On behalf of the New Jersey Business & Industry Association, we appreciate the opportunity to testify to discuss the effect the Affordable Care Act's (ACA) implementation has had on health insurance purchasing decisions of small business this year.
NJBIA represents 21,000 companies in New Jersey, with over 85 percent of our member companies employing fewer than fifty employees. Our member companies employ over one million workers in New Jersey. Therefore, we have had a strong and consistent interest in the health insurance marketplace for small employer purchasers.
Employers Find the ACA and Rising Premiums to be a Challenge—
The Association places a strong focus on health insurance since it is a top priority for our members. Once again the cost of health insurance was the top challenge facing our members according to NJBIA's 2014 Business Outlook Survey with 71 percent of employers saying it was their first, second, third or fourth worst concern.
Our members also expressed great concern about the impact of the Affordable Care Act. Eighty percent of survey participants said they expect the cost of employee health benefits to rise in 2014, with 17 percent expecting that cost to stay about the same, and only 3 percent anticipating a decline.
Among the survey participants saying health insurance costs are going up: 46 percent expect costs to rise by 11 percent or more; 27 percent expect costs to rise by 6 percent to 10 percent; and 28 percent, by 1 percent to 5 percent.
Participants were also asked what kind of impact they believed the federal Affordable Care Act would have on their companies.
Sixty percent said they expected the impact to be negative, 16 percent expected no impact, and 6 percent foresaw a positive impact. The remainder of companies (18 percent) said they did not know how the law would affect them.
Employers Continue to Be Committed to Providing Coverage—
Employers continue to be committed to providing coverage to their employees, often spending significant amounts of time comparing coverage before buying. It is not unusual for many small companies to contribute 100 percent toward the cost of single coverage.
Steep rate increases are jeopardizing some employers' ability to continue to offer coverage. Some employers fear that the next renewal will force them to drop to coverage because the rate increase will be more than they can cope with – our members have reported anecdotally seeing initial rate increases that range from single digits to more than 40 or 50%.
Other companies have expressed frustration that they cannot keep the plans that they had. In many cases the new plans are more expensive do not have been coverage or better ‘value'. In fact the new health plans have higher maximum out of pockets maximums and less coverage.
Employees have always valued their health benefits. However with the individual mandate beginning in 2014, there is an increased focus on employer sponsored coverage.
Affordability is Critical—
The cost of providing health coverage to employees is one of the most significant challenges facing employers today. It is important to be mindful that employers seek opportunities to continue to provide health benefits to employees as they recognize the competitive value to provide this benefit in a demanding market where skilled employees can be scarce. Health insurance premiums exceeded $4,565 for individual employees and $16,351 for family coverage (2013 Kaiser/HRET Survey of Employer-Sponsored Health Benefits) last year. These premiums have nearly doubled in the last ten years.
Rising costs, combined with the recession, are resulting in a sharp drop in the number of people covered in New Jersey's small employer market. Nearly 200,000 fewer people covered now (652,148 in 2Q 2013) than there were five years ago (884,553 in 4Q 2007).
Unfortunately, the ACA offers little relief for employers struggling with rising healthcare costs.
Key challenges with the "Affordable Care Act”—
Confusion. One of the biggest challenges regarding the implementation of the ACA has been confusion relating to the new law. Employers and their advisors have struggled to learn the new rules and understand how they affect purchasing coverage this year. Unfortunately many employers are forced to make coverage decisions with less than perfect information about their options.
Instability. The SHOP exchange was delayed for a month and then for a year. Policies were cancelled and then the President announced you could keep what you have, subject various conditions. This kind of instability threatens the success of the SHOP. The ACA is the law of the land, but at times it can be difficult for business plan ahead due to a lack of certainty. Business needs to be able to make economic choices and budget for the coming year with a certain amount of confidence. As things stand, many businesses have no idea how much employee benefits will cost and that is not a comfortable position, particularly if it might be looking to add employees, expand facilities or invest in new ones.
Small Business Tax Credit Falls Short. Many proponents of federal healthcare reform have touted the Small Business Health Care Tax Credit as a major benefit for small business. The maximum credit is worth 35 percent of the premium, but a business has to have ten or fewer employees with average wages under $25,000 a year to qualify. In a high wage state like New Jersey, it's unlikely that many businesses will benefit from the tax credit, certainly not the way those in other lower cost states will.
Many Opt to Renew Early. Many employers are renewing or considering renewing their policies early, in 2013, to avoid the upheaval created by the ACA required changes in 2014. NJBIA's members cite large premium increases due to the new rating calculation required by the ACA.
Impact on Mom-and-Pop Businesses. The ACA has required New Jersey to change its definition of a small business. A partnership or husband-wife group with a ‘bona fide' employee will no longer be considered eligible to purchase a small employer group policy. Instead, they will be forced into the Individual Marketplace.
Challenges Ahead. The disruptions are likely to continue. While it is unclear how many, many people will be transitioning to new exchange based health plans which will present new challenges for consumers and healthcare providers to navigate. Around the corner, is the Cadillac Tax in 2018. It seems unlikely that any plan sponsor will be willing to pay a 40% surcharge so we can expect many employers and other plan sponsors to begin to take action to avoid the tax.
The ACA Does Apply to Small Employers. Small employers with fewer than 50 employees are frequently assured that the ACA does not apply to them but that is simply not true. If an employer of any size purchases or provides health coverage for their employees they are effected by the ACA. That coverage is impacted by mandates, taxes and fees required under the ACA.
The Effects of the ACA Must Be Viewed In Context of the Larger Economy. As companies are trying to adjust to the new requirements of the ACA, which is often resulting in added cost, they are seeing other costs rise, such as the minimum wage. For some, the 14 percent increase in the minimum wage is already projected to result in less business and slimmer margins or even operating losses. Thus making it impossible to increase the employer contribution for health benefits.
NJBIA continues to believe that the cost is the main issue. Cost directly addresses the access issue. If we reduce the cost of care in a meaningful way, we make the health care delivery system more efficient and increase access to services. Driving up costs and then providing subsidies just masks the underlying problem – increasingly unaffordable cost.
I recognize that there are no easy solutions to the problem we present but we urge you to help small businesses continue to high quality health care to their employees at a reasonable price.
NJBIA appreciates that the perspective of small business is included in the discussion on this important topic.