Allow the Self-Employed to fully deduct health
premiums against their for self-employment taxes. In 2003,
small-business owners finally were able to deduct all of their
health insurance expenses against their income taxes.
Unfortunately, we are still only part of the way to real health
insurance tax equity for small businesses and the self-
employed. Currently, employees are allowed to treat their
contributions to health insurance premiums as ``pre-tax,''
whereas business owners are not (owners of pass-through
entities are generally not defined as ``employees''). This
distinction means that those premium payments for workers are
subject neither to income taxes, nor to FICA taxes. While the
self-employed owner of a nonce Corporation can deduct the full
premium against income taxes, that entire premium is paid after
FICA taxes.
Compounding matters, these business owners pay both halves
of the FICA taxes as employer and employee (the so-called self-
employment tax) on their own income for a total self-employment
tax burden of 15.3 percent. The average cost--nationally--of a
family policy has been pegged at $16,000 for 2013. A business
owner who makes $60,000 and purchases this plan for his or her
family pays over $2,400 in self-employment taxes on that
policy. An employee who makes $60,000 and has the same plan
pays nothing in income or FICA taxes on that policy. By
treating this business owner the same way that everyone else is
treated in this country, we can give entrepreneurs an immediate
15-percent discount on health insurance premiums.
Thank you again for the opportunity to speak before you and
to address these questions on the minds of so many of our
smallest businesses and start-ups. Health insurance and its
associated costs can often be a barrier to the innovation and
growth that our country so desperately needs. I look forward to
your questions and a continuing dialogue.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Hanna, Ranking Member Meng, and Members of the
Subcommittee, thank you for the opportunity today to offer the
self-employed's perspective on the Affordable Care Act (ACA)
and to share with you its impact on those of us trying each and
every day to keep our businesses afloat so that we can leave a
lasting legacy for future generations.
My name is Charlie Arnold and I am the President and owner
of Arnold Powerwash LLC, located in Lewes, Delaware. Arnold
Powerwash is a family-owned, professional power washing company
organized in commercial and residential divisions, cleaning all
types of exterior surfaces, along with fleet washing and dry
ice blasting divisions.
Like many self-employed, I wear various hats--from small
business owner to community leader. In addition to owning and
operating Arnold Powerwash, I am also proud to serve as the
Pastor of Seaside Baptist Church and as the Emergency Medical
Services (EMS) Captain for the Lewes Fire Department. Finally,
it is in my role on the Member Council of the National
Association for the Self-Employed (NASE) that I am offering
today's testimony. The NASE is our nation's leading advocate
and resource for America's 23 million self-employed and micro-
business owners. It is in all of these roles that I am able to
provide a unique perspective and first-hand experience
regarding the impact of the Affordable Care Act has had on the
nearly 23 million self-employed Americans, the largest
potential consumers of Obamacare.
At first glance, the impact of the ACA on my business
appears to be limited. I currently have only two full-time
employees and several seasonal employees defined as ``leased''
employees. Yet, I have found myself in a continued state of
confusion to the status of my current health care coverage. As
well as the additional confusion caused by the restrictive
actions taken by both the Departments of Treasury and Health
and Human Services toward the rules governing Health Savings
Accounts (HRAs), and the continuing disparity faced by the
self-employed versus ``big business'', namely the two reprieves
given by the Obama Administration to larger businesses in the
last year that grants them freedom from complying with the new
law. However, the self-employed are left having the March 31,
2014 enrollment deadline looming over our heads, while we are
forced to confront the potential for possible penalties for not
enrolling in Obamacare.
Since October 1, 2013, the self-employed have been caught
between a rock and hard place, trying to navigate the complex
nature of the requirements under Obamacare and how it impacts
us, our families, and our businesses. In fact, in a survey
conducted by the NASE leading up to open enrollment in the
Exchange Marketplace, 60% of respondents said they thought
there was a ``low'' or ``very low'' chance they'd be able to
secure both affordable and comprehensive coverage in 2014.\1\
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\1\ ``Majority of Small Businesses Feel They Will Be Unable to
Secure Comprehensive, Affordable Health Care in 2014'' http://
www.nase.org/Research/NASESurveyResults/2013/11/21/new-survey-majority-
of-small-businesses-feel-they-will-be-unable-to-secure-comprehensive-
affordable-health-care-in-2014
We can all acknowledge the launch of the Exchange
Marketplace was fraught with confusion. The last minute
cancellations of millions of health care plans was both
unexpected and detrimental to many Americans--many who were
assured their health policies would be carried over as
``grandfathered'' plans. This was especially challenging for
the thousands, if not hundreds of thousands, of self-employed
small business owners who had these types of plans and had not
been previously planning on purchasing health care via the
---------------------------------------------------------------------------
Exchange Marketplace.
For example, an NASE member in Illinois had no intention of
enrolling in a new health care plan via the Exchange
Marketplace, because she had a grandfathered health care plan.
As head of the household, her plan covered not just her and her
husband, but also an adult child with severe disabilities.
