October 2013

Small BuSineSS’S introduction to the

affordaBle care actPart 1

Small BuSineSS’S introduction to the

affordaBle care actPart 1

www.nfib.com/ACAreport

The NFIB Research Foundation is a small business-oriented research and information organization affiliated with the National Federation of Independent Business, the nation’s largest small and independent business advocacy organi-zation. Located in Washington, DC, the Foundation’s primary purpose is to explore the policy-related problems small business owners encounter. Its periodic reports include Small Business

Economic Trends, Small Business Problems and Priorities, and the National Small Business Poll. The Foundation also publishes ad hoc reports on issues of concern to small business owners.

1201 “F” Street, NWSuite 200Washington, DC 20004 www.nfib.com

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• Small-business owners claim a reasonable degree of familiarity with the Affordable Care Act (ACA). Seventeen (17) percent say that they are “very” familiar with the Act while another 49 percent report that they are “some-what” familiar with it. The current degree of self-assessed familiarity has grown modestly over the past two years. However, a question about one specific in the Act suggests that owners may be overly confident in their knowledge of its contents.

• The survey divided the population into four segments by employee size-of-business, 2 – 9 employees, 10 – 19, 20 – 49, and 50 – 100. Significant firm size variations appear in almost every aspect of matters involving small business, the ACA, and health insurance. It is almost as if each progressively larger size constitutes a different population.

• Just over half of small employers are satisfied with the information they have obtained about ACA; just under half are not. The single most important source of information for small-business owners to date has been the general news media (42%). Other single most important sources include: the insurance industry/carrier (15%), trade association/business group (11%), a business advisor (10%), the health care industry/provider (8%), and government (4%).

• A majority of small employers (57%) use part-time help, but only 11 percent of the offering population extend health insurance to part-time employees. Large contingents of part-time employees, defined here as more than half of the labor force, are the exception (15%) rather than the rule. Part-time employees will push relatively few small employers over the 50 full-time employee employer-mandate threshold.

• Fourteen (14) percent of non-offering small businesses provide reimbursement or some type of payment to employees who purchase their own insurance.

• As many as 150,000 small businesses may be subject to the so-called “aggregation rules”, that is, rules requiring owners of more than one business to consolidate employment in all of their businesses for purposes of reaching the 50 employee employer-mandate threshold.

• There is no rush to self-insurance, despite ACA’s incentives to do so; but, interest is rising. Four percent of small employers currently offering health insurance self-insure, with those employing 20 – 49 people doing so in 7 percent of cases and those employing 50 – 100 people in 13 percent of them. Four percent say a switch from the fully-insured market to self-insurance is “highly” likely in the next 12 months; another 7 percent say it is “somewhat” likely.

• Employees requested small employers to begin offering employee health insurance in 4 percent of non-offering firms in the last 12 months.

• Eighty-four (84) percent of small employers have health insurance; 15 percent do not. The most common source of coverage is the business’s plan (35%), followed by an individual plan (30%), and a spouse’s plan (19%).

• The modest overall decline in the percentage of small businesses offering (1 – 2% of the population) conceals a much larger churning on a firm by firm basis. Nine percent offering last year (and still in business this year) dropped coverage; 5 percent not offering last year (and still in business this year) added coverage.

• Small employers often pay the entire health insurance premium for their employees, 40 percent for individual coverage, 27 percent for family coverage and 21 percent for plus-one coverage. A clear association appears between employee participation and the size of the employer cost-share. The more employers pay (on a percentage basis), the more likely employees are to participate.

• When small employers offer health insurance, substantial percentages of their full-time employees participate. Eighty-five (85) percent offering coverage report that half or more of their full-time employees are covered by their firm’s plan. Thirty (30) percent claim total (100%) participation.

executive Summary

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1• The health insurance premium cost incurred by small businesses that offer averages $6,721 a month ($80,652 a year).

The median is $3,500 a month ($42,000).

• The cost of health insurance continues to climb for small employers. Sixty-four (64) percent pay more per employee for health insurance this year than they did last; 6 percent report a decline and 29 percent indicate no change. The median cost increase, incorporating in the calculation those with increased, stable, and lower prices, was about 6 percent, though the average increase was closer to 12 percent.

• The most common means of defraying these increased costs was lowered profitability, followed by increased produc-tivity, and the delay, postponement or elimination of business investment. The increased costs were more likely to impact small employers than either their employees or customers.

• The number of small businesses offering employee health insurance moved slightly lower from last year to this. However, employee participation and the types of plans offered are virtually unchanged from the prior year.

• Small employers forecast the percentage of firms offering employee health insurance next year will increase modestly from this year, reversing a long-term trend. An increase is dependent upon the choice of those who will “probably,” not “definitely,” change.

• Thirteen (13) percent plan to cut the hours of part-time employees next year. However, no more than half of these planned cuts are associated with the Affordable Care Act.

• Sixty-nine (69) percent of small employers are “very” or “somewhat” confident that they will be compliant with ACA when it becomes effective. However, the July 2 announcement postponing the employer-mandate diminished, rather than enhanced, small employer confidence. The exception was the group of small employers most directly impacted by the delay. Their confidence in compliance with the Act was unaffected by the announcement.

• Small employers are notably uncertain on many aspects of the insurance they purchase, their plans for adjusting to the ACA, and precisely how the ACA will affect them and their business.

• This is the first report in a planned series of three annual reports based on a longitudinal survey of more than 921 small employers. The succeeding reports are to be based on interviews of the same small employers in order to measure the actual changes associated with introduction of the Affordable Care Act, rather than the net changes that are measured using independent annual samples.

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William J. Dennis, Jr., Senior Research Fellow, NFIB Research Foundation

All small employers have been and/or will be affected by the Affordable Care Act (ACA) of 2010 (ObamaCare). Some small employers will be impacted considerably more than will others. Some will feel the primary impact directly while others will feel the primary impact indirectly. Some will benefit; most unfortunately will experience the opposite effect. But however impacted, the ACA fundamentally changes the relationship between small em-ployers and their offer (or not) of health insurance as an employee benefit.

The following is the first report in a three year longitudinal study on small business’s1 introduction to the ACA. The first year’s survey establishes a base to measure change occurring in the small business population over the next two years. The two planned follow-ups intend to measure the change experienced.

The Affordable Care Act will be phased-in with the first near-universal requirement for small employers, the employee notification requirement, scheduled for October 1, 2013. This requirement has been administratively modified so it now has no associated penalty for failure to comply. Thus, with postponement of the employer-mandate, small employers have no direct requirements until at least January 1, 2015.

Still, a non-trivial number of small-business owners have already felt the impact of ACA. Insurers have been forced to revamp policies issued to small businesses and their owners began to feel those impacts as early as the year following ACA enactment.2 Promises to the contrary, many were unable to keep the insurance they had. Insurers have already begun to adjust premiums to comply with the ACA’s significant requirements and will soon start passing a share of the so-called $100+ billion Health Insurance Tax (HIT) on to its small-business customers. These premium changes will affect small businesses across the nation very differently. Important influences on the size and direction of premium change will be pre-ACA age and health of the workforce, state mandated requirements, and more competitors and products contrasted to post-ACA community rating, a mandatory minimum benefit package, new taxes rolled into premiums, and a government-sponsored SHOP exchange. In addition, the ACA requires that the government knows whether employees are being offered adequate and affordable insurance in order to determine if these employees qualify for subsidies in the individual exchanges. To fill this and other government information needs necessary for the Act, firms falling under the employer-mandate must file extensive paperwork about their employees and the insurance they offer; offering small businesses with fewer than 50 full-time employees do not. Yet, the government still needs the information, meaning it is likely to go through the back door and require insurers to collect it from offering small businesses having fewer than 50 employees. Finally, a modest number of offering small employers have been able to take advantage of a small-business health insurance tax credit3 and others can expect to do so in the next few years.

Many small businesses will first begin to feel the direct impact of the ACA with the introduction of the SHOP exchanges beginning sometime next year, or so it would seem. Start dates keep slipping and the number of participating insurance companies appears to keep shrinking. However, SHOP exchanges should eventually offer small employers greater choice in the insurance they offer employees. The individual exchanges will also provide small-business employees without offers of coverage, or without offers of affordable coverage, as well as the uninsured self-employed a place to receive subsidized health insurance. Open enrollment began October 1, 2013.

1 For present purposes, “small business” means for-profit enterprises employing 2 – 100 people, not including the owner(s). 2 William J. Dennis, Jr., Small Business and Health Insurance: One Year After Enactment of PPACA, NFIB Research Foundation: Washington, DC,

July, 2011.3 Government Accountability Office, GAO-12-549, Small Employer Health Tax Credit: Factors Contributing to Low Use and Complexity, James R.

White, May 14, 2012.

Small BuSineSS’S introduction to the affordaBle care act, Part 1

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1Familiarity with the Affordable Care ActSmall-business owners claim a reasonable degree of familiarity with the Affordable Care Act (ACA). Seventeen (17) percent assert that they are “very” familiar with the Act while another 49 percent declare that they are “somewhat” familiar with it (Q#74). In contrast, 21 percent are “not too” familiar with ACA and 13 percent are “not at all” familiar with the new law.

The current degree of self-assessed familiarity has grown modestly over the past two years. An NFIB study conducted one year after enactment of the ACA showed that 58 percent claimed to be “very” or “somewhat” familiar with the law compared to 66 percent of a similar population today.4 The number claiming to be “not at all” familiar with it declined just five percentage points (from 18% to 13%) despite its approaching implementation and all of the noise surrounding it.

Firm size is highly related to self-assessed familiarity. The larger the firm, the more likely its owner(s) or manager is to think he or she is familiar with the ACA and vice versa. Those most often directly affected, that is, employers of firms with more than 50 employees, most frequently express familiarity. Eighty-nine (89) percent in that group think that they are either “very” or “somewhat” familiar with the law compared to 65 percent in the 2 – 9 employee group.

The strong, linear relationship between ACA familiarity and employment size-of-firm is typical. The firm size variable is almost always highly associated with elements of the ACA and health insurance. On almost every variable presented in this report, increasingly large (or small) firm size categories have a higher percentage (or lower percentage) than the category that immediately preceded (or succeeded) it.

Small employers currently offering employee health insurance are no more or less likely to claim familiarity with ACA than those who do not. Sixty-seven (67) percent of small employers who offer employee health insurance claim to be “very” or “somewhat” familiar with ACA compared to 65 percent who do not. As will be shown subsequently, owners of non-offering firms do not typically obtain their information about ACA from sources within the insurance industry. Since they claim equal familiarity to those who offer, they must obtain their information elsewhere. This raises a question about the difference between general familiarity with the Act and familiarity with Act issues specific to the owner’s business. They were not differentiated in the survey; in reflection they should have been.

One check for claims of familiarity with ACA was added to the questionnaire. It asked whether the respondent’s state currently had an operating health insurance exchange or marketplace. With the exception of Massachusetts and Utah, the answer should be, “no.” However, 19 percent reply, “yes;” 28 percent, “no;” and 53 percent are “not sure.” The more familiar a small employer claims to be with ACA, the more often he or she chooses a “yes” or “no” answer (Q#81). Twenty-nine (29) percent saying that they are “very” familiar are also “not sure” about the existence of an exchange compared to 48 percent who are “somewhat” familiar, 69 percent who are “not too” familiar, and 78 percent who are “not at all” familiar. But even if the “very” familiar are more certain, they are not more accurate. Removing the cases from the two states that have operating exchanges (N = 25) leaves the same basic relationship between famil-iarity and knowledge of an exchange due to the small number of cases involved. However, in only 15 of the 25 cases did respondents correctly say that an exchange is operating in the state.

Information SatisfactionThe Affordable Care Act is a very complex piece of legislation, over 2,000 pages in length with more than 10,000 pages of rules to implement it and counting. The result is a warranted concern on the part of all parties that small-business owners will not have enough information to understand their responsibilities under the Act. Even owners of the smallest firms have legal responsibilities to inform their employees of their options under ACA, known as a Notice of Coverage Options docu-ment. While the requirement still stands, the penalties and fines for failure to comply have been administratively rescinded.

Small-business owners are generally lukewarm over the value of the information that they have obtained about their responsibilities under the new law, almost evenly divided between those satisfied and those not. Just 16 percent report being “very” satisfied with the information obtained and another 38 percent being “somewhat” satisfied (Q#76). Forty-five (45) percent express some degree of dissatisfaction with 22 percent being “not at all” satisfied.

