All too often when Congress sets out to solve a problem, however good the original intentions, unintended consequences result.
Such was the case when Congress took on the task of designing a health insurance reform bill that was guaranteed to provide universal health care coverage to Americans. When lawmakers crafted the bill, they believed they could rely on insurers and punitive taxes to cover the costs created by a vast expansion of coverage.
However, Congress missed its target. Instead, they dealt the small-business community a hard financial blow. The taxes included in the final health care reform bill, passed by lawmakers and signed into law by President Obama, will end up hurting small businesses and their employees, leading to higher costs and fewer workers covered by employer plans.
Small businesses, the self-employed and entrepreneurs are the heart of the U.S. economy. Indeed, they create two-thirds of new jobs. Yet Washington has failed to address the long-held concerns of small business owners that the rising costs of health insurance premiums will continue to impede the growth of their businesses.
The 2010 health care reform law — the Patient Protection and Affordable Care Act (PPACA) — was marketed and sold as an effort to address increasing costs, but its flawed tax policies will put small-business costs on an elevator and force small employers to reduce wages or even to drop coverage for employees.
Embedded in PPACA is a provision that we in the small-business community call the Health Insurance Tax or “HIT.” When it goes into effect in 2014, this HIT will impact approximately two million small employers, 3.4 million self-employed Americans and 27 million employees.
While couched as a tax on insurers, the HIT will actually mean billions of dollars in new taxes on the fully-insured market. Those taxes will result in a deluge of higher costs for those consumers who purchase health insurance coverage from this market: small businesses.
When asked about the HIT’s expected impact on the health insurance market, CBO Director Douglas Elmendorf told the U.S. Senate that the Health Insurance Tax “would increase costs for the affected firms, which would be passed on to purchasers and would ultimately raise insurance premiums by a corresponding amount.”
The resulting costs for small businesses will be staggering.
By 2018, the HIT will collect $14.3 billion. IRS data shows that in 2007, small businesses spent $96.8 billion on total employee benefit programs. Roughly speaking, this means the HIT could represent a 15% increase in employee benefit costs for small business.
This is revenue that could be used to create new jobs, offer higher wages and purchase new equipment.
Let’s consider how the HIT will impact employees of small firms. The average employee with a family plan will see his take-home pay reduced by nearly $5,000 between now and 2020 because of the HIT. CBO Director Elmendorf tells us why: “Although employers typically contribute a substantial portion of the premiums for their workers, the costs of those contributions are ultimately passed on to workers — mainly in the form of lower wages than would be paid otherwise.”