Eventually, after President Obama attempted to salvage the
millions of plans that were cancelled, she decided to pursue
her options via the Exchange Marketplace. But, this was proven
to be a disaster for her and her family. Since their
enrollment, she has experienced higher than anticipated costs,
especially for prescription medication needed to care for her
disabled son. In fact, several medications were not allowed
under their new plan, and they have since had to jump through
hoops to get approval for medication essential for their son's
care.
I, myself, find the situation to be perplexing as I try to
determine the best course of action for my business. For
example, while I have two full-time employees, myself and my
wife, I sometimes employee seasonal workers throughout the year
to help me manage the workload during busy periods. This allows
me to manage cash flow and overhead in order to keep my
business afloat in lean times. These seasonal employees are
``leased'' through a professional employer organization. Late
last year, the Department of Treasury released regulations
suggesting that businesses who hire workers through temporary
and employee leasing agencies may find themselves deemed to be
co-employers with the agencies and, thus, are jointly and
severally liable with the agencies for ACA penalties,\2\ To say
this was unexpected is an understatement. The bottom line is
that this decision could single-handedly bankrupt my business.
This is a prime example of how the agencies tasked with
implementing the Affordable Care Act have manipulated the
legislative intent of the law. Congress must act in order to
ensure that small businesses, like mine, are able to utilize
seasonal or ``leased'' employees, without facing additional
costs, an unintended consequence of ACA compliance.
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\2\ http://www.irs.gov/pub/irs-drop/n-12-58.pdf
Another unintended consequence of the implementation of the
Affordable Care Act is another interpretation by the Department
of Treasury, Health and Human Services, and Labor in regards to
Health Reimbursement Arrangements ``HRAs''. HRAs are both a
popular and effective tool for the self-employed and micro-
business community that allows for an employer to provide
reimbursement to an employee for health related expenses. The
employer must offer this arrangement to each employee at the
same reimbursable rate, which provides a unique and flexible
way for micro-and small business owners to still access
individual health care coverage, even when they are unable to
afford group health care coverage. However, in technical
guidance issued in September 2013 \3\, the Department of
Treasury, Health and Human Services, and Labor, determined that
HRA plans could be offered by an employer only if they also
provided a health care coverage that met the Essential Health
Benefit requirements as set forth by the Affordable Care Act,
regardless of company size. The NASE does not dispute that an
HRA is not, nor should it be, a qualified health care plan. Nor
are we advocating that offering an HRA should meet the employer
mandate; however, that is not how HRAs were established or
previously used by micro-or small businesses. HRAs were
originally used to provide minor financial assistance to
employees for the overall costs of health care, including but
not limited to: out-of-pocket expenses, prescription costs, and
co-pays; expenses that still exist even if an employee has
purchased health insurance through the Exchange Marketplace in
order to meet the individual mandate requirement. The NASE
strongly objects to the guidance provided and requests that
Congress seek to clarify the intent of the law. In addition, we
suggest allowing for the use of HRA plans by micro-and small
businesses that fall under the employer mandate threshold as a
tool to help provide financial assistance to their employees in
covering health care expenses.
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\3\ http://www.dol.gov/ebsa/newsroom/tr13-03.html
Finally, I would be remiss if I did not echo the calls by
the NASE for parity between the ``big business'' community and
America's smallest businesses. The self-employed and micro-
business community, representing nearly 76 percent of the
entire small business community, continues to struggle in
meeting the ACA's compliance requirements while our corporate
counterparts continue to get a pass from the Administration.
Specifically, the NASE is calling for a one-year delay in the
individual mandate penalty for one calendar year--in fact, this
week we anticipate that the House of Representatives will vote
on H.R. 4118, Suspending the Individual Mandate Penalty Law
Equals Fairness Act, introduced by Representative Lynn Jenkins
(R-KS), which would delay the individual mandate penalty. I
hope that this subcommittee, and the committee as a whole, will
support the measure and provide much needed relief to those who
are struggling to meet the requirements of the law.
Additionally, due to the problems with the launch of the new
health care system, we also urge the Administration and
Congress to extend the open enrollment period until the end of
2014. This extension would allow adequate time for both
individuals and small business owners to properly educate
themselves about the best and most affordable health care plans
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available to meet their unique needs.
For the self-employed, the impact of the Affordable Care
Act on us, our families, and our businesses has been enormous,
but not all of those impacts have been negative. In fact, since
the implementation of the Affordable Care Act, NASE members
have been able to access comprehensive and affordable health
care coverage in the Individual Marketplace, especially those
who had previously faced barriers, such as pre-existing
conditions and/or age discrimination. However, those success
stories are often buried under the significant challenges too
many of us are continuing to have to face. Even the simple act
of enrolling in the Exchange Marketplace has placed a hardship
on many of us who have attempted to navigate a complicated and
too often broken system laced with misinformation, inaccurate
pricing and hidden costs. Compliance is not made any easier by
the continued unilateral action taken by the Administration to
delay or interpret the law without input that leads to further
confusion and mistrust in the system.
It is a challenging time for America, but I believe that
together we can help identify solutions to problems that lead
to a strong country that offers fair and equitable access to
comprehensive and affordable health care. Now is not the time
to repeal and replace this new law, rather fix it so it works
for all Americans.
I, on behalf of the National Association for the Self-
Employed, thank you for the opportunity to offer the self-
employed perspective on how the ACA has impacted our community.