Small employers more familiar with ACA are also more satisfied with the information obtained. Still, just 38 percent who claim to be “very” familiar with the new law are also “very” satisfied with the information they have obtained to date. Sixty (60) percent who are “not too” familiar are generally dissatisfied with the information they have obtained. (The question was not posed to owners who claim to be “not at all” familiar with ACA.)

A difference appears by business size with the 50 employee plus group 11 percentage points either “very” or “some-what” more satisfied then the 2 – 9 employee group. The least satisfied owners fall in the 10 – 19 employee size group. They are 15 percentage points less satisfied than owners of the largest. The emergence of 10 – 19 employee group from the usual ascending or descending order by firm size appears with no explanation for it readily available.

4 Dennis, op. cit. Today’s “similar” population includes only those small employers having fewer than 50 employees.

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Information SourcesThe single most important source of information about ACA for small-business owners has been the general news media. Forty-two (42) percent say that the general news media is their single most important source followed by the insurance industry/carrier (15%), trade association/business group (12%), a business advisor (10%), the health care industry/provider (8%), and at the bottom, government (4%) (Q#75)(Table 1). Eight percent find another source most helpful, are not sure which source is most helpful, or do not find any source helpful. These data are an indictment of the institutions that have a responsibility for keeping small business owners abreast of what they are required to do under the law. Clearly, involved insti-tutions, most notably government, have performed poorly in their outreach efforts. Government’s best excuse for its poor performance is that so many issues critical to business decision-making were not decided until recently or still have not. That problem has also made it difficult for others, particularly when they attempt to deliver the specifics to those directly affected by the Act. Still, given the time remaining before the law’s implementation and the cartoon pabulum offered as information,5 it is difficult to think that government can recover and become a primary information source for its own program.

Employee size-of-business significantly changes a small employer’s most important information source (Table 1). Owners of the largest firms, 50 employees or more, most frequently cite the health insurance industry/carrier (30%) and the health care industry/providers (22%) as the most important. Those two numbers fall to 28 percent and 15 percent respectively in the 20 - 49 employee classification. The sharpest business size distinction appears among those citing the general news media. That source is most important for just 9 percent of those employing 50 or more, 22 percent of those employing 20 - 49 people, but 48 percent among owners employing fewer than 10 individuals. A business advisor is also directly related to firm size, with the largest category twice as likely to cite this source as the smallest.

Trade associations/trade groups are largely invariant by size category. Government is not a noticeable contributor in any size group. Not a single respondent from the 50 employee and above group, the group most affected by ACA, iden-tify government as their most important information source.

Small-business owners claiming to be “very” familiar with the Act most frequently note the general news media as their most important information source (31%), followed by trade associations/business groups (23%), and health insur-ance industry/carriers (15%). Here again the author notes the potential difference between knowledge of the Act in general and the Act’s requirements specific to the business.

Table 1Single moSt imPortant information Source aBout aca By emPloyee Size-of-BuSineSSS

Employee Size-of-BusinessInformation 2 – 9 10 – 19 20 – 49 50 – 100 Source Employees Employees Employees Employees All Firms

Health Insurance Industry/Insurer 12% 22% 28% 30% 15% Health Care Industry/Provider 6 12 15 22 8Business Advisor 8 12 15 17 10Government 4 3 3 0 4Trade Association/ Business Group 12 13 12 13 12General News 4 Media 8 31 22 9 42Other 5 4 4 4 5No Useful Information 1 1 0 0 1Unsure 4 2 1 4 3

Total 100.0% 100.0% 100.0% 100.0% 100.0%N 231 224 238 228 921

5 See, for example, https://www.healthcare.gov/small-businesses/ Accessed July 12, 2013.

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1Even small-business owners who currently offer health insurance are more likely to find the general news media

their most important information source (31%). The health insurance industry or a carrier is the next most likely source (24%) for those who offer, though it still places second by seven percentage points. Fifty-two (52) percent of small employers who do not offer identify the general news media. Small employers who do not offer also seem to be the rela-tively more frequent customer of government information. Six percent of them cite government compared to 1 percent of offering small employers. Where the health insurance industry has its strongest relationships, it is the information source most likely to usurp the information influence of the general new media.

Health Insurance OffersForty-six (46) percent of survey respondents offer employee health insurance, a somewhat smaller estimate than found in a comparable survey conducted by the Kaiser Family Foundation,6 though somewhat larger than found in the estab-lishment-based survey of the Department of Health and Human Services’ (HHS) annual Medical Expenditure Survey (MEPS) (Q#11).7 The principal difference between the NFIB and Kaiser estimates are that NFIB’s 2 – 9 employee size stratum offer coverage in 34 percent of cases compared to 45 percent in Kaiser’s 3 – 9 employee size stratum. NFIB’s and Kaiser’s estimates for the other three size strata are similar.

The likelihood of a small business offering health insurance increases as the employee size of firm rises. Thirty-four (34) percent employing 2 – 9 people offer; 74 percent employing 10 – 19 offer; 80 percent employing 20 – 49 offer; and, 92 percent employing 50 – 100 offer.

Offering firms and years in business are also associated when controlling for firm size. Small employers who have been in business a greater number of years are more likely to offer than those who have been in the business a fewer number of years. However, that relationship is driven primarily by those in business less than four years. They are one and one-half times less likely to offer than the rest of the small business population, other factors equal. This is partic-ularly significant for coverage questions given the turnover in very young firms. Not even half of employing small busi-nesses reach five years of age, meaning that many have turned over before they have reached an age where the offer of employee health insurance becomes relatively common.

Eighty-six (86) percent of small businesses offering employee health insurance offer it only to their full-time people (Q#15). Another 11 percent offer it to both full- and part-time employees. Three percent do not recall. Size-of-firm bears no relationship to the inclusion of part-timers, but businesses in industries such as health and social services and professional, scientific and technical services appear more likely to do so than those in other industries.

The Affordable Care Act requires that all employers with 50 or more full-time or full-time equivalent (FTE) employees must offer “adequate and affordable” employee health insurance coverage or be subject to a penalty. Ninety-five (95) percent of small businesses employing 50 – 100 full-time people currently offer coverage, most of it presum-ably adequate and affordable, though the survey subsequently shows that some will probably need to increase their cost-share (or raise wages) in order to qualify. The percent offering falls to 92 percent when the employer has 50 – 100 full- and/or part-time employees. Assuming for the moment that part-time employees do not push any employers above the 50 employee threshold, approximately 5 percent of 50 employee and over population or 5,600 small employers therefore must introduce an offer of employee health insurance coverage by January 1, 2015 (postponed from the legis-lated January 1, 2014) or face a penalty.

Since the ACA contains a threshold of 50 full-time employees before the employer-mandate becomes effective, the manner of counting to 50 becomes a matter of considerable interest. The survey addresses the full-time employee count in three ways: an examination of part-time employees, seasonal employees, and the so-called aggregation rules which require combining the employees of separate businesses owned by one individual or a group of individuals into a single firm for purposes of the Act.

Part-time EmploymentPart-time employment is an issue under ACA for two reasons: calculation of the 50 full-time or full-time equivalent (FTE) employee threshold for the employer-mandate uses the monthly total of part-time employee hours to create a full-time equivalent employee. The number of hours logged by part-time employees must reach 120 per month in order to qualify as one full-time equivalent. Those hours could be distributed among two to 120 employees. A full-time equiv-

6 Kaiser Family Foundation, 2013 Employer Health Benefits Survey, August 20, 2013. http://kff.org/private-insurance/report/2013-employer-

health-benefits/ Accessed August 30, 2013.7 U.S. Department of Health & Human Services, Agency for Healthcare Research and Quality, Medical Expenditure Panel Survey. http://meps.

ahrq.gov/mepsweb/data_stats/summ_tables/inst/national/series_1/2012/tia2.pdf Accessed August 30, 2013.

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8 The Cash Flow Problem, National Small Business Poll, (ed.) William J. Dennis, Jr., NFIB Research Foundation: Washington, DC. Vol. 1, Iss. , 2001.

alent employee counts toward the 50 employee threshold. Second, employers must offer health insurance to full-time employees, but are not required to offer it to part-time employees. The ACA defines full-time employee as working 30 hours per week or more (or a 130 hours per month or more), a ridiculously low figure given that the Fair Labor Stan-dards Act defines the standard work week for purposes of overtime pay as 40 hours, though 37½ or 35 hours per week are not unusual. Part-time employees under ACA therefore work less than 30 hours per week.

To illustrate, if an employer has 40 full-time employees and 50 part-time employees, whose total monthly hours are the ACA equivalent of 20 full-time employees (FTEs), the business would have 60 total employees for threshold calcu-lation purposes. But, the business would be obligated to offer coverage to only the 40 full-time employees.

A majority of small employers (56%) use part-time help (defined here as fewer than 30 hours) (Q#6). Eleven percent do not know the number of part-time employees they have. Large contingents of part-time employees however, are the exception rather than the rule. Just 16 percent of small businesses with part-time employees or 9 percent of the population have enough people working less than 30 hours per week (excluding seasonal employees) to constitute half or more of their of their labor forces. More than two in five of those are very small firms with nothing but part-time employees. Just 1 percent of employing small businesses have more than 20 part-time employees.

The most vulnerable firms to part-time employees pushing them over the 50 employee threshold is the 20 – 49 full-time employee group (N = 216) that also employ people part-time. Two-thirds (67%) of the 20 – 49 full-time employee group have part-time workers. Fourteen (14) percent more did not provide a number for their part-time employees, though in most cases it appears to be zero, (an assumption extended in the following numbers.) Ninety-four (94) percent of firms with part-time employees (53% of the population) have just 2 – 9 of them, meaning that unless these businesses are now close to the 50 employee threshold, part-time employees are not likely to drive them over. Still, 12 percent of small employers with 20 – 49 full-time employees have 20 or more part-time employees. Two-thirds of businesses with 50 or more full-time employees have part-time employees thereby compounding any efforts their owners intend to make in order to contract to fewer than 50 employees. An estimate of the actual number of businesses in either of these latter two groups whose status under the employer mandate could be determined by the number of part-time people they employ is difficult to make. Published Census employee size-of-business counts do not distinguish between full- and part-time employees. However, the number is likely closer to 75,000 than it is to 25,000 or 125,000.

Seasonal EmployeesThe status of seasonal employees in the count to reach the 50 employee threshold for purposes of the employer-mandate is currently one of the more incomprehensible portions of the Act’s rules. Hopefully, the problem stems from the failure to yet define a seasonal employee for purposes of ACA. Discussion has focused on 120 days or four months for a seasonal worker exception to the employer mandate, reasonable definitions, but the final definition will doubt-fully be that simple. However, a final determination of the definition for seasonal employee does not mean that they will be exempted from the employer-mandate count. One possibility under consideration is that the hours of seasonal employees will be counted in the same manner as those of part-time employees. Regulators seemingly understand that seasonal work is not limited agricultural and retail employees.

One often assumes that the summer season is the principal time of year that small-business owners hire seasonal labor. That is not correct. While about half of small-business owners claim that their sales are spread evenly throughout the year (with their employment levels presumably steady), the remainder encounter notable variation.8 Seven percent even report a majority of their sales occur in a single quarter. Further, not all seasonal activity occurs during the summer or at Christmas. One-quarter of owners claim that their high season begins in the January – March period, a time frame, for example, likely familiar to businesses in accounting and tax preparation.

To estimate seasonal employment in small businesses, the survey asked respondents for the number of people that they employ who are seasonal and will leave at the end of the summer. The question assumed a general understanding of the word, seasonal. Since the survey was conducted from mid-June through late July, the end of the summer is a reasonable time to expect that most seasonal employees would end their employment.

Eighty-two (82) percent of all small employers report that they have no full-time seasonal employees and another 10 percent say that they do not know (Q#5). Most of those who do not know own the smallest firms (13%), the 2 – 9 employee size group. Over 80 percent in each of the three size categories with fewer than 50 employees do not have full-time seasonal help. That number falls to 73 percent among the group with 50 employees or more, the one whose members will be most concerned by the ACA’s seasonal employee definition. Many of these larger firms have seasonal workers, but employ just one or two of them (8%), suggesting summer work for local teen-agers. However, another

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18 percent hire 10 or more people for full-time seasonal work, including 4 percent who hire 20 or more people. These latter businesses appear potentially dependent on a seasonal workforce, and might not have the luxury of eliminating it should ACA’s definition of seasonal employee prove adverse. Of only somewhat less concern is the 20 – 49 employee stratum. About 84 percent of that group have no full-time seasonal employees with another 8 percent employing just one or two. None report hiring 20 or more full-time seasonal employees. Relatively few firms in this size category appear reliant on full-time seasonal labor, at least during the summer season.

