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Witnesses Clash over Impact of Health Care Law on Small Business

By John Reichard, CQ HealthBeat Editor

July 28, 2011 -- Witnesses at a House subcommittee hearing offered sharply differing views of the impact of the health care law on small businesses, with a Burger King franchisee saying it will force him to turn all his workers into part-time employees and a law professor challenging claims that the overhaul will lead many businesses to drop coverage.

Brian Vaughn, the owner of four Burger King franchises in Georgia, said, “There are going to be virtually no full-time jobs in my business. The bottom line is we can’t afford this thing.” He delivered testimony before the House Small Business Committee’s Subcommittee on Healthcare.

Vaughn said he has 182 jobs at his four locations. Fifty-nine are full time and 123 are positions with under 30 hours per week of work. “Fourteen of the full-time jobs are management jobs for which we currently cover 100 percent of the cost of the health care for the employee at an annual cost to us of nearly $56,000 per year. Other employees can get a “mini-med” plan for between $106 and $165 per month. Vaughn said 19 of his part-time workers have taken the mini-med coverage, which offers very modest benefits.

When employers such as Vaughn must offer coverage under the health care law (PL 111-148, PL 111-152) in 2014, he indicated he would rather pay penalties under the law than provide all his full-time workers unaffordable, “Washington-defined” coverage. Vaughn noted that part-time workers are not counted in calculating the penalty.

“Prior to the law’s enactment, my goal had always been to hire fewer people for more hours. It is easier to retain employees that work full time.” But with the law, it makes more sense “for me to hire more people for fewer hours. At a time when millions of Americans are out of work, is this really the right incentive?”

Vaughn added that under the law he would no longer be permitted to offer mini-med coverage. “It is important to acknowledge reality,” he said. “There is only so much money—both for my employees and for me. These plans offer less expensive coverage options that allow my team members to choose to take more of their wages home to pay for other expenses and use a small amount to pay for some coverage.”

Timothy Jost, a law professor at Washington and Lee University, said, “There is every reason to believe that the [health care law] will not dramatically change the scope of employer coverage in the United States.”

At the extremes, he said, American Action Forum President Douglas Holtz-Eakin estimates that employer-sponsored insurance will shrink by 22 percent, while the Rand Corp. estimates it will grow by 8.7 percent. The forum is a right-leaning advocacy group; Rand is a nonpartisan think tank. “Most studies, however, including those by Booz, Lewin, Urban, Mercer, and Towers-Watson, predict that coverage will remain largely unchanged.” Jost added that the Congressional Budget Office has projected that “employment-related insurance would grow from 150 million in 2010 to 159 million in 2019, three million fewer than would have been covered” had the health law not been adopted.

Jost also challenged the findings of a study sponsored by the National Federation of Independent Business (NFIB). That report projects that “26 percent of small employers are very likely and 31 percent somewhat likely to drop coverage after the ACA is fully implemented. This projection, however, is based on a fundamental misunderstanding.” The questions in the survey presumed that employees will be able to freely choose between coverage offered by the employer and receiving premium tax credits in the exchange. But “employees who have a coverage offer from their employer are not eligible for premium tax credits unless the coverage offered is seriously deficient.”

Jost noted another finding of the NFIB survey: that one in eight small businesses said their insurer had eliminated their specific health plan in the past year or said they would do so in the future. Jost indicated that the health care law isn’t to blame for that, because it is typical of the “churn” that occurs in the small-group market. He added that medical loss ratio (MLR) rules are helping to lower premiums, because health costs have started to shrink somewhat—and the MLR permits premiums in the small-group market to be no more than 20 percent higher than a plan’s health care and quality improvement outlays. Thus if health costs shrink, overall premiums have to come down too, he indicated.

John Reichard can be reached at [email protected].

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