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Healing small business healthcare requires more than just band-aid solutions

November 3, 2022 — Modern Economy Project

The Modern Economy Project recently hosted a congressional briefing moderated by Gusto, “Healing Small Business Healthcare: Exploring Proactive Health Insurance Policy Solutions for Small Businesses,” to discuss much-needed policy solutions to improve health care affordability for the small business community. This event convened policymakers, congressional staff, and industry leaders to explore bipartisan health insurance initiatives to increase accessibility for small businesses, and the employees they serve.

To kick off the event, Dr. Ellen Montz, Deputy Administrator and Director of the Center for Consumer Information and Insurance Oversight (CCIIO), Centers for Medicare & Medicaid Services (CMS), shared the six pillars under which CCIIO currently operates: Advancing health equity, expanding access, engaging partners, driving innovation, protecting CMS’s programs and fostering excellence. Dr. Montz discussed information on the Small Business Health Options Program (SHOP) and the individual marketplace as effective tools for small businesses, highlighting and Individual Coverage Health Reimbursement Arrangements (ICHRAs) in providing a non-taxed and low premium / out-of-pocket cost option for employees.

Dr. Montz underscored the importance of coverage under the ACA and the Inflation Reduction Act’s (IRA) extension of premium subsidies in the individual market, as passed under the American Rescue Plan Act (ARPA), through 2025. She also cited the recent final rule issued by the Biden administration, which expands eligibility for insurance premium tax credits for Affordable Care Act marketplace plans and amends the “family glitch” rule. This change aims to lower insurance costs for certain families by increasing eligibility for family members to purchase on the health insurance marketplace beginning November 1, 2022.

Need for Increased Accessibility for the Small Business Community

Throughout the briefing, speakers unanimously agreed on the need for increased access and utilization of health insurance for the small business community. Both the cost of insurance and lack of understanding were identified as the most significant barriers to small business access. Matthew Rae, Associate Director for the Program on the Health Care Marketplace of the Kaiser Family Foundation (KFF), shared data from the 2022 Employer Health Benefits Survey focused on the small group market - roughly only half of employers offer benefits, and cost is the primary reason for those employers that do not.

Todd McCracken, President & CEO of National Small Business Association (NSBA), and Karen Kerrigan, President & CEO of Small Business and Entrepreneurship Council (SBE Council), recognized the importance of health insurance benefits as one of the main tools that employers use to attract talent. Smaller employers are at a huge disadvantage compared to larger employers in their ability to afford healthcare for their employees and remain competitive.

Adam Beck, Vice President, Employer Health Policy & Initiatives, Commercial Exchange Policy & Operations, America's Health Insurance Plans (AHIP), addressed some pre-pandemic increased trends of small businesses engaging in cost-cutting strategies, including utilizing self-funded and level-funded plans, to enable more affordable benefits and more control over their cash flow. He underscored that even though there has not been a mass exodus of small businesses offering coverage post-pandemic, which has remained largely standard since the ACA, there is a significant need to explore enhancing the various options for small businesses and the role of the private market.

Topher Reynoso, Health & Insurance Product Lead at Gusto, expressed difficulties with employers offering Individual Coverage HRAs and their inability to suitably assess a household’s income. Small business employers must consider the possibility of offering too much through HRAs, and, as a result, are tasked with assessing employees’ household incomes.

Proactive Solutions

When looking at proactive solutions for the short and long term, all parties agreed that improved access among Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) and ICHRAs would benefit small businesses. Reynoso shared Gusto’s proposed solution to expand employee eligibility for the advance payment of the premium tax credits (APTCs), with the goal to make every dollar additive from an HRA, so employers will not have to consider outside factors such as household income. Beck, from AHIP, agreed that fixes to healthcare tax credits are a helpful short-term solution but underscored the need for more systemic change to address the affordability problem for the small business community.

Reynoso also suggested reforms the small business health care tax credit and increasing utilization of the SHOP marketplace as additional solutions to increase small businesses usage. Expanding tax credit accessibility to all small businesses, regardless of income, would increase the number of those that could benefit. Kerrigan agreed that the tax is currently restrictive in nature and limits the number of small businesses eligible to participate, expressing the need to broaden the parameters of the credit beyond the “fewer than 25 full-time equivalent employees” and “paying average wages of less than $50,000 a year per full-time equivalent.” She also raised that tax credit should be available annually, longer than the 2-year period, and available in all states.

McCracken also raised concern around eligibility for the tax credit if a small business is not able to purchase through SHOP. The restrictions around new businesses and low wage workers make it more difficult for small businesses to figure out how to effectively raise their coverage. In addition, McCracken suggested that the government provide equitable treatment around pre-tax deductions. For example, C corporations can obtain the pretax benefits of Federal Insurance Contributions Act (FICA), but self-employed individuals are not able to get any benefit.

Solutions to benefit the small business community can be achieved through both the private sector and the federal government. All speakers agreed that the government has a role in enabling affordability but should not inhibit innovation. Dr. Montz expressed the CMS/HHS intent to more proactively engage small businesses, highlighting their broker training and small business page on, and referenced resources including expanded tax credits on the individual marketplace, ICHRAS, and QSEHRAs.

Looking ahead, increased education around employment-based healthcare insurance plans, reforming the SHOP marketplace, and improved access among Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs) and ICHRAs are just some of the solutions to increase small business accessibility to health insurance. A few of these policy solutions discussed can be found in Gusto’s healthcare e-book, How Health Insurance Reform Will Transform Small Businesses.

Healthcare is not a one-size-fits all system: all factors discussed in this Congressional briefing should be taken into consideration when approaching small business accessibility. The Modern Economy Project (MEP) encourages continued innovation to ensure that every employee, no matter the size of their employer, can access affordable healthcare options.

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