The Patient Protection and Affordable Care Act (PPACA) creates numerous problems for small business: higher costs, greater administrative burdens, fewer healthcare choices, and competitive disadvantages vis-à-vis big business.
Learn the essential facts about these problems in this NFIB Research CribSheet.
| The individual mandate tax is unique in American history. | The individual mandate tax is unprecedented. PPACA established an individual mandate to buy health insurance and a penalty for not doing so. This was the first time in American history that the federal government ordered the general population to purchase a commercial product. Responding to the lawsuit by NFIB and 26 states, the Supreme Court refashioned the mandate and penalty into a choice between two options: buy insurance or pay a tax for failing to do so. (See CribSheet 12-2.) |
| The mandate tax hits wages or profits | The individual mandate tax compels employees to buy insurance or pay taxes. Unless employers increase labor costs to offset this change, affected employees will feel a decrease in take-home pay. |
| The employer mandate hits businesses. | The employer mandate raises costs and complicates business. Businesses with 50 or more full-time employees or FTEs face employer mandate penalties. One subsidized employee can trigger annual employer penalties of $2,000, $3,000, or more. (See CribSheet #11-1.) |
| The employer mandate kills jobs. | The employer mandate gives employers a motive to employ fewer than 50 employees. Businesses can avoid the mandate by shrinking or staying below 50, by outsourcing, and by replacing full-time employees with part-timers. NFIB is leading a drive to repeal this provision. |
| The mandate increases red-tape. | Employer mandate penalties depend on month-by-month changes in the number of full-time employees and part-time hours. This means time-consuming monitoring and paperwork. |
| PPACA has already added costly benefits. | New benefits raise costs. New benefits for policyholders have increased the cost of insurance. These include bans on annual and lifetime payout limits and an extensive list of free preventive services.. |
| “Essential Health Benefits” make costs more unpredictable. | Insurance purchased in the individual and small-group markets must cover essential health benefits (EHB) – a list of mandatory covered services. Beginning in 2016, the Secretary of Health and Human Services will have virtually unfettered power to add items (and costs) to the package. Regulatory actions by the Secretary blurred federal and state EHB responsibilities for 2014-2015. |
| Small businesses will pay a Health Insurance Tax (HIT). | New taxes raise costs. PPACA imposes a health insurance tax (HIT) on insurers. CBO expects insurers to pass the tax along to businesses and consumers. Over the first decade (2014-2023), this provision increases taxes by $102 billion. During the second decade, the total tax impact will likely be $200-300 billion. (See CribSheet 12-3 for details.) NFIB estimates that the HIT will reduce private-sector employment by 146,000 to 262,000 jobs in 2022, with 59% of the losses coming from small business. NFIB is leading a drive to repeal this provision. |
| Pass-through business owners face a “Medicare” wage/salary tax. | Owners of unincorporated “pass-through” businesses report business income on their household 1040s. Pass-throughs are vulnerable to PPACA’s 0.9% “Medicare” surtax on wage/salary income above $200,000 for individuals or $250,000 for joint filers. This surtax is paid on top of the long-existing 1.45% Medicare payroll tax. Despite the name, the proceeds of the new tax will not go to Medicare. |
| Pass-throughs also face a new “Medicare” investment tax. | Pass-through business owners with modified adjusted gross income over $200,000 for individuals or $250,000 for joint filers face a 3.8% tax on investment income (rents, dividends, interest, royalties, capital gains on property sales other than primary residence, etc.) above the threshold. Once again, revenues do not go to Medicare. |
| A new drug tax raises costs. | Pharmaceutical companies pay a new tax on brand-name prescription drugs but the tax will be passed along to insurance purchasers through higher premiums. |
| A medical device tax raises costs. | Medical device manufacturers pay a new 2.3% tax on their products but will pass the tax on to insurance purchasers through higher premiums. An industry analysis suggests losses of more than 43,000 jobs and over $3.5 billion in compensation losses. |
| There’s a new tax on tanning salons. | The law imposes a 10% tax on sales by tanning salons. No other industry has to pay this tax or anything comparable. |
| Employees can’t use FSAs or HSAs for OTC drugs. | Employees can no longer use flexible spending accounts (FSAs) and health savings accounts (HSAs) to purchase over-the-counter (OTC) medications without a prescription. Unless businesses increasetotal compensation to offset this effective increase in taxes, employees lose spending power. |
| Some costs hit small business, but not big business. | PPACA is especially expensive for small business. A number of PPACA’s provisions (e.g., essential health benefits, the health insurance tax) apply only to the fully-insured market (most small businesses and individual policyholders) but not to the self-insured market (most big businesses, labor unions, and governments). |
| Enforcement is arbitrary and unpredictable. | The Secretary of HHS has granted thousands of waivers to certain PPACA provisions without specifying the criteria for approval and disapproval. The result is to saddle some, but not all, employers with large expenses, and do so in an unpredictable manner. |
| Grandfathering restrictions boost costs. | PPACA allows some small businesses to escape certain mandates by “grandfathering” their existing health insurance policies. However, extensive restrictions mean that relatively few businesses can take advantage of grandfathering. HHS estimates that up to 80% of small employer plans will lose grandfathered status by 2013. |
| Businesses face years of changing regulations. | PPACA left many of the most important operational details to regulators. For years, businesses will have to devote considerable resources to monitoring and navigating regulatory changes. Few small businesses have human resources, legal, or accounting departments to track and plan changes. |
| Some insurance markets already disappearing. | PPACA has begun to wipe out certain health insurance markets. These include child-only policies, limited-coverage “mini-med” policies, and (in some areas) individual policies that formerly helped some small business employees to gain coverage. |
| The small-business tax credit is small, cumbersome, and temporary. | According to the General Accountability Office (GAO), in 2010, only 170,300 small employers claimed the health insurance tax credit – 4% of the number cited by PPACA supporters. On average, businesses claiming the credit received $2,748 – a trivial amount compared with insurance costs. Navigating the credit involves considerable red-tape, time, and expense. (See CribSheet #11-2.) |
| Congress repealed the 1099 expansion. | Two problems have subsided. PPACA originally included an enormously expensive expansion of the IRS Form 1099 program. NFIB successfully led the drive to repeal this provision. |
| The CLASS program has been halted. | The CLASS Act was a long-term care scheme included in PPACA as an accounting trick to decrease the apparent cost of PPACA. The federal government has since recognized that CLASS is actuarially unsound, and the program has been discontinued. Congress canceled the program as part of the year-end Fiscal Cliff deal. See CribSheet #13-1.) |