A new report from the federal government that says more small employers will see premiums increase than fall under the Affordable Care Act appears to have put the Obama administration on the defensive once again. But the report is remarkable as much for what it reveals about the current state of the small-group market as for how it might look under Obamacare, as the law is commonly known.
The report was produced by the Centers for Medicare and Medicaid Services at the request of Congress, and it is largely an exercise in the theoretical. The Affordable Care Act outlaws premium discrimination based on a company’s industry, the size of its group, or the health status and gender of its employees. The law also limits premium variation based on age, and the study assumes that when all these rules eventually take effect, all small companies and their workers will pay essentially the same rates.
Meanwhile, the agency estimates that today, under the current rules, two-thirds of small employers pay premiums that are below the average rate and one-third pay above-average premiums. Therefore, under an Affordable Care Act that is fully in place, two-thirds will see their premiums rise, and one-third will see premiums fall.
Of course, we have long known that some people would pay more for health insurance under Obamacare and some people would pay less. What is interesting is the skew: Why is it that two-thirds of employers, and employees, according to the study, have paid below-average premiums? Why isn’t it closer to 50/50? The answer, according to the study, is that under the old system, companies that paid lower premiums because their employees posed smaller health risks were more likely to offer health insurance in the first place.
But according to Jonathan Gruber, a health economist at M.I.T. whose work was cited in the C.M.S. report, those companies’ premiums were not as far below the average as the premiums of those businesses that insured older, less healthy employees were above the average. “The most expensive firms are very expensive, while the cheaper ones aren’t that much cheaper,” Mr. Gruber said. “So what that means is that while the cheaper firms will lose, they will lose by less than the most expensive firms gain. The 65/35 is still consistent with the overall roughly net zero result that the Congressional Budget Office, myself, and others have estimated.”
It is also possible that companies that have not provided health insurance because it was too expensive may now be offered rates lower than what they were quoted in the past. The report estimates 18 million people get insurance through the small-group market, though not all will be affected by the new premium rules one way or the other. But according to the most recent figures from the Census Bureau, about 31 million people work for businesses with fewer than 50 employees. That means the current market leaves about 42 percent of small-business employees uninsured, and some of those would most likely find small-group insurance more affordable under the new rules.
The report did not quantify how much premiums would rise or fall. And it acknowledged that Congress asked the agency to study only three of the law’s provisions and that other aspects of the law could affect how premiums change. “The impact could vary significantly depending on the mix of firms that decide to offer health insurance coverage,” the study said. “In reality, the employers’ decisions to offer coverage will be based on far more factors than the three that are focused on in this report.”
Republicans in Congress took the opportunity presented by the report to attack the law. Representative Sam Graves, the Republican from Missouri who heads the House Small Business Committee, called it “one more in a long line of broken promises from President Obama and Washington Democrats.”
Curiously, the Obama administration seemed restrained in its response, choosing not to address the new study directly. When asked for a comment, a spokeswoman for the Department of Health and Human Services, Joanne Peters, said only, “Since the Affordable Care Act became law, health care costs have been growing at the slowest rates on record and premiums are growing at less than one-half the pace seen a decade ago. The law is making it easier for businesses to offer coverage, just like it did in Massachusetts when employer coverage increased after reform passed.”
Tom Daschle, the former Democratic majority leader in the Senate and President Obama’s first nominee to lead the Department of Health and Human Services, bemoaned what he said was an increasingly one-sided debate. “There are so many ways to look at this,” said Mr. Daschle, who is now a senior policy adviser to the law firm DLA Piper, of the C.M.S. report. For one thing, he said, the tax credits available to very small businesses that offer insurance will “change tremendously the way premiums are paid.”
He went on to question why the administration had not responded more forcefully. “I think it’s been a big mistake that we’re not pushing back as hard as we can,” he said. “There’s an old saying attributed to Winston Churchill: a rumor gets halfway around the world before the truth gets its shoes on. That has happened over and over again with the Affordable Care Act.”