Small Businesses and Health Reform

Background: Small businesses, especially those with fewer than 25 employees, are less likely than larger businesses to offer health insurance coverage to their workers, often citing higher premiums as the primary reason. Although firms with 50 or fewer full-time-equivalent (FTE) employees are exempt from the employer mandate, there are several provisions in the Affordable Care Act (ACA) that should reduce their cost, including tax credits for those with fewer than 25 FTE, predominantly low-income, employees and Small Business Health Options Program (SHOP) exchanges for those with fewer than 50 FTEs.

Objective: To find out more about small business owners’ knowledge of and reaction to health reform. We study small businesses in 5 states, with varying exchange designs and levels of coverage.

Data: Respondents to a survey of businesses with 3 to 100 employees in 5 of the 10 states in the Robert Wood Johnson Foundation’s State Health Reform Assistance Network (Alabama, Colorado, Minnesota, New York, and Oregon).

Methods: Randomly selected sample frame stratified by firm size. Descriptive analysis of survey data using weighted responses, adjusted for non-response bias.  

Findings: The percentage of small businesses offering coverage varied by size and state. Approximately half of the smallest firms (those with 3-9 employees) offered; more than 90 percent of the largest (50-100 employees) offered. Consistent with other surveys, the most important reason given for not offering was cost (from 49 percent of firms in Colorado to 73 percent in Alabama). Respondents in Alabama, the only one of the 5 with no state exchange, were significantly less likely to have a positive view of the ACA than those in the other states (15 percent versus 35 to 48 percent). In every state, business owners who were aware of the small business provisions were more likely to have a positive view. Some have already experienced change—between 8 and 28 percent have adult children of employees enrolled who would not have been eligible previously; over two-thirds of firms who applied have successfully claimed the tax credit. Across the states, between 51 percent (New York) and 81 percent (Colorado) of small businesses are at least a little familiar with the tax credits; the majority of those familiar said that they were likely to apply in the future. Between 26 percent (New York) and 52 percent (Minnesota) of employers are familiar with the SHOP exchanges. Alabamans and Minnesotans are significantly less likely to say they will participate in the SHOP exchange than Coloradans and New Yorkers (less than one-third versus over half).

Conclusions: Whether provisions in the ACA will lead to an overall increase in the percentage of small businesses offering coverage depends on a variety of factors that likely vary across states, including the costs of the plans offered in SHOP and the individual exchanges, whether the state participates in Medicaid expansion, and differences in coverage and labor markets that influence whether small firms need to offer to recruit and retain workers (the most important reasons for offering for approximately one-third of our respondents).