Only about 13 percent of small employers have summer seasonal part-time help, 20 percent of those having any part-time people (Q#7). Virtually all of those employ just 1 – 9. The Christmas season could exhibit a different pattern with a substantially larger portion of part-time employees.

Employee AggregationOne of the lesser recognized rule sets, at least anecdotally, that many small employers must comply with is the so-called aggregation rules. These rules were established to bring as many employers as possible up to the 50 employee threshold and to prevent larger, small businesses from splintering into separate firms in order to escape the employer-mandate. They effectively require that small employers owning more than one business combine the employees from all firms into a single unit for purposes of reaching the ACA’s 50 employee employer-mandate threshold. However, such a simple concept has led to a nightmare in practice as the rules drawn to implement it likely require legal interpretation from authorities in employee benefits law.

The problem arises because the world consists of many single firms with multiple owners and many single owners with multiple firms. For example, just 35 percent of small businesses employing 20 or more people have a single owner (counting a husband/wife combination as a single person).9 Reverse the situation and one finds that 39 percent of people owning a small business with 20 or more employees also hold a 10 percent or more share in at least one other venture, separate and distinct from the enterprise about which they were initially interviewed. Adding to the complication is the degree of control owners have over each business. Seventy (70) percent who have family member co-owners (41% of employing businesses) indicate that these family member/owners actively participate in the firm’s critical decisions.10 At the same time, owners are likely to participate in the critical decisions of a second firm they own, though they are somewhat less likely to participate in the critical decisions of a third firm owned.11

The rules proposed to handle these complexities and determine the meaning of a single business entity is the ERISA rules, a highly intricate body of law, destined for interpretation by legal specialists in employment benefits law, not for the general public or even for attorneys generally. The implication is that a non-trivial number of small businesses should seek an interpretation from a specialist in employee benefits law to be confident about his or her status. That is not likely to happen.

The survey asked respondents whether the total number of full-time employees in the small business about which they were being interviewed and any other in which they owned at least a 50 percent share added to 50 employees or more. In other words, would the full-time employees in all the firms owned reach the employer-mandate threshold? Ownership for purposes of the aggregation rule is vastly more complex than represented in the question, but the exact rule could not possibly have been conveyed to lay people in a sentence or two. Furthermore, the question’s purpose was simply to provide an order of magnitude rather than a precise estimate.

Four percent of small employers (150,000) who were interviewed owned other businesses whose combined employ-ment is more than 50 full-time employees (Q#77). The largest contingent comes from the 20 – 49 employee group that has 8 percent moving to the 50 employee or above category. Various factors could influence the direction of the 150,000 firm figure. For example, the inclusion of part-time employees in the question adds to the total. A more precise ownership definition probably would subtract from it. Still, aggregation rules present a potential problem for a sizeable number of small businesses and many of their owners do not appear aware of it.

High-Paid, Low-Paid Employees Family income was to be a major determinant of the subsidy that lower income families were to receive when purchasing their health insurance in an exchange. It also was to be a critical factor in determining whether the insurance an employer offers is affordable.12 The offer of affordable insurance is important to both the employer and employee because an employee

9 Business Structure, National Small Business Poll, (ed.) William J. Dennis, Jr., NFIB Research Foundation, Vol. 4, Iss. 7, 2004.10 Businesses Within Families, National Small Business Poll, (ed.) William J. Dennis, Jr., NFIB Research Foundation, Vol. 12, Iss. 4, 2012.11 Ibid. 12 “Affordable” is a legal term for present purposes, that is, a term defined by rule or law, not the relative and more commonly used economic term.

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can refuse an employer’s offer of coverage and receive subsidized coverage on the individual exchanges if the employee cost-share constitutes more than 9.5 percent of the employee’s income; if it does not, the employee must participate in the employer’s program or purchase unsubsidized insurance elsewhere. Should the employer’s insurance not be affordable the employee has an incentive to refuse the employer’s offer and go into the exchange because he or she can receive a subsidy to purchase insurance. That subsidy, particularly for low income employees, likely makes the out-of-pocket insurance cost lower than if the employee participated in the employer’s plan. The employer’s offer and the employee’s choice, therefore, has significant financial consequences for all parties involved – employers, employees and government.

The wage distribution of small businesses is difficult to elicit in a survey of this nature. So, the questions posed focused on the number of full-time, non-seasonal employees who earn more and less than a specified amount per hour or per hour annualized. The amounts chosen are tied to levels important to ACA. The poverty level for an individual is currently a wage of about $8 an hour or a salary of $16,000 annualized. Subsidies in the exchange end at four times the poverty level or about $23 per hour or $46,000 annualized. These figures increase as the number of dependents rise.

Relatively few small businesses have employees that they pay less than $8 an hour or its annualized equivalent. Eighty-six (86) percent have no such employees (another 2 percent are not sure), and most of those appear to have relatively few (Q#8). For example, 8 percent have fewer than one in ten of their employees earning that low wage compared to 3 percent that have 90 – 100 percent of their employees earning it. Most of the latter group appear to be in the food services and accommodations industries, and to a much lesser extent, in retail. The data therefore artificially depress income on the lower end because they fail to account for tips.

Forty-seven (47) percent of small businesses have no employees who earn more than $23 an hour or $46,000 annu-alized, though 3 percent do not know (Q#9). That varies considerably by employee size of firm with smaller firms having a higher percentage who do not and larger firms a lower percentage. For example, 55 percent of small businesses in the 2 – 9 employee stratum have no employees earning $23 an hour or more. In contrast just 8 percent of the 50 – 100 employee stratum have none. The same relationship appears when examining the proportion of employees who earn higher wages. Twenty five (25) percent of the largest have at least half of their work force earning $23 an hour or more while just 7 percent of the smallest do.

A modest three-point scale was developed from these data in order to subsequently determine if the behavior of small-business owners ties to behaviors associated with offers of health insurance. The result of the calculation13 is that 12 percent are higher-paying firms, 79 percent medium-paying firms, and 9 percent low-paying firms. For current purposes, the scale illustrates a direct and strong tie between wages in firms and the offer of health insurance.

ReimbursementOne means to help employees obtain health insurance coverage other than a direct offer is extending cash payments or reimbursements to employees in order to purchase coverage on their own. This option is likely to become increas-ingly attractive for many employers and employees under ACA due to the premium price adjustments caused by the Act’s generally expanded community rating system, minimum benefit package insurer taxes that will be rolled into higher premiums, and subsidies within the exchanges. The relative advantages of reimbursement/financial support will vary significantly among employers and employees, but some of both will be big winners by substituting a reimburse-ment/cash payment system for an employer offer of health insurance. The following is how that might work: a small employer paying relatively low wages drops employee health insurance, pushing employees into the subsidized indi-vidual exchange. The employee then pays the non-subsidized portion of the premium and the employer reimburses the employee’s share or gives the employee a flat amount to compensate. Employees would often prefer this arrange-ment because they no longer pay a cost-share for the employer’s plan and get paid/reimbursed for the employee cost-share (unsubsidized portion) in the exchange plan. They may even pocket some money. Employers would often prefer the arrangement because they only make the contributions they would like and it allows them to rid themselves of the administrative hassles in offering. This system is particularly attractive when the firm has a relatively low income labor force which is eligible for substantial subsidies. Though the reimbursement is taxable income for employees, the bene-ficiaries are likely to fall in the lowest income tax brackets or pay no income tax at all.

Fourteen (14) percent of non-offering small employers currently provide such financial support (Q#13). Owners of smaller, small firms are the most apt to use this option. Fifteen (15) percent in the smallest stratum, 2 – 9 employees, offer reimbursement/payment compared to 11 percent in the 10 – 19 employee group, 7 percent in the 20 – 49

13 A high paying firm has 25 percent or more of its employees earning more than $23.00 an hour or its annual equivalent, the point at which subsidies

are terminated, and none less than $8.00 or its annual equivalent. A low paying firm has employees earning less than $8.00 an hour and none above

$23.00. The remainder are classified as middle paying firms.

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employee classification, and none in the 50 employee plus category. Since direct financial assistance substitutes for coverage offers, owners of smaller firms are most likely to use it as are those who report stable earnings, stable at least compared to the prior year.

The criterion on which such financial support depends varies considerably and the number of cases is too small (N = 31) to draw conclusions (Q#14). However, it appears that a defined contribution, a flat amount, is the most common form. Percent of the premium, percent of the employee’s wages or salary, the employee’s length of service, and other potential criterion appear less frequently used.

Self-Insurance Self-insurance can be a good deal for some small employers because it allows them to escape many of ACA’s require-ments, including its community rating provisions and certain taxes. Proponents of ACA express concern that many small offering employers will exit the fully-insured market and switch to self-insurance.14 Such withdrawals from the fully-insured market, presumably taken by the best risks, will cause the SHOP exchanges to go into an adverse-selection stim-ulated death spiral, thereby undermining an essential part of the Act. Small-business advocates should be concerned if the lion’s share of good risks suddenly opts for self-insurance. However, the data indicate that ACA proponents’ concern is vastly over-blown at this point.

Just 4 percent of small employers currently offering employee health insurance say that they self-insure (Q#19). Though simple explanations of self-insured and fully-insured were provided respondents in the survey questionnaire, another 9 percent say they are not sure if they are self-insured or not. This uncertainty surrounding self-insurance is reinforced by the surprising number of owners employing 2 – 9 people who either report that they self-insure (3%) or are not certain if they do or not (9%). Small employers with 10 – 19 employees claim to self-insure in 8 percent of cases and are uncertain in another 5 percent. Since it is virtually impossible as a practical matter to self-insure if a business has fewer than 10 employees and highly unlikely among those employing between 10 and 19 people,15 the survey reveals considerable confusion among small employers with respect to self-insurance and related matters. The Employee Benefit Research Institute (EBRI) shows, based on MEPS data, that between 10 and 15 percent of employees are covered in self-insured establishments with fewer than 20, a number that has held remarkably steady over the last decade.16 However, employees covered is not the same as firms offering; establishments (places of busi-ness) are not the same thing as enterprises (businesses). Larger firms (with more employees) are more likely to pursue this route than smaller ones, even within an employee-size stratum. Establishments can be part of a larger enterprise, thereby inserting larger firms, the most likely to self-insure, into a smaller firm size group. The data collected here among the smallest businesses therefore does not yield a result noticeably different from an official source. Still, given the uncertainty surrounding self-insurance among small-business owners and the minimal opportunities to self-insure among the smallest, it is highly likely that those who claim to be uncertain do not self-insure and some that claim they do, actually do not.

The more relevant size group to ascertain the prevalence of self-insurance among small business consists of firms employing 20 – 100 people. The 20 – 49 employee stratum has 7 percent self-insuring (4% uncertain) and the 50 – 100 employee stratum has 13 percent (4% uncertain). Merging the two strata produces 9 percent of offering firms employing 20 – 100 people that self-insure and another 4 percent whose owners are uncertain (N = 405). Of that 9 percent, about 1.5 percent volunteer that they are self-insured but carry no reinsurance. Since reinsurance acts as a stop-loss for the business, its absence, even among such a small number, raises the why question.

The increased attractiveness of self-insurance caused by ACA appears to have generated limited interest among those who are currently in the fully-insured market. Just 4 percent indicate that it is “highly” likely that they will switch from the fully-insured market to self-insurance the next time their policy comes due (Q#20). Another 4 percent say that it is “somewhat” likely. The critical groups are again those larger, small employers. Small-business owners in the 50 employee and over stratum are substantially more likely to express interest than those in the 20 – 49 employee stratum

14 Typical examples include M. Calsyn and E.O. Lee, “The Threat of Self-Insured Plans Among Small Businesses.” Center for American Progress,

June 19, 2013; T. S. Jost and M. A. Hall, “Self-Insurance for Small Employers Under the Affordable Care Act: Federal and State Regulatory Op-

tions,” Washington & Lee Public Legal Studies Research Paper Series, Accepted Paper No. 2012-24, Washington and Lee University School of

Law, Lexington, VA, June 27, 2012.15 Self-insured businesses, even those that have several thousand employees, typically purchase reinsurance in order to protect themselves from an

extraordinary large claim or several of them occurring in the same year. State insurance rules often prohibit reinsurance from being sold to small

groups and many insurers simply will not sell it to them. 16 Paul Fronstin, “Self-Insured Health Plans: State Variation and Recent Trends by Firm Size,” EBRI Notes, Vol. 33., No. 11, November 2011.

