With the arrival of the traditional holiday boost season for small business, it’s important to remember where your support of local entrepreneurs is going — mostly, health care.
For many small businesses in the Carlisle region, and across the nation, anticipated health care cost increases for 2018 are the biggest financial challenge they’ve faced in a long time.
“It’s as worse as it’s ever been with healthcare,” said Mike Noggle, owner of Quest Embroidery in Carlisle. “There’s just no way someone can afford $24,000 a year in healthcare alone.”
For 2018, Nogglehas been quoted at $2,035 per month to cover himself and his wife, Quest’s sole proprietors. Although he is purchasing the plan over the state exchange system, set up under the Affordable Care Act, Noggle’s income is just above the level for an ‘Obamacare’ subsidy.
Likewise, Lois Shearer, sole proprietor of Shearer Advertising in Carlisle, said her premium will be going up 68 percent in the new year. Shearer won’t necessarily see all of this cost increase, since her income makes her eligible for some assistance under the ACA.
However, help comes in the form of tax credits based on anticipated income. If actual income comes in over the subsidy bracket, you’ll be reimbursing the IRS in April. For small business owners whose profit margins are variable, this presents a dilemma.
“You have to decide how much of the subsidy you want to take, because if your income goes over a certain mark, you have to pay them back,” Shearer said. “But the bottom line is, if I didn’t have the subsidy, my monthly health insurance cost would be more than my mortgage.”
Insurance increases for 2018 aren’t limited to individual proprietors — although they are definitely the hardest hit.
In mid-October, the PA Insurance Department announced that 2018 ACA exchange rates for individuals would have to be revised up — from an average increase of 7.6 percent over 2017 to a whopping 30.6 percent — due to the announcement from the Trump Administration that it would discontinue cost-sharing payments to insurers.
These payments are made by the federal government to insurance companies, in order to help pay the deductibles of some low-income patients.
Since the inception of the ACA, Republicans have been opposed to such payments, often describing them as bailouts for insurance companies, although this characterization is debatable given that insurance companies would have, prior to the ACA, simply priced low-income patients out of the market without a federal incentive.
The discontinuation of cost-sharing reduction payments under Trump was described by the PA Insurance Department as “deliberate disruption” of the ACA individual market.
“The biggest issue this year was the Trump Administration saying it would discontinue the payments,” said department spokesman Ron Ruman. “Without any change in support from the federal government, we were leveling out around a 7 to 8 percent rate increase per year, which is pretty much in line with medical inflation.”
Most insurers, now faced with additional losses on low-income patients, have hiked rates for silver-level plans — ACA options are rated on a metal scale, from copper to platinum, with silver in the middle.
The cost of silver plans is used to determine premium subsidy, with buyers making less than 400 percent of the federal poverty line eligible for assistance based on the average silver plan cost in their area. Shifting rate increases to silver plans thus increases the amount of potential federal assistance available to buyers.
In some cases, this means that better gold-rated plans, with lower deductibles, may actually have lower premiums depending on where you live and how much you make.
“We’re really encouraging people to shop around this year,” Ruman said. “We’re finding this year that many people can get a gold plan for the same or less premium than a silver plan, because of the rate instability caused by the federal government.”
Cause and effect
The recent decision by Trump to discontinue cost-sharing — whether one believes it is justified or not — exposes what could be described as Obamacare’s key feature and key problem.
This is the fact that, as of 2016, 11.6 million Americans obtained insurance through the ACA marketplaces. Prior to its implementation, those citizens would have likely gone uninsured or under-insured, and the broadening of coverage to more Americans has been hailed as a victory by Democrats.
But predicting just how much healthcare these new enrollees would use was difficult for insurers. In the case of small-group plans, the impact was easier to absorb, given that risk was spread around amongst a known pool.
But for the individual market, rate stability was dependent on forcing younger, healthier people to sign up for insurance by an increasing schedule of tax penalties if they did not. This would widen the pool and keep down costs even as older, sicker people joined the market.
In Pennsylvania, 315,000 people between the ages of 19 and 44 got insurance in the ACA marketplace through 2015, according to the Urban Institute. Enrollees ages 45 to 64 numbered 126,000. But despite this smaller portion of older patients, insurers have continued to report losses, leading to rate hikes and restrictions on usage.
Business owners are keenly aware of this.
“I think the intent [of the ACA] was good by saying the younger, healthier people are going to have to buy insurance in order to make it affordable for the older people,” Shearer said. “But obviously it didn’t’ work out that way, or my rates wouldn’t have gone up. The bottom line is the insurance companies are not going to not make money.”
In Central Pennsylvania, the effect is especially acute this year. Individual ACA market plans from Highmark will not include most UPMC-Pinnacle hospitals in their in-network coverage, as both of the state’s healthcare giants seek to control costs by restricting ACA patients to affiliated facilities.
“As has been the case for some time, we’re going with narrower products to try to control costs,” noted Highmark spokesman Leilyn Perri.
For those making less than four times the poverty line, most premium hikes will not be felt, since they will be subsidized with federal dollars.
Curiously, the decision by Trump to end cost-sharing payment will actually cost the federal government an additional $2.3 billion next year — a $10 billion reduction in cost sharing payments has increased premiums to the point where the federal government will be obligated to provide an extra $12.3 billion in premium subsidies, according to calculations from the Kaiser Family Foundation.
But individual market buyers who don’t get a subsidy will feel the full brunt of expanding healthcare usage coupled with declining federal support under Trump, a problem noted in several recent reports since the federal decision was announced.
“Premiums are rising, in part, to compensate for non-payment of cost sharing reductions,” said Elizabeth Carpenter, Senior Vice President of Avalere Health, in the consultancy’s report last month. “Subsidized consumers will be largely protected from these premium increases, but other individuals may face significantly higher costs.”
The Noggles are a textbook case. The federal poverty line for a couple is $16,240 per year, making the subsidy cut off at $64,960. Quest Embroidery provided Noggle and his wife with just over that line, he said.
“They need to pro-rate the subsidy beyond four times the poverty number,” Noggle said. “People making just over can’t pay for the whole thing.”
When the ACA rolled out, Noggle said, the two-person premium was around $450. In 2016 it doubled, and doubled again for 2017. With premiums for himself and his wife now totaling over $24,000 per year, Noggle is essentially being asked to pay a third of his income into health insurance.
“Think of what I could do to invest in my business with $24,000 a year,” Noggle said. “The business side of it is tough enough without having to wake up at 3 a.m. wondering if I can still afford health insurance.”