In a nation full of hot-button issues, few are as torrid as federal health care reform. More than a year and a half since its passage, the law — officially dubbed the Affordable Care Act but derisively called “Obamacare” by its critics — is still being fought in the courts, Congress and statehouses across the country. But for all the political and legal wrangling, the law is marching forward.
Intervention could come from the hand of the U.S. Supreme Court as early as next spring. That possibility aside, some significant aspects of the law have already gone into effect, and many more are on the way. And while much of the media attention has focused on how the law, known broadly now as the ACA, will impact uninsured individuals, its major provisions could be more impactful to the nation’s 6 million small businesses — which employ more than 40 million Americans — and the estimated 22 million who are self-employed.
For John Arensmeyer, the founder and CEO of Small Business Majority, a Sausalito-based business advocacy group supporting the law, those provisions can’t come fast enough. In his view, whether you believe the law is a boon or a boondoggle — and he acknowledges there are plenty of soldiers in both camps — is immaterial.
“The law is not perfect, but it is the law,” he says. “The really important thing now is how we are going to help 3 million California small-business owners understand this law and get the most out of it.”
Arensmeyer says many small-business owners are still unaware of how the law might impact them. Polling the SBM commissioned last March showed more than 60 percent of California small businesses were unaware of the law’s major tenets, including possible tax breaks and the ongoing creation of a state health care exchange.
For the unfamiliar, the law’s primary goal is to ensure health care coverage for approximately 32 million of the estimated 45 million currently uninsured Americans. The methods for making this happen started with 26 provisions taking effect in 2010 and another 21 this year. The rest are staggered in many increments across the next seven years; in all, more than 90 separate provisions of the law will take hold by 2018.
“My guys are like anyone else — the want the best health care coverage they can get for as cheaply as they can get it. I don’t think they care whether it comes through the government or somewhere else.”
Ken Endelman, founder and CEO, Balanced Body
The bedrock is a requirement that by 2014 every individual, with minimal exceptions, must obtain health insurance or pay a tax penalty. Some of that coverage will come from yet-to-be-created state health care exchanges, one-stop-shopping sites where health insurers will market directly to consumers. Most states will run their own exchanges, though some may opt to have the federal government do it. The feds will also help most low-income consumers pay for insurance they get there, some of it with “advanceable” tax credits.
Exchanges must all be functioning by 2014, when many of the law’s most significant reforms take effect. Those include opening up Medicaid, the state federal program to provide medical care to the poor, to anyone earning less than 133 percent of the federal poverty line, about $29,000 annually for a family of four. Approximately 16 million new people are expected to enroll in Medicaid nationwide.
Other key ACA rules taking effect in 2014 include barring annual limits on health coverage and a prohibition on rejecting adults with pre-existing medical conditions. Washington will initially foot the entire bill for new Medicaid recipients in 2014, 2015 and 2016 before dropping to 90 percent by 2020 and beyond. Preventative care services like vaccinations and certain health screenings, however, will become permanently free across all new health plans and Medicare.
Some small-business owners will also get help from Uncle Sam, garnering large tax breaks to help pay for providing insurance to employees. Workers, too, will get a break, earning discounts up to 50 percent on health premiums for quitting smoking or losing weight.
Those aspects definitely appeal to observers like Steven Currall, dean and professor of management at the UC Davis Graduate School of Management.
“Anything that can support small businesses and remove financial burdens is a good thing,” he says.
The list of the law’s carrots and sticks goes on and on, an amalgamation the nonpartisan Congressional Budget Office says will cost $938 billion over the next decade.
It is a huge number that begs the question: Who is going to pay for this?
For starters, much of the cost will be mitigated with significant cuts to Medicare, the federal program to provide health care to the elderly and the disabled. Those cuts include payments for both hospital and in-home services. Wealthy recipients will also pay higher Medicare taxes.
Meanwhile, health insurance companies will be hit with a new annual “net premium” fee that starts at approximately $8 billion in 2014 and grows to more than $14 billion by 2018. Pharmaceutical companies will also be subject to new annual fees, and medical device sales will soon be hit with a new 2.3 percent tax. Starting in 2018, new taxes kick in on high-value insurance plans, known as Cadillac plans, while anyone using a tanning salon is already paying a 10 percent ACA tax.
The ACA is also intended to make health care more efficient and affordable. One such provison, the law’s so-called minimum loss ratio that went into effect this year, requires health insurers to spend 80 to 85 percent of premium costs on health care services and other quality-related issues or rebate the difference to their customers. Other reforms take aim at waste, fraud and abuse by, among many things, reducing unnecessary paperwork throughout the system and streamlining medical delivery services. If everything goes according to plan, the Congressional Budget Office says the ACA could actually lower the federal budget deficit by $124 billion over the next 10 years and by as much as $1 trillion by 2030.
While opponents continue efforts to kill the law, some already-enacted elements of the ACA have been well received by the public, including a ban on insurance companies dropping policy holders that get seriously ill and allowing adult children up to age 26 on their parents’ health insurance policies.
The Congressional Budget Office says the Affordable Care Act could actually lower the federal budget deficit by $124 billion over the next 10 years and by as much as $1 trillion by 2030.
According to reports from insurers like WellPoint, Oakland-based Kaiser Permanente and Blue Shield of California, by May of this year more than 600,000 young adults nationwide had taken advantage of that opportunity. The federal Department of Health and Human Services originally estimated 1.2 million 26-and-under adults nationwide would jump onto their parent’s policies in 2011, but some experts now say that’s a low estimate.