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(14% to 9%). However, half of those in the two 20 employees or more strata claim a switch is “not at all” likely and another 20 percent report it “not too” likely.

The limited interest in self-insurance may in part be tied to owners’ lack of immediate attention to health insurance renewal. Perhaps they recently renewed; perhaps they just have not yet focused on the next renewal. Regardless, 19 percent have not thought about renewal to date, meaning they have also not thought about the possibility of switching. The data cumulatively therefore do not show a pending avalanche of small businesses heading to self-insurance. They do suggest increased interest.

A major issue for many small employers is the individual attachment point in the reinsurance they purchase, that is, the dollar amount of claims for any one individual after which reinsurance becomes effective. The lower the point, the less an owner will have to pay out-of-pocket in the event of any single employee incurring extremely large claims. The survey posed a question among those who are self-insured about the level (amount) of their individual attachment point. Too few cases are available to be comfortable with results (N = 54). However, self-insured small employers often seem unfamiliar with the topic. One-third (36%) say they do not know the individual attachment point for their reinsurance and another one-third plus (39%) could not provide a plausible answer to a question that allowed them to respond in $10,000 increments (Q#21).

Employee Requests for InsuranceThe ACA requires most individuals to carry health insurance (individual-mandate) or pay a penalty. Despite the subsi-dies, the individual requirement means that millions of previously uninsured Americans will have at least some new payment for health insurance that they will have to absorb beginning in January, 2014. Fourteen million people who work in employing small businesses are uninsured.17 Since most Americans obtain their health insurance through their employers, it is not a stretch to think that many currently not covered by their employer will ask their employers to offer in light of the individual-mandate.

Employees or employee representatives in 4 percent of small businesses that do not now carry insurance requested in the last six months that their employer begin to offer (Q#12). The question defined a request as coming from more than 5 percent of employees, or representatives of more than 5 percent of employees. That amounts to a single employee in a firm of 20 or fewer, a relatively modest test.

The 4 percent number is rather small, likely not far from the number receiving them in a more conventional time. The critical point comes next year when the individual-mandate is effective and the new premium costs reach currently uninsured employees.

Owner CoverageEighty-four (84) percent of small-business owners have health insurance coverage (Q#10). The most common source of that coverage is the business’s plan (35%). An individual plan is the next most common source (30%) followed by a spouse’s plan (19%). A substantial number of small employers (15%) do not have coverage. If one assumes a small employer population of seven million, then just over 900,000 small employers have no insurance. Since firms with multiple owners are likely to be larger than those with a single owner and larger firms are more likely to offer health insurance, the 900,000 figure should be scaled back. Just how far it should be scaled back is another matter.

EBRI calculations based on Census data show 3.5 million uninsured self-employed people in 2011 out of 12.4 million self-employed.18 However, about five and one-half million of those self-employed employ no one but them-selves. Those data imply that about 40 percent of the non-employer, self-employed population is not covered.

There are also strong ties between an owner’s personal coverage, a firm’s offer of insurance, and where the owner obtains personal coverage. If a small employer offers, there is a two in three chance that he will obtain his personal insur-ance through the business. If a small employer is personally covered, there is a 50 – 50 chance that he offers employee coverage. If a small employer is not personally covered, there is a 1 percent chance he offers employee coverage.

The person interviewed for the survey is not always the owner. In 25 percent of cases, particularly among larger, small firms, the person interviewed is a paid manager who has no ownership interest in the business (Q#1), though they are uniformly involved in the decisions about employee wages and benefits (Q#2). These managers effectively substi-tute for the owners, but do not always have the same insurance coverage. Managers are 6 percentage points less likely to be covered than owners. However, if managers have coverage, they are about 12 percentage points more likely to get

17 Paul Fronstin, Sources of Health Insurance and Characteristics of the Uninsured: Analysis of the March 2012 Current Population Survey, EBRI

Issue Brief, No. 376, Employee Benefit Research Institute: Washington, DC, September 2012, Figure 13. 18 Fronstin, 2012, op. cit.

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coverage through the business than are owners. That means when a business does offer, managers are likely to take it and less likely than owners to find insurance elsewhere.

Plans OfferedThe most common type of plan small-business owners currently offer is a PPO (32%), followed in frequency by an HMO (26%), a high-deductible PPO (25%), and a POS (5%) (Q#16). Twelve (12) percent are not certain which type of plan their firm extends. PPO and POS plans are somewhat more common among larger, small firms than smaller, small ones. For example, 39 percent of those with 50 or more employees offer a PPO compared to 28 percent of those with fewer than 10. The question moving forward is whether owners of offering small businesses will gradually start moving into the cheaper alternatives, that is, HMOs and high-deductible PPOs.

Fifteen (15) percent offer a second plan (Q#17), larger, small firms doing so two and one-half times (25%) as often as smaller, small firms (10%). The second plan’s distribution is similar to first’s, except for POS plans, which seem more frequent. The distribution is: a high-deductible PPO (24%), PPO (23%), HMO (19%), POS (15%) and 18 percent do not know (Q#18).

An employee’s ability to choose from a variety of health insurance plans is a highly attractive feature of the SHOP exchange. Unfortunately, choice is another casualty of ACA administrative problems in the federally-facilitated SHOP exchanges. The delay in SHOP choice is presumably a year, or in some states, until officials can persuade more insurers to participate.

Coverage AvailableSmall businesses subject to the employer-mandate under ACA must offer health insurance coverage to their employees, but are under no obligation to contribute to family coverage or plus-one coverage that benefits employee family members. Many small businesses, as a practical matter, have offered family coverage for a considerable period and continue to do so. However, small employers often treat coverage for their employees and coverage for their employees’ families differently. The cost of family coverage is higher than it is for individual coverage, leading many small employers to share a lower portion of their costs than for individual coverage. Plus-one coverage is a more recent market insurance product, but small employers tend to treat its higher costs (compared to individual coverage) more like family coverage. The pending question is whether ACA will change any of this, particularly cost-sharing and offers of family and plus-one coverage.

There is a second consideration. Currently, the employer’s cost for an employee’s health insurance premium is excluded from federal and state income tax. Beginning in 2018, any employer-paid premium above $10,200 for employee-only plans and $27,500 for family plans will become taxable income. The effect is to tax recipients (employees) of Cadillac (very generous) health insurance packages. While this provision of ACA impacts high-paid employees with Cadillac pack-ages more than others, the tax can easily reach into the middle class. The current study is too brief to assess any conse-quences from taxation of Cadillac plans. But that does not mean small businesses and their employees will be unaffected.

The survey instrument presented a one sentence background and posed the following question to small-business owners reporting that they currently offer health insurance to their employees: The sequence begins: “There are typi-cally three types of health coverage policies: family, individual and plus-one. Does your business offer:?” Some small employers say they offer, but no employee uses that type of coverage; others appear to respond that there is coverage only if one or more employees take it. Therefore, for purposes of consistency and clarity, a business offers individual, family or plus-one coverage only when at least one employee takes it.

Seventy-one (71) percent extend individual coverage, also known as employee-only coverage (Q#27), 65 percent family coverage (Q#23), and 27 percent plus-one coverage (Q#31). Should employees (or new employees) want a different coverage than the one(s) currently used, it may or may not be possible to access it.

Table 2 presents the distribution of coverage combinations. Sixteen (16) percent offer all three. That percentage is strongly tied to firm size. Almost half (48%) with 50 or more employees offer all three while just 6 percent of those with fewer than 10 employees do. Thirty-eight (38) percent of offering small firms purchase two of the three types of coverage. That percentage is largely invariant by employee size-of-business. The smallest are most likely to have one type of coverage (46%) while the largest are the least likely (13%). Eight percent cannot or will not identify the type of coverage they offer.

a. Individual CoverageIndividual coverage is closely tied to firm size. Just 65 percent of those owning businesses in the 2 – 9 employee size stratum offer it compared to 82 percent in the 50 – 100 employee group. While 5 percent are not certain if they offer individual coverage, the principle reason that only just over seven in ten report offering individual coverage is that

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many employees use the other two types of coverage. That is particularly likely in the numerous firms with the fewest employees. It also suggests that many people without families are opting out. Given the individual-mandate in ACA, it is likely that the 71 percent having individual coverage will rise over time.

The median cost for employee-only coverage (employer and employee share) is about $550 a month (Q#29). Two-thirds report costs of less than just over $725. Less than one-in-ten report costs of less than $300 a month. About the same number says that their individual coverage is $1,000 a month or more. The largest share of these more costly poli-cies are purchased by small employers with fewer than 20 employees.

Table 2tyPeS of health inSurance PlanS offered in Small BuSineSSeS

Three Types Two Types One Type

Ind., Family, Plus-One - 16% Individual, Family - 29% Individual - 22% Individual, Plus-One - 4 Family - 14 Family, Plus-One - 5 Plus-One - 2

Eight percent could not identify the type of plan(s) offered.

Thirty (30) percent indicate that all of their full-time employees have individual coverage (Q#30). The proportion with all of their employees having employee-only coverage is related to employee size-of-business as 36 percent of the smallest have all of their employees individually covered while only 11 percent of the largest do. However, another 24 percent report that most of their employees have individual coverage. The distribution by size-of-firm is the opposite than it is for all employees. Thirty-seven (37) percent of the largest have most employees in individual coverage while 20 percent of the smallest do. Eleven (11) percent report about half of their employees use employee-only coverage and 33 percent have just some employees covered in this manner.

Small employers contribute more for individual coverage on a percentage basis than other forms of employee health insurance. Forty (40) percent say that they pay the entire premium (Q#28) (Table 3). Another 50 percent say that they pay between 50 – 99 percent. Thus, 90 percent of small employers who offer employee-only coverage pay at least half of that coverage. Just 2 percent say that they make no contribution.

b. Family CoverageSixty-five (65) percent offer family coverage; 21 percent don’t; and 1 percent are not certain. Employee size-of-business is again highly related. Ninety-one (91) percent of the largest small businesses offer family plans while just 56 percent of the smallest do.

The median cost for family coverage (employee and employer shares) is about $800 a month (Q#25). Two-thirds pay less than $1,000. Still, 6 percent report their premiums of $2,000 or more a month, virtually all of which appear in the 2 – 9 employee size stratum. The surprise is that 16 percent cannot or will not provide a cost estimate. More will be said about this later.

The most common amount of employees participating in family plans is “some”, that is, between about half and none (Q#26). Fifty-three (53) percent fall in this group. However, 14 percent say that all employees have family poli-cies. Virtually every one of these lies in the 2 – 9 employee size stratum. Nineteen (19) percent say “most” do and 12 percent say “half”. Two percent are not certain.

Where small employers offer family coverage, the business pays 100 percent of the premium in over one quarter of cases (27%) (Q#24) (Table 3). The business pays between 50 and 99 percent of the premium in 46 percent of them, meaning that the business pays at least half for the employee’s family coverage in three-quarters of cases. Eight percent of offering small employers claim that they pay “nothing” toward family plans.

c. Plus-One CoverageTwenty-seven (27) percent offer plus-one coverage, that is, coverage for an employee and one other person, typically a spouse. Owners of the largest, small businesses are about three times as likely to offer plus-one coverage as the smallest, small firms (57% - 18%).

The median cost (employer and employees shares) for plus-one coverage is just over $725 a month (Q#33). Two-thirds pay about $975. Just 6 percent report coverage costing more than $1,500 a month. The distribution of costs

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appears quite large, much more than for either individual or family. The reason is not obvious, though one might specu-late that the relative unfamiliarity of this insurance type might allow insurers’ greater pricing flexibility than otherwise might be the case. Thirteen (13) percent of small employers offering plus-one coverage could not or would not estimate the monthly amount they spend on it.

Participation in plus-one coverage is relatively infrequent even in those firms that offer it. Seventy-seven (77) percent say that “some” use it (Q#34). Just 19 percent report that half or more of participating employees have plus-one coverage.

