Affordable Care Act (Obamacare) myths: “It’s bad for small businesses”

One of the many Republican knocks against the Affordable Care Act [Obamacare] is that it “hurts small businesses.” But, on closer examination, “Obamacare” may be the best thing Washington has done for small businesses in decades, says James Surowieki, in an article in the New Yorker.

Republicans have tried to scare small business owners and aspiring entrepreneurs into thinking that the Affordable Care Act will hurt profits. But they’d be wrong.

First, some background:

…the overwhelming majority of American businesses—96 percent—have fewer than 50 employees. The employer mandate doesn’t touch them. And more than 90 percent of the companies above that threshold already offer health insurance. Only three percent are in the zone [between 40 and 75 employees] where the threshold will be an issue.

Contrary to Republican propaganda, Obamacare actually offers significant upsides for small businesses, including:

Making it easier for people to start their own companies.

Starting a small business has always been a risky proposition in the U.S., because you couldn’t be sure of finding affordable health insurance. As Surowiecki puts it:

In the U.S. we pride ourselves on our entrepreneurial spirit, be we’ve had this bizarre disincentive in the system that keeps people from starting new businesses.  Purely for the sake of health insurance, people stay in jobs they aren’t suited for—a phenomenon that economists call “job lock.” With the new law,  job lock goes away. Anyone who wants to start a business can do so independent of the health-care costs.

Helping small businesses with health-care costs.

Our current system—in which most Americans get their health insurance through work is fine for big employers, since large workforces make possible the pooling fo risk that any healthy insurance market requires. But small businesses often face so-called “experience rating”: a business with a lot of women or older workers face high premiums..No wonder that fewer than half the companies with under 50 employees insure them, and that half of uninsured workers work for small businesses or are self-employed. In fact, a full quarter of small-business owners are uninsured, too.

Obamacare changes all this. It provides tax credits to smaller businesses that want to insure their employees. And it requires “community rating” for small businesses, just as it does for individuals, sharply restricting insurers’ ability to charge a company  more because it has employees with higher health costs. And small-business exchanges will in effect allow companies to pool their risks to get better rates. You’re really taking the benefits that big companies enjoy, and letting small businesses tap into that.