The Obama administration announced last week that the federally-run small-employer health insurance exchanges (or “SHOP” exchanges) will be delayed for a year, until November 2014. This announcement, like others regarding delays in PPACA implementation, generated a flurry of negative reactions from the media and some members of the business community. Critics lament that the lack of an online marketplace for small businesses in some states this year will make it more difficult for those businesses to compare options and to access tax credits (available to those with 25 or fewer employees and an average wage up to $50,000). Their bottom line stated fear is that these impediments will deter some small businesses from offering their employees coverage at all.
But this delay – and any reduction in small-employer health insurance uptake – might not be all that bad. To the extent this delay sends employees of small businesses into the individual-market exchanges instead, it might be a good thing in the long run, for both employees and employers. I outline the reasons why in detail in an article published in the Iowa Law Review Bulletin, An Optimist’s Take on the Decline of Small-Employer Health Insurance. In short, in the individual market, many employees will be able to buy good coverage at lower overall costs to them and their employers. Many small-business employees would receive tax subsidies and will find as good or better risk pools. Plus, their individual-market options are likely to be as good or better than the insurance they would get if covered through their jobs. Small businesses won’t have to bear the burden of health insurance costs and administration and are exempt from employer penalties under the Affordable Care Act. If businesses save money overall, it could slow the trend of income stagnation driven by increasing health care costs. My article addresses other reasons why the decline of small-employer health insurance might be more socially efficient and equitable.
Paul Downs, a small business owner in Philadelphia, describes anecdotally cases where some of these reasons play out in an insightful November 25th New York Times blog post, Seven Conclusions About Small-Business Health Insurance (see especially his numbers 6 and 7).
Nice points, Alison. As you mention in note 42 of the paper, another advantage of the individual market is that it scales cost-sharing obligations depending on the income of the insured individual. This may turn out to be a very important feature for reducing medical bankruptcies and foreclosures, and for making health spending more rational. (I have my own paper on whether this can and should be done in the large group employer market.)