The employer cost-share for plus-one coverage is somewhat more generous than for family coverage. That makes sense given the relative costs. Still, 21 percent pay 100 percent of the cost and another 33 percent pay between 75 and 99 percent (Q#32) (Table 3). In all, nearly three-quarters (73%) pay at least half of their employee’s plus-one coverage.

Table 3Percent of emPloyee health inSurance PremiumS Paid By emPloyerS By tyPe of Policy

Type of Policy% Employer Paid Individual Family Plus-One

100 Percent 40% 27% 21%75 – 99 Percent 23 19 3350 – 74 Percent 27 28 19< 50 Percent 6 11 8Nothing 2 8 12Not Sure 2 7 5 Total 100% 100% 100% N 525 523 227

Cost-Sharing in ContextWhile employees contribute a substantial portion of the total premium through cost-sharing arrangements that range from no cost-share to full payment (see Table 3), small employers pay the largest share of the premium cost for indi-vidual plans. They absorb 100 percent of the cost in 40 percent of cases. The median employer cost-share for an indi-vidual plan is between 85 and 90 percent. That amounts to an employer cost of about $490 per employee per month. Two-thirds pay about $640 a month or less.

To be an affordable plan under ACA, the employee’s cost-share can amount to no more than 9.5 percent of wages; the absolute amount the employee must pay is immaterial. Thus, an employee earning $40,000 a year can pay no more than $3,800 ($317 per month) as their share of their health insurance cost. Employers subject to the employer-mandate must offer affordable insurance or be subject to a penalty. The affordability question is inconsequential to other small-business owners, unless employees decide to leave their employer’s insurance and switch to potentially subsidized insur-ance from the exchange. If the small employer’s insurance is affordable, the employee cannot switch (or not receive a subsidy if he does); if it is not affordable, the employee can.

Table 4 illustrates ACA affordability as it impacts current small business cost-sharing. Note the two columns in the left panel. The first contains a hypothetical employee’s annual earnings. The second shows the maximum monthly amount the employee could pay for health insurance and still have the employer’s plan qualify as affordable under ACA. The right panel in Table 4 shows the monthly premium small employers currently pay for an employee’s coverage (employee and employer shares) by the percentage of the employer’s cost-share. The percentage in each cell repre-sents the proportion of small businesses that have the two characteristics in their employee-only plan. For example, 11 percent of small employers offering individual coverage pay 100 percent of a plan costing between $400 and $599.

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Table 4aca affordaBle coverage and monthly Premium for individual

coverage By Percent of emPloyer coSt Share

Wage Affordable Monthly Not /Salary /Mo. Premium 100% 99-75% 74-50% 49-1% Nil Sure N

$20,000 $158 >$400 8% 5% 8% 2% 1% 1% 170 $30,000 $238 $400-$599 11% 8 5 1 0% 1% 169$40,000 $317 $600-$799 5% 4 3 1 2 0 72$50,000 $396 $800-$999 6% 1 4 2 0 0 30$60,000 $475 $1,000+ 7% 2 1 * 0 0 33$70,000 $554 Not Sure 2% 3 4 0 0 0 49 $80,000 $633$90,000 $713

N 131 178 165 31 8 10 523

Table 4 also permits rough estimation of the number of current small businesses with coverage that is not afford-able for an employee earning $40,000. The table shows that an employee earning $40,000 can contribute no more than $317 a month or his employer’s plan is not affordable (left panel). If the insurance plan therefore cost $500 a month and the employer contributes 35%, the plan would not be affordable; if the employer contributes 40 percent, it would be. If the plan were $900 a month and the employer contributes 60 percent, it would not be affordable. But a 65 percent contribution would make it so. The italicized bold numbers in table’s right panel running from upper right to lower left roughly estimate the percent of firms that do not offer affordable coverage for an employee earning $40,000. The total of all affected cells is 11 percent, though crossing size classes and using mid-points to make estimates, reduces the percentage somewhat. The reader can make similar estimates for other income amounts.

Small employers are less generous in their cost-sharing arrangements for family and plus-one plans, both because they are more expensive than individual plans and because dependents do not work for their firms. Small employers do pay 100 percent for family plans in 27 percent of cases and 100 percent for plus-one plans in 21 percent of cases. However, the median contribution is also much lower than for individual plans, about 75 percent for the latter and somewhat less for the former. Even then, family and plus-one plans are more expensive for small employers than indi-vidual plans. The median employer cost of a family plan per employee per month approximates $575 (two-thirds are $725 or less) and the employer cost of a plus-one plan per employee per month approximates $540 (two-thirds are about $730 or less). The differences are not extraordinary, however. The median difference in employer cost (after employee cost-share) between individual and family coverage approximates $85 a month, and between individual and plus-one coverage approximates $50 a month.

A modest relationship appears between the amount (in percent) of the employer’s cost-share and employee partic-ipation for both individual and family coverage. The same relationship does not appear in plus-one coverage, perhaps due to the smaller number of cases, or to its infrequent applicability in real world situations. The most extreme instance occurs in individual coverage where 58 percent experience all of their employees participating when the employer pays 100 percent of the premium (free insurance). But even when the employer pays 100 percent of the premium, many do not take it, presumably because they have even more attractive alternatives. Once cost-sharing declines, so do partici-pation rates. Since there are so few cases with cost-sharing below 50 percent, it is difficult to explore the relationship more completely.

Employee ParticipationWhen small employers offer health insurance, substantial percentages of their full-time employees participate. Eighty-five (85) percent offering coverage report that half or more of their full-time employees are covered by their firm’s plan (Q#22). Fifty-seven (57) percent note participation from at least three of four. Thirty (30) percent claim total (100%) participation.

Employee size of business is closely tied to participation. Full-time employees in the smallest, small businesses are more likely to participate than those in the largest. For example, 39 percent of small employers with businesses employing 2 – 9 people report full participation compared to just 9 percent of employers with 50 – 100 people working

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for them. There are two reasons for this size distribution. The first is that it is simply easier to obtain 100 percent partic-ipation from a smaller number of employees than a larger number. Employees often have coverage alternatives, such as a spouse’s policy, and with more employees, there is a greater likelihood one or more employees will choose an alterna-tive. The second is that insurers of small groups require minimum participation rates in order to limit adverse selection. If enough full-time employees do not participate, the business cannot obtain insurance. Thus, the smallest employers may sweeten the pot for reticent employees, an issue not often faced by larger, small employers.

Eight percent of small employers report greater than 100 percent participation. That of course is not possible. The reasons for the reporting errors and their implications cannot be identified with certainty. However, two possibilities draw immediate attention. The first is that some respondents consider full-time employees to include covered family members. Indeed, these businesses extend coverage to families in over 90 percent of cases compared to 65 percent for the general offering population. A second possibility is that some respondents counted part-time employees rather than just full-time employees because they offer insurance to both. But this combination occurred in just over 10 percent of cases. While an attractive explanation, the small number of potentially applicable cases could explain only a small portion of the group. Even without a totally satisfactory explanation for the inconsistencies however, it appears that these cases of greater than 100 percent participation consist of businesses with very high percentages of full-time employees using their employer’s plan.

Total Health Insurance CostsSmall-business owners have consistently reported over the years that they have no greater business problem than the inexorable increases in health insurance premiums.19 They, therefore, looked forward to changes in the health care system that, if not lowering costs, would at least minimize their persistent escalation. The Great Recession lowered the rate of cost increase, but those rate increases remain above the rate of inflation, considerable, and unsustainable. Mean-while, small business health insurance premiums (employer and employee shares) average $6,721 a month ($80,652 a year) (Q#35).20 The median (50% more and 50% less) is about $3,500 ($42,000 annualized) every 30 days, and two-thirds pay about $7,000 or less.

A strikingly large percentage of small employers cannot estimate either their total monthly health insurance costs for all types offered or their monthly per employee cost by types offered. For example, 12 percent cannot provide an estimate of total monthly premium costs (employee and employer share), including about one in six (18%) who have firms employing 50 or more people. Similarly, 12 percent cannot estimate the average monthly premium for individual policies and 15 percent cannot estimate them for family policies. A lack of such information among so many seems incongruous with continuing complaints about ever-rising insurance costs.

There are several plausible explanations for the apparent inconsistency. The first is that the small employers who do not have such cost information readily available are not those who are complaining; they are less concerned about cost than are others. If that were true, those experiencing lower (less frequent) rates increases would be less likely to recognize the increases they receive. That seems to be the case, at least for many. Small employers whose premiums did not change from prior year are most likely not to know actual costs (15%) compared to those that had their premiums rise (11%) and those who had theirs premiums decline (5%). A second plausible explanation is that these owners are unfamiliar with the unit of account used in the question; they sign an annual contract (annual unit) and put payment on auto-pilot (monthly unit). Roughly half who knew one (annual or monthly) did not know the other, suggesting the unit of account may have been a problem for a non-trivial number. Third, unfamiliarity with monthly costs may occur because a reasonably large number of respondents are paid managers that may be more or less conscious of a firm’s budgetary situation. Further investigation proves that reason is probably not a factor, however, as both owners and managers respond similarly.

Changes from the Prior YearIf small employers offer employee health insurance this year, there is a strong likelihood that they offered it last year, and vice-versa. Ninety-two (92) percent did not change their offer status in the last 12 months (Q#40). Seven percent did change their offer status and 1 percent who now offer do not recall if they offered last year or not. The result is a net decline of between 1 and 2 percent of the population

Examining the changes that did occur shows a continuing decline in the number of small businesses offering. Eight percent offering health insurance last year do not offer this year. In contrast, 6 percent not offering last year do offer this year (Table 5). Both add and drop estimates are static. They do not account for businesses entering and exiting. That

19 Holly Wade, Small Business Problems and Priorities, NFIB Research Foundation: Washington, DC., particularly Table 5.20 The data is this were calculated omitting four outlying cases of $100,000 a month or more.

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means both estimates are low. About 10 – 12 percent of firms open each year and 10 – 12 percent close.21 However, neither additions nor drops can be estimated because we do not know whether, 1. those that entered offer insurance as often as the small employer population (not likely because new and very young businesses, those three years and younger, are less likely to offer than are more mature ventures) or 2. those that exited the market offered health insur-ance as often as the small employer population (not likely because financially healthier businesses are more likely to offer than those less financially healthy).

Most offer status changes from the prior year, additions and drops, appear in firms with 2 – 9 employees. Changes among businesses in the 20 or more employee groups appear unusual. The differences can be explained by the much greater number of smaller, small firms compared to larger, small ones, and that the financial health of the former is often more precarious than the financial health of the latter. The smallest firms also tend to be the youngest firms, though the limited number of cases showed no association by business age.

Too few cases of change occurred to be able to examine the motives behind them. However, a change in profit-ability compared to the prior year appears tied to drops, though not necessarily to adds.

Table 5Small BuSineSSeS offering emPloyee health inSurance

currently By thoSe that offering it the year Before

Offer CurrentlyOffered Year Before Do Offer Do Not Offer Total

Did Offer 93% 8% 47%Did Not Offer 6 92 53Do Not Know 1 — 1 Total 100% 100% 100%N 664 257 921

Employee ParticipationEmployee participation in offering firms changed infrequently. Ninety-five (95) percent of offering small employers report the same portion of employees participating this year as the year before (Q#54). The remainder split with 3 percent indicating greater participation and 2 percent lesser. One would expect the number of participants to increase in 2014 given the presence of the individual-mandate. Employees not previously covered, though eligible, are more likely to accept coverage.

Change in Coverage SelectedThe distribution of plan types (individual, family, plus-one) chosen by employees in offering small businesses did not change from the prior year, either. Eighty-nine (89) percent report that their plan distribution remained essentially the same (Q#36). Nine percent note a change with 1 percent not certain.

The shifts that did occur saw 46 percent choosing individual coverage more often, 41 percent choosing family plans more often and 5 percent plus-one plans more often (N = 70) (Q#37). The remainder did not provide an assessment.

The most frequently cited primary reason (34%) for the shift is different employee choices (N = 70) (Q#38). A change in employee costs follows (22%) with others mentioning more employee participation, less employee partici-pation and the composition of the workforce among others. A follow-up question regarding the type of employee cost change are too few cases to present numbers (N = 21) (Q#39).

These data indicate no profound shifts in the type of health insurance plans that small-business employees choose. Some natural churn is to be expected and that appears to be what has happened over the last year or two. The outstanding question is whether the ACA will stimulate any change.