“Once you get beyond all the political battles, this is probably one of the easiest and least controversial provisions of the law, and so far it has had the most tangible difference in people’s everyday lives,” says Larry Levitt, a senior vice president with the Kaiser Family Foundation, which is not affiliated with Kaiser Permanente.
The rest of the ACA’s implementation may not go as smoothly. In California, for instance, the sheer number of uninsured or those on government-paid health coverage is staggering. According to a 2009 UCLA study, California has more than 8 million residents without coverage, by far the most of any state. The California Medical Association says nearly 7 million more rely on Medi-Cal, the state’s version of Medicaid. Medi-Cal is already no panacea — the state’s ever-present budget woes produced significant cuts to the system last March with more deep cuts likely on the way.
Lisa Folberg, vice president of medical and regulatory policy for the CMA, says a massive influx of millions of new patients onto Medi-Cal rolls could tax the already heavily burdened system to the breaking point. Right now, Folberg says, one in five Californians are on Medi-Cal. Under the ACA, that ratio could grow to one in four.
“We’re very concerned that we’re building a house of reform on a lousy foundation,” she says. “We may provide more coverage but not be able to provide better care.”
A 2011 Rand Corp. study notes such growth won’t come cheap, predicting that, while the ACA will dramatically reduce California’s number of uninsured, the state’s total health care spending will grow by 7 percent for the combined period between 2011 to 2020.
Many business advocates also do not share Arensmeyer’s enthusiasm for the law. Groups like the National Restaurant Association, the U.S. Chamber of Commerce and the National Federation of Independent Businesses question the burden they say the law will place on businesses, particularly small companies. One major concern revolves around the mandate requiring companies with 50 or more full-time or equivalent workers to offer coverage or face penalties up to $2,000 per employee.
Critics say the law is so open-ended that employers could end up paying even if they do provide coverage. Many employers are also gravely concerned about the net premium fees health insurers will pay, fearing those costs will then be passed down.
But there is not unanimity even within the opposition. The NFIB has joined 26 states in a federal lawsuit seeking to have the ACA overturned. But in May, Colorado Gov. John Hickenlooper, a Democrat, signed legislation that will create that state’s health care exchange. He did so with the full support of the state NFIB chapter, which lobbied for months to see the bill passed.
Amid these harrowing challenges, California has been busily preparing for the law’s full implementation. Within a few months of President Barack Obama signing the ACA into law in March 2010, then-Gov. Arnold Schwarzenegger signed legislation making California the first state to begin creating its own health care exchange. That process is now in full swing. The California NFIB chapter opposed the legislation and did not return calls seeking comment. The California Chamber of Commerce first agreed to comment, then backed out of a scheduled interview and ignored repeated attempts to reschedule.
Estimates of how many Californians will eventually use the exchange are in the millions. How many of those will be businesses, however, is a great unknown. Most consumers have traditionally obtained their health coverage through their employer. According to the U.S. Census Bureau, in 2009, the year before the ACA, 49 percent of all insured people got their coverage through their jobs, while 29 percent accessed Medicare or Medicaid. Another 5 percent carried private nongroup coverage, while the rest, 17 percent, had no coverage at all. While the ACA’s supporters have long repeated the mantra that nobody who likes their current coverage will have to change to something else, there is no way yet of knowing who might want to.
It is a legitimate question for employers like Ken Endelman, founder and CEO of Sacramento-based Balanced Body, the world’s largest Pilates equipment manufacturer. Endelman employs more than 100 workers and offers stellar health care benefits, including full coverage for the employee with no cost sharing. Workers can add their families for a minimal charge. It is far from cheap — the company spent $289,000 on its insurance coverage in 2010 — but he says it is worth it to him to have coverage for his staff. Shifting to another plan through an exchange would be tough, he says, but with insurance costs rising 8 to 11 percent a year, he says he will consider all options.
“My guys are like anyone else — they want the best health care coverage they can get for as cheaply as they can get it,” he says. “I don’t think they care whether it comes through the government or somewhere else. They just want it.”
Endelman says he strongly supports the ACA and believes it will ultimately prove to be “really, really good for businesses.” If anything, he says, the law doesn’t go far enough, noting that his competition around the globe often has the advantage of not dealing with the health care issue. In that regard, he believes government-run health care would “be more fair” to U.S. employers. But he also understands the fears employers have regarding the law.
“A lot of the concern is over the devil you know as opposed to the devil you don’t,” he says.
Some employers have clearly chosen to get familiar with the new devil. Studies by Kaiser and other insurers note an uptick, sometimes fairly dramatic, in the number of small employers who are now providing insurance for their workers. Whether that trend continues remains to be seen.
“I think we’re going to have to wait until the law’s major provisions go into effect before we know how people will experience it and react,” says Kaiser Family Foundation’s Levitt. “When the rest of the benefits become real, they may react very favorably. But if problems arise, or if they find they are paying more than they were before, they may grow more opposed.”
But Small Business Majority’s Arensmeyer believes most small employers are already on board, particularly those that have hesitated to grow their business — or even opted to close their doors — due to high health insurance costs.
“This is a market problem and needs a market-based solution,” he adds. “Health care should not be the factor of whether you start or run a business.”
Think of your best friend, a friend that knows all your ticks, hobbies and vices. Now imagine this friend happens to be a doctor, and she’s your doctor.
The U.S. Supreme Court’s decision in June to uphold the Affordable Care Act briefly tempered some of the political brouhaha surrounding the new health care law. But partisan rhetoric flared again during election season, creating more confusion about the law than clarity.