21 Those numbers are estimates based on calculations for 1999 – 2008, the latest data available. The 2008 – 2009 figures, showed a sharp decline in the

number of starts and a sharp increase in the number of closures. The assumption here is an approximate return to normalcy, though other data suggest

that the earlier balance between the two has not yet been achieved. U.S. Small Business Administration, Office of Advocacy, http://www.sba.gov/

sites/default/files/FAQ_Sept_2012.pdf, p.3, Accessed 9/13/13.

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Change in Insurance CostsThe cost of health insurance continues to climb for small employers. Sixty-four (64) percent pay more per employee for health insurance this year than they did last (Q#41). Six percent report a decline and 29 percent indicate no change.

The median price increase, incorporating in the calculation those with increased, stable, and lower prices, was about 6 percent, though the average increase was closer to 12 percent (from Q#51). The most frequent (44%) per employee premium increase was between 10 – 19 percent. Another 29 percent report increases of 5 – 9 percent. Fourteen (14) percent say theirs was 20 – 34 percent while 9 percent saw theirs rise less than 5 percent. Just 3 percent claim increases of more than 35 percent. The limited number of price decreases (N = 39) shows a similar distribution (compared to increases) around a 10 – 19 percent median.

The percentage of the small businesses experiencing premium increases does not appear to vary by firm size, but the size of increases do. For example, 36 percent of those under 20 employees saw premium rate increases of less than 10 percent last year (when they experienced increases) compared to 45 percent among firms over 20 employees. Even within the small business population, smaller firms seem to more commonly experience higher rate increases. Younger firms (6 years or fewer) experienced relatively fewer increases compared to older firms (42% - 63%). No reason for this difference appears in the data presented here. However, one could speculate that most young firms have not had insur-ance very long and therefore have not had time to establish a track record on which to readjust rates. The frequency of firms seeing increases also varies by geographic area, the most frequent rate increases came in the east central area (within the states cornered by Delaware, Kentucky, Tennessee, and North Carolina) (80%, N = 89) and the Pacific (80%, N = 62) and the least frequent in the Great Lakes area (Ohio to Wisconsin) (51%, N = 111).

Small employers responded to the higher costs in various ways, frequently shielding employees from the brunt of them. The most frequent was to take a lower profit (66%) (Q#45) (Table 6). The next most frequent was to increase productivity (48%) (Q#49). Cutting back, delaying, or postponing business investment was the third most frequent action taken (40%) (Q#46). Only then did employees and customers start to bear the additional costs. Employees in 40 percent of firms with higher health insurance costs bore no part of the increase and another 37 percent made their contribution in a single way. Thirty-seven (37) percent of small employers froze or reduced wages to help compen-sate for the premium increases (Q#47). Thirty (30) percent increased the employee’s cost-share (Q#44) and 12 percent reduced non-health employee benefits (Q#48). Seventeen (17) percent reduced employment or reduced hours (Q#43). Customers were the ones who least often bore the costs. Just 30 percent raised selling prices (Q#42). Finally, 17 percent report taking the tax credit to help offset cost increases (Q#50). That figure is likely much too high. Several small-business owners with firms over the eligibility size limit, for example, say that they took the credit. They may have told their tax preparer about the credit, but their tax preparer later determined them ineligible.

Table 6actionS taken to defray coStS of health inSurance Premium increaSeS

By Percent taking them and average Premium increaSe

Average Premium IncreaseCost Defraying Action % Took <10% 10 – 19% 20+%

Raised Prices 30% 25% 29% 38%Cut Employees/Reduced Hours 17 10 16 35Increased Employee Cost-Share 30 24 36 25Took Lower Profit 66 67 68 56 Delay, Postpone, Reduced Business Investment 40 28 48 50Freeze or Reduce Wages 37 31 41 40Reduce Non-Health Employee Benefits 12 6 10 36Become More Productive/ More Efficient 48 38 55 44Took Health Insurance Tax Credit 17 18 13 24 Average Number of Actions Taken 2.7 2.2 2.9 3.1 N n.a. 178 178 77

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Those reporting lower premium increases took fewer actions to defray costs than did those reporting higher premium increases. The average was 2.7 actions (Table 5). Small employers experiencing price increases of less than 10 percent took 2.2 actions compared to 3.1 among those whose increases averaged 20 percent or more. The individual actions taken also became more frequent as price increases rose. For example, 25 percent raised selling prices when their health insurance costs rose less than 10 percent. But 29 percent did when their costs rose between 10 and 19 percent and 38 percent did when cost increases rose to 20 percent or more. The same pattern holds for four other defraying actions. However, owners facing 10 – 19 percent increases more frequency engaged in four actions – took a lower profit, became more productive, increased the employee cost-share, and froze or reduced employee wages – than those facing 20+ percent increases. The reason for this anomaly in the overall pattern is not clear. However, it is likely associated with the size or amount of an action taken.

The critical point in this discussion of premium increases is that small employers must defray them in some manner. The good news is 48 percent were able to off-set at least some of them by becoming more efficient, more productive. The bad news is that everything else harms small-business owners directly or indirectly, from not being able to invest (a loss in productivity growth) to adverse consequences for employees and consumers.

Change in Insurance BenefitsThough three-quarters (75%) of offering small employers did not change health insurance benefits from last year to this, those who did were much more likely to reduce them than to increase them (Q#52). Nineteen (19) percent cut bene-fits while 4 percent expanded them. Owners of the smallest firms were the most likely to expand benefits (5%); owners of the largest were least likely (0%).

Premium increases are strongly associated with benefit cuts. For example, if premiums rose 20 percent or more, benefits were cut in 32 percent of cases. If premiums were unchanged, they were cut in just 14 percent of cases. Simi-larly, profitability is associated with lower benefits. Owners of firms more profitable this year than last cut benefits in 16 percent of cases compared to 24 percent among those who were less profitable.

Deductibles on the whole are higher this year than last. While two of three (66%) maintained them at the prior year’s level, 28 percent increased them (Q#53). There are limits to use of this strategy to reduce costs, however. The small group market (exclusively) will have a requirement beginning in 2014 that deductibles must be limited to $2,000 for individual (employee-only) policies and $4,000 for family policies. Just 4 percent lowered deductibles in their plans this year. Owners of the smallest, small firms were only ones who did (5%).

Plans to Offer Next YearThe number of small businesses offering employee health insurance fell from last year to this, another in a long series of declines. The size of the decline is modest. However, small employers expect that trend to change this year. More plan to introduce the benefit than to drop it. The intended changes are relatively small on net, but more substantial when examining adds and drops separately.

Forty-eight (48) percent of small employers plan to offer employee health insurance next year, 27 percent “defi-nitely” and 21 percent “probably” (Q#73) (Table 7). The identical percentage plans not to offer next year, 16 percent “probably” not and 32 percent “definitely” not. While most expect no change from their current offer-status, a few plan shifts. Three percent who do not now offer “definitely” plan to offer next year and another 10 percent who do not now offer say that they probably will. In contrast, 2 percent of small employers currently offering intend to drop their current coverage. However, just 5 percent of those currently offering say that they will “probably” drop theirs. If small employers follow those plans, the net proportion of them offering would rise, breaking a decade-old trend.22

The number of cases involving owners planning to switch their offer status is too small (N = 65) for an analysis. However, it appears that switches are planned overwhelmingly for the smallest businesses, 2 – 9 employees, particularly among those planning to add insurance in the coming year. Owners of firms employing more than 20 people seem more inclined to drop. Drops also appear centered on firms 20 years or more old. Thus, the total net change in employees covered will largely result from the follow-through of those who say they will “probably” take an action, and their size.

Reasons for the changes were not included in the survey.

22 Kaiser Family Foundation, op. cit.

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Table 7PlanS to offer emPloyee health inSurance next year By

current offerS of emPloyee health inSurance

Offered Last YearPlans to Offer Next Year Yes No Total

Definitely Yes 55% 3% 27%Probably Yes 35 10 21Probably No 5 26 16Definitely No 2 57 32Not Certain 4 4 4 Total 100% 100% 100%N 664 257 921

Obamacare StrategiesThe survey asked those with at least some familiarity with ACA about their strategies for dealing with the Act. The most obvious for small employers anywhere near the 50 employee threshold of the employer-mandate is to make their busi-nesses smaller by dividing them, selling off parts, cutting employment, or some other means of downsizing, either to creep (remain) under the mandate threshold or to reduce the number of employees for whom they would be required to offer insurance. Contraction is anathema as a general rule to most small-business owners. They want to grow, even if relatively few actually do after the first years in business.23 This survey shows that 37 percent would like to grow “a lot” and another 40 percent would like to grow “a little” (Q#D2). Only 12 percent want to remain at their current size while just 8 percent want to contract to a greater or lesser degree.

To date, small-business owners have not pursued contractions in a significant manner, if at all. Thirteen (13) percent indicate that they used the size reduction strategy within the last 12 months (Q#78). However, it seems clear that many of those reductions are not tied to the ACA, though the survey specifically mentioned it. Other factors often appear more important or are the actual reason.

The most obvious reason that ACA would cause small employers to reduce business size is the 50 employee threshold of the employer-mandate. If cutbacks caused by ACA were to occur, one would expect that the two larger firm size categories would be the most likely to contract. Still, the percentages that report contracting in the last year do not vary across the four employee size strata. It is not clear why those with fewer than 20 employees would reduce their size on account of the Affordable Care Act. The aggregation rules, addressed earlier, might also affect owners in the smaller sized groups, but the larger size groups are typically more likely to be impacted by them. A second issue is that half (53%) who responded positively to the size reduction question do not offer health insurance. That can be a reason to contract for those near or above the 50 employee threshold for the employer-mandate. They do not currently offer health insurance and do not want to do so. Yet, insurance offers and not should have no effect on owners of smaller, small firms. Finally, 8 percent who express a desire to grow also report contracting their business compared to 48 percent who express a desire to contract actually doing so. This association simply indicates that small-business owners contract when they want/need to, and vice versa. Unfortunately, the relationship can be interpreted in multiple ways for present purposes and therefore is not helpful.

The decision to contract is strongly associated with lower profitability compared to the prior year. Twenty-seven (27) percent who say that they are “much less” profitable this year than last contracted as did 19 percent who indi-cate that they are “somewhat less” profitable this year than last. However, just 7 percent of those whose profits rose or were stable report cut-backs. Cuts actually attributable to ACA are therefore probably closer to 6 or 7 percent than to 13 percent, still a sizeable number, though not as large as many reports. But in sum, the data provide a series of mixed messages. Some reports of contraction associated with ACA are doubtful while others are consistent. The proportion of each is the important question and cannot be determined.

23 John C. Haltiwanger, Ron S. Jarmin, and Javier Miranda, Who Creates Jobs? Small vs. Large vs. Young. NBER Working Paper 16300, National

Bureau of Economic Research: Cambridge, MA, August, 2010

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A factor associated with cuts in business size is familiarity with ACA. The more they know about the new law, other factors equal, the more likely they are to contract in size. For example, 22 percent who claim to be “very” familiar with ACA took contracting actions in the last year compared to 11 percent for both those “somewhat” familiar and “not too” familiar with the law. The rationale for the relationship is the more you know about the law, the more likely you to see ways it might adversely affect you.

A second and related strategy to contraction is to cut hours for some people in order to have more part-time employees and fewer full-time employees. The effect is to have fewer employees to cover with health insurance, either due to the employer mandate or due to non-mandated coverage that small employers prefer to maintain. Thirteen (13) percent report plans to cut employee hours (Q#79). But again, the association with the ACA seems tenuous. One would expect larger, small employers to be more likely to have such plans. Yet, no relationship appears between employee size-of-business and plans to reduce employee hours. Instead, planned changes in employee hours are related to business profitability and the offer of health insurance. Just 5 percent who are much more profit-able than in the prior year plan cuts in hours compared to 33 percent who are much less profitable than last year’s comparable time frame. The association of fewer hours with the offer of health insurance also appears, though not in the expected direction. Small employers offering health insurance report planned hour reductions in 12 percent of cases; those who do not offer plan hour reductions in 16 percent of them. Non-offering firms are typically less profitable than offering firms. Plans to reduce employee hours therefore seem strongly tied to profitability rather than ACA.

Small employers who plan to reduce their size and who plan to cut employee hours are typically not the same respondents. They are different in two of three cases. The differing responses indicate that respondents see the questions as measuring different things, and they therefore react differently. Contraction of the business normally should be considered the more extreme reaction.

Both contraction and planned reduction in employee hours appear highly related to recent change in business profitability. That is to be expected. But it does not mean that either or both have no current tie to ACA, let alone one that will arise in the future. Many continue to experience premium increases and expect premiums to continue rising. That affects profitability. The result is an indirect tie between ACA and actions taken probably. More impor-tantly, there is no need to make such commitments so far in advance. The employer mandate, initially scheduled for January 1, 2014, has been delayed a year. Most respondents were therefore looking at a year and one-half before necessary actions go into effect and others were looking at six months.

Confidence in ComplianceSmall-business owners are reasonably confident that they will be in compliance with the ACA when it becomes effective. Unfortunately, “effective” is a bit of a moving target. Still, 38 percent are “very” confident they will be in compliance with the law and 31 percent are “somewhat” confident (Q#80). That leaves 18 percent who are either “not too” or “not at all” confident. Another 13 percent did not answer.

A small employer’s confidence is related to three factors. The most important is familiarity with ACA. The more familiar the owner is with the law, the more likely he or she feels confident about being compliant. The second factor is current possession of employee health insurance. Small employers who offer are also more likely to be confi-dent. This seems odd at first blush, since the only requirement of all small employers is to notify their employees of opportunities in the exchange. However, currently offering small employers already have a relationship with the insurance industry and the industry is major source of information about ACA. This relationship likely translates into greater confidence about compliance with the Act, particularly when the small business size does not approach the employer mandate threshold.

The third factor is unexpected. It finds that small-business owners are more confident if they were interviewed for this survey prior to the July 2, 2013, suspension of the employer-mandate, other factors equal. That means the July 2 announcement either had an adverse effect on small business confidence or some other intervening factor is involved. The latter does not appear likely. Since familiarity and offers of insurance, the two most likely influences on response date, were controlled, it is reasonable to conclude that July 2 announcement diminished, rather than enhanced small business confidence in their compliance with the Act. This relationship raises obvious questions about the impact of other delays and administrative changes to ACA.

Owners of firms in the 50 employees plus group are different than the rest of the population. None of the three factors previously mentioned, including familiarity with ACA, are associated with their level of confidence. That indicates small employers directly subject to the employer-mandate did not lose confidence when the employer-mandate was postponed; it did not increase their confidence, either. Rather, the loss of confidence fell principally on those with fewer than 50 employees.

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ConclusionThe continued escalation in health insurance premiums documented in this and similar reports frame small business’s entry into the Affordable Care Act era. But, as small business enters, all is not well. The rising cost of health insurance has been the principal interest of small employers in the health care debates over the past quarter century; it remains so today. Congress chose to make insurance coverage the centerpiece of the ACA; cost was largely ignored. In fact, in its zeal to expand and improve (?) coverage, Congress purposefully took steps to exacerbate the cost pressures that small-business owners face. Required new benefits, new taxes rolled into premiums that affect small businesses and individ-uals, and elimination of low cost plans are exhibits one, two, and three. But the principal accelerator is the addition of vast new demand for health care, the proponents’ principal argument for ACA, with negligible increase in the supply of health care providers or facilities. Champions of the ACA claim that they did help cost pressures on small businesses through such fiats as caps on insurer administrative expenses and provision of a temporary tax credit for the purchase of health insurance. Yet, one hundred dollar rebate checks that a few receive from insurers do not remotely compensate for the thousands most will be required to pay in higher premiums; the tax credit impacts few and is temporary. Most cost suppression claims are merely talking points. The potential bright spot for small business in the Act is the SHOP exchanges and the potential to offer increased competition for health insurance. The practical problem is that the increased competition comes on top of a much higher fixed cost base, implying that SHOP can help, but not compen-sate, let alone depress cost increases. A down-the-road measure that should also slow price escalation is caps on the tax exclusion for health insurance Cadillac plans. But on the whole, health cost increases remain at an unsustainable level and prospects for dampening them are bleak.

The Affordable Care Act impacts all employing small-businesses. However, the impact is concentrated. Small employers offering health insurance are impacted more heavily than those who do not. Those employing an aggregated 50 full-time employees or more may be more impacted than those who employ fewer, though that is not a certainty.

Impacts for the most part are indirect; they are opaque, and small employers primarily see them in the insurance packages they buy and the prices they pay for them, though that may change. Indirect impacts hide the causes of change from small-business owners; they see them appear, but cannot determine who or what is responsible. That is likely to evolve when employees feel the impact of the individual-mandate and start altering their demands for health insurance. Many small employers, offering and not, will likely have to adjust to altered employee circumstances. That could mean more small employers adding insurance as a benefit, or it could mean more small employers dropping it; that could mean more small employers offering reimbursement to employees purchasing insurance on the exchanges, initiating an era of defined contribution health insurance, or it could mean small business withdrawal; that could mean a change in the mix of employees taking individual, family and plus-one coverage, or it could mean dropping one type or another; that could mean an increase in the proportion of employees taking offered health insurance, or it could mean employees fleeing to the exchanges. And, as premiums on the whole rise, it could mean increasing switches to self-insurance; it could mean frequent escapes to the SHOP exchanges; it could mean more freezes, reductions, or depressed increases in employee wages and benefits, greater employee cost-shares, higher selling prices, and/or lower business investment and a poorer competitive position. The employer-mandate, including its calculation, is the principal exception to the opaque effects; it is clearly direct.

Speculation about the impacts of ACA remains rampant. Fact, though also assuredly spin, should soon start substi-tuting. The data reported in these pages establish a base from which to measure future changes in many of the interest areas identified above. The numbers presented in this report break relatively little new ground per se, though employee demand on small employers for insurance, ordering the means of defraying health insurance cost increases, the numbers adding and dropping insurance, the primary source of information about ACA, quantification of the potential aggrega-tion problem, and the impact of July 2’s delay announcement are examples to the contrary. Small business is now in a temporary lull with respect to ACA. Many of the indirect impacts have been readied and even have begun to be imple-mented with the direct impacts on the horizon. The more interesting data comes in the next edition of this report when small employer response to the direct and indirect changes caused by the ACA can start to be measured.

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nfiB health – longitudinal Survey 2013

INTRODUCTION: Hello, my name is ____ from Mason-Dixon Research and we are conducting a nationwide poll of small business owners and managers on issues related to the implementation of the new healthcare reform law. You should have recently received a letter about this survey. It is being conducted for a national non-profit organi-zation and is NOT a sales or membership recruiting call. Do you have a few minutes to participate? (If not, see if you can schedule call back time).

Note – The following tables present weighted Totals.

1. Which best describes your position in this business? Are you an: ?

1. Owner-manager 68%2. Owner, but not a manager 73. Manager, but not an owner 25

Total 100%N 921

2. Are you involved in making this busi-ness’s decisions about employee wages and benefits?

1. Yes 100%2. No — Total 100%N 921

3. Not including yourself, approximately how many Total employees does your business have?

1. 2 – 9 employees 74%2. 10 – 19 employees 153. 20 – 49 employees 94. 50 – 100 employees 3

Total 100%N 921

4. Not including yourself, approximately how many full-time employees working 30 hours or more a week, do you currently have working for you?

1. None 7%2. 1 – 9 employees 713. 10 – 19 employees 124. 20 – 49 employees 75. 50 or more employees 26. (Not Sure) 3

Total 100%N 921

5. Approximately how many of those full-time employees are seasonal and will leave at the end of summer?

1. None 82%2. 1 – 9 employees 83. 10 or more employees 14. (Not Sure) 10

Total 100%N 921

6. Not including yourself, approximately how many part-time employees working less than 30 hours a week do you currently have working for you? 1. None 33%2. 1 – 9 employees 533. 10 or more employees 34. (Not Sure) 11

Total 100%N 921

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7. Approximately how many of those part-time employees are seasonal and leave at the end of summer?

1. None 65%2. 1 – 9 employees 193. 10 or more employees 14. (Not Sure) 16

Total 100%N 691

8. Approximately what percentage of your full-time, non-seasonal employees cur-rently earn less than $8 an hour OR less than $16,000 a year in salary?

1. None 86%2. 1 – 9 percent 83. 10 – 24 percent 14. 25 – 49 percent —5. 50 – 89 percent 16. 90 – 100 percent 37. (Not Sure) 2

Total 100%N 921

9. Approximately what percentage of your full-time, non-seasonal employees earn more than $23 an hour OR more than $46,000 a year in salary?

1. None 47%2. 1 – 9 percent 333. 10 – 24 percent 54. 25 – 49 percent 4 5. 50 – 89 percent 66. 90 – 100 percent 47. (Not Sure) 3

Total 100%N 921

10. Do you personally have health insurance, and if so do you get it from your busi-ness’s health plan, a spouse’s health plan, or an individual health plan?

1. Have business plan 35%2. Have spouse’s plan 193. Have individual plan 30 4. Do not have health insurance 155. (Not Sure/Refused) 2

Total 100% N 921

11. Does your business currently offer health insurance coverage to employees?

1. Yes 46%2. No 543. (Refused) —

Total 100%N 921

12. In the last 6 months, have more than 5 percent of your employees, or represen-tatives of more than 5 percent of your employees, asked that the business offer an employee health insurance plan?

1. Yes 4%2. No 963. (Not Sure) —

Total 100%N 257

13. Does your business offer any employee reimbursement or financial support to help pay for a health insurance plan that employees purchase on their own?

1. Yes 14%2. No 863. (Not Sure) —

Total 100%N 257

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14. Is that financial support based primarily on:

1. A flat amount per employee —%2. A percent of the employee’s health insurance premium —3. A percent of the employee’s salary or wages —4. The employee’s length of service —5. Something else (specify) ________ —6. (Not Sure) —

Total 100%N 31

15. Is health insurance offered only to full-time employees or to both full-time and part-time employees?

1. Full-time only 86%2. Both full-time and part-time 113. (Part-time only) —4. (Not Sure) 3

Total 100%N 664

16. Under which one of the following types of health plans are most of your employees covered?

1. HMO 26%2. High-deductible PPO 253. PPO 324. Point of Service (POS) 55. (Not Sure) 12

Total 100%N 664

17. Does your business also offer another type of health plan?

1. Yes 15%2. No 853. (Not Sure) 1

Total 100%N 664

18. What is the second type?

1. HMO 19%2. High-deductible PPO 243. PPO 234. Point of Service (POS) 155. (Not Sure) 18

Total 100%N 121

19. Which best describes the health plan that covers most of your employees? Is it a:

1. A Fully Insured Plan [traditional] in which you contract with a health plan that assumes financial responsibility for the costs of enrollees’ medical claims, OR 86%2. A Self-Funded Plan in which you assume direct financial responsibility for the costs of enrollees’ medical claims, but have “stop-loss” coverage from an insurer to protect you against very large claims. 43. (Self-Funded with no stop-loss) 14. (Not Sure) 9

Total 100%N 664

20. Is it highly likely, somewhat likely, not too likely or not at all likely that you will switch to a self-funded employee health insurance the next time your policy comes up for renewal, or haven’t you thought about renewal yet?

1. Highly likely 4%2. Somewhat likely 43. Not too likely 184. Not at all likely 515. Haven’t thought about renewal yet 236. (Not Sure) —

Total 100%N 567

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21. What is the approximate dollar amount at which your group’s specific or indi-vidual “stop-loss” reinsurance coverage kicks-in?

1. <$10,000 36%2. $10,000 - $14,999 93. $15,000 - $19,999 —4. $20,000 - $24,999 25. $25,000 - $29,999 46. $30,000 - $39,999 27. $40,000 - $49,999 —8. $50,000 - $59,999 19. $60,000 or more 710. (Not Sure/Refused) 39

Total 100%N 54

22. How many of your full-time, non-seasonal employees participate in your health plan?

1. <25 percent 5%2. 25 – 49 percent 83. 50 - 74 percent 284. 75 – 89 percent 155. 90 – 99 percent 36. 100% 317. (>100%)(see text) 88. (Not Sure) 1

Total 100%N 664

There are typically three types of health cover-age policies: FAMILY, INDIVIDUAL and PLUS ONE. Does your business offer:

23. Family coverage?

1. Yes 65%2. No 353. (Not Sure) 1

Total 100%N 664

24. Approximately, what percentage of the premium does your business pay for an FAMILY health insurance policy?

1. All of it – 100% 27%2. 90 – 99 percent 23. 75 – 89 percent 164. 50 – 74 percent 285. 25 – 49 percent 76. 1 – 24 Percent 47. Nothing 88. (Not Sure) 7

Total 100%N 523

25. Including both employer and employee contributions, what is the average total monthly cost per employee policy?

1. <$500 17%2. $500-$599 93. $600-$699 94. $700-$799 75. $800-$899 96. $900-$999 67. $1,000-$1,099 58. $1,100-$1,199 39. $1,200-$1,299 510. $1,300-$1,399 111. $1,400-$1,499 412. $1,500-$1,749 313. $1,750-$1,999 214. $2,000+ 515. (Not Sure) 16

Total 100%N 523

26. Do all, most, half, some or none of the employees participating in your health plan have family coverage?

1. All 14%2. Most 19 3. Half 124. Some 535. None (omitted; see text)6. (Not Sure) 2

Total 100%N 523

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27. Does your business offer an INDIVIDUAL health insurance option?

1. Yes 71%2. No 293. (Not Sure) —

Total 100%N 664

28. Approximately, what percentage of the premium does your business pay for an INDIVIDUAL health insurance policy?

1. All of it – 100% 40%2. 90 – 99 percent 53. 75 – 89 percent 194. 50 – 74 percent 275. 25 – 49 percent 46. 1 – 24 percent 2 7. Nothing 28. (Not Sure) 2

Total 100%N 525

29. Including employer and employee con-tributions for INDIVIDUAL health care coverage, what is the average total monthly cost per policy?

1. Less than $200 4%2. $200-$299 63. $300-$399 144. $400-$499 115. $500-$599 156. $600-$699 87. $700-$799 88. $800-$899 59. $900-$999 810. $1,000+ 1011. (Not Sure) 11

Total 100%N 525

30. Do all, most, half, some or none of the employees participating in your health plan have individual coverage?

1. All 30%2. Most 243. Half 124. Some 335. None (omitted; see text)6. (Not Sure) 1

Total 100%N 525

31. Does your business offer a so-called “plus one” health insurance option, that is, an option that covers the employee and one other person?

1. Yes 27%2. No 733. (Not Sure) —

Total 100%N 664

32. Approximately, what percentage of the premium does your business pay for a

“plus one” health insurance policy?

1. 100% 21%2. 90 – 99% 143. 74 – 89 % 194. 50 – 74 % 275. 25 – 49 % 46. 1 – 24 % 2 7. Nothing 28. (Not Sure) 2

Total 100%N 227

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33. Including employer and employee contributions for “plus one” health care coverage, what is the average Total monthly cost per policy?

1. Less than $300 7%2. $300-$399 43. $400-$499 54. $500-$599 12 5. $600-$699 86. $700-$799 97. $800-$899 58. $900-$999 79. $1,000-$1,099 1110. $1,100-$1,199 211. $1,100-$1,299 712. $1,300-$1,399 113. $1,400-$1,499 214. $1,500+ 615. (Not Sure) 13

Total 100%N 227

34. Do all, most, half, some or none of the employees participating in your health plan have plus one coverage?

1. All 6%2. Most 93. Half 44. Some 775. None (omitted; see text) 6. (Not Sure) 4

Total 100%N 227

35. What is your business’s total monthly health care insurance premium cost, for all types of health insurance offered?

1. < $1,000 12%2. $1,000 - $1,999 133. $2,000 - $2,999 154. $3,000 - $3,999 115. $4,000 - $4,999 56. $5,000 - $7,499 10 7. $7,500 - $9,999 58. $10,000 - $12,499 49. $12,500 - $14,999 110. $15,000 - $17,499 311. $17,500 - $19,999 2 12. $20,000 - $24,999 213. $25,000 - $49,999 314. $50,000 or more 115. (Not Sure) 13

Total 100%N 668

36. Has the percentage of employees choosing individual, family, or “plus one” options changed over the last year or two, or has the mix held reasonably steady?

1. Changed 9%2. Steady 893. (Not Sure) 1

Total 100%N 668

37. Which type of policy option has increased its share of employee participation?

1. Individual policies 46%2. Family policies 413. Plus one policies 54. (Not Sure) 8

Total 100%N 70

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38. What is the primary reason for this change?

1. Change in employee costs 22% 2. Changing composition of the workforce 6 3. More employees participating 124. Fewer employees participating 10 5. Employees just making different choices 34 6. (Not Sure) 16

Total 100%N 70

39. Was the change in employee cost pri-marily due to a change in the employee/employer cost share or a change in the Total price of the plan, or both?

1. Cost-share —%2. Plan price —3. Both —4. (Don’t Know) —

Total 100%N 21

40. Did you offer employee health insurance to any of your employees LAST year at this time?

1. Yes 47%2. No 533. (Not Sure) 1

Total 100%N 921

41. Is the PER EMPLOYEE cost of your cur-rent health plan more, less or about the same as last year’s plan? (Plan cost, not employer’s or employee’s share.)

1. More 64%2. Less 63. Same 294. (Not Sure) —

Total 100%N 628

Did you do any of the following in order to pay for the increase? (ROTATE Q42 – Q50)

42. Raise prices?

1. Yes 30%2. No 673. (Not Sure) 3

Total 100%N 407

43. Cut employees or reduce their hours?

1. Yes 17%2. No 813. (Not Sure) 3

Total 100%N 407

44. Increased employee cost-share?

1. Yes 30%2. No 683. (Not Sure) 2

Total 100%N 407

45. Take a lower profit or suffer a loss?

1. Yes 66%2. No 313. (Not Sure) 4

Total 100%N 407

46. Delay, postpone or reduce business investment?

1. Yes 40%2. No 583. (Not Sure) 2

Total 100%N 407

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47. Freeze or reduce wages?

1. Yes 37%2. No 613. (Not Sure) 2

Total 100%N 407

48. Reduce non-health employee benefits?

1. Yes 12%2. No 853. (Not Sure) 4

Total 100%N 407

49. Became more productive, more efficient?

1. Yes 48%2. No 483. (Not Sure) 5

Total 100%N 407

50. Take the health insurance tax credit?

1. Yes 17%2. No 733. (Not Sure) 10

Total 100%N 407

51. Please estimate the PER EMPLOYEE percent change in cost of this year’s plan compared to last year’s plan. Was it: ? 1. Less than 5% 8%2. 5 – 9% 93. 10 – 19% 454. 20 – 34% 145. 35 – 49% 36. 50% or more 27. (Not Sure) 3

Total 100%N 407

52. Are the benefits in this year’s plan more, less, or about the same, as they were in last year’s plan?

1. More 5%2. Less 93. Same 754. (Not Sure) 1

Total 100%N 582

53. Are the deductibles in this year’s plan higher, lower, or about the same as they were in last year’s plan?

1. Higher 28%2. Lower 43. Same 664. (Not Sure) 1

Total 100%N 582

54. Did more, less, or about the same number of eligible full-time employees choose to participate in this year’s health insurance plan as participated last year?

1. More 2%2. Less 33. Same 954. (Not Sure) —

Total 100%N 582

Please tell how important each of the fol-lowing was in your decision to offer em-ployee health insurance in the last year? (ROTATE Q55 - Q58)

55. Profitability now allows me to offer.

1. Very Important —%2. Somewhat Important —3. Not Important —4. (Not Sure) —

Total 100%N 27

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56. The new health care will soon require me to add it.

1. Very Important —%2. Somewhat Important —3. Not Important —4. (Not Sure) —

Total 100%N 27

57. Need to offer it to compete for employees.

1. Very Important —%2. Somewhat Important —3. Not Important —4. (Not Sure) —

Total 100%N 27

58. Needed to find a more affordable plan for you and family to participate in.

1. Very Important —%2. Somewhat Important —3. Not Important —4. (Not Sure) —

Total 100%N 27

Which of the following did you do in or-der to pay for the new employee benefit? (ROTATE Q59 – Q66)

59. Raise prices?

1. Yes —%2. No —3. (Not Sure) —

Total 100%N 27

60. Cut employees or reduce their hours?

1. Yes —%2. No —3. (Not Sure) —

Total 100%N 27

61. Take a lower profit or suffer a loss?

1. Yes —%2. No —3. (Not Sure) —

Total 100%N 27

62. Delay, postpone, or reduce business investment?

1. Yes —%2. No —3. (Not Sure) —

Total 100%N 27

63. Freeze or reduce wages?

1. Yes —%2. No —3. (Not Sure) —

Total 100%N 27

64. Reduce non-health employee benefits?

1. Yes —%2. No —3. (Not Sure) —

Total 100%N 27

65. Become more productive, more efficient?

1. Yes —%2. No —3. (Not Sure) —

Total 100%N 27

66. Take the tax credit to add employee health insurance?

1. Yes —%2. No —3. (Not Sure) —

Total 100%N 27

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67 Did you do anything else to pay for the new employee benefit?

1. Yes —%2. No —3. (Not Sure) —

Total 100%N 27

Please tell me how important each of the following reasons were that led you to drop employee health insurance in the last year? (ROTATE Q70-Q74)

68. The number of participants in my plan fell.

1. Very Important —%2. Somewhat Important —3. Not Important —4. (Not Sure) —

Total 100%N 21

69. It became too expensive.

1. Very Important —%2. Somewhat Important —3. Not Important —4. (Not Sure) —

Total 100%N 21

70. My employees preferred cash rather than insurance.

1. Very Important —%2. Somewhat Important —3. Not Important —4. (Not Sure) —

Total 100%N 21

71. Business profitability took a turn for the worse.

1. Very Important —%2. Somewhat Important —3. Not Important —4. (Not Sure) —

Total 100%N 21

72. My employees could do better on their own.

1. Very Important —%2. Somewhat Important —3. Not Important —4. (Not Sure) —

Total 100%N 21

73. Do you expect to offer employee health insurance to any of your employees at this time NEXT year?

1. Definitely Yes 27%2. Probably Yes 213. Probably No 164. Definitely No 325. (Refused/Not Sure) 4

Total 100%N 921

74. A new health care and financing law, sometimes known as the Affordable Care Act, health care reform, or Obamacare, is being implemented. How familiar are you with this law? Are you: ?

1. Very familiar 17%2. Somewhat familiar 493. Not too familiar 214. Not at all familiar 135. (Not Sure) —

Total 100%N 921

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75. From what one source have you obtained the most useful information about your business’s responsibilities and opportuni-ties under the new health care law? Has it been:? (ROTATE 1 – 6.)

1. Health insurance industry or insurer 15%2. Health care industry or provider 83. Business advisor, like an accountant or lawyer 104. Government 45. Trade associations or business groups 126. General news media 427. (Other) 58. (Have not received any useful information) 1 9. (Not Sure) 3

Total 100%N 848

76. How satisfied are you overall with the clarity and usefulness of the information received? Are you:?

1. Very satisfied 16%2. Somewhat satisfied 383. Not too satisfied 234. Not at all satisfied 225. (Not Sure) 2

Total 100%N 848

77. If you added all of the full-time employ-ees in this business and all of the full-time employees in any other businesses that you own at least a half interest in, would the total number of full-time em-ployees reach 50 or more? (Asked only of those with fewer than 50 employees.)

1. Yes 4%2. No 763. (Not Sure) 20

Total 100%N 692

Some businesses are using various strat-egies to manage compliance with the new health care law. Please tell me if have used either of the following strategies in the last year.

78. Divided or sold-off parts of the business, cut employment, or in some other man-ner tried make your business smaller?

1. Yes 13%2. No 853. (Not Sure) 2

Total 100%N 848

79. Cut hours for some employees, to have more part-time and fewer full-time employees?

1. Yes 13%2. No 873. (Not Sure) 1

Total 100%N 848

80. How confident are you that you will be in compliance with the new health law on January 1, 2014, are you? (Revised after July 2 to read: How confident are you that you will be in compliance with the new health law when it goes into effect?)

1. Very Confident 38%2. Somewhat confident 313. Not too confident 74. Not at all confident 115. (Not Sure) 13

Total 100%N 921

81. Is there a health care exchange, some-times called a health insurance market-place, currently operating in your state?

1. Yes, there is 19%2. No, there isn’t 283. (Don’t Know) 53

Total 100%N 921

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The following questions are for classification purposes only

D1. Is your legal form of business a:

1. Proprietorship 18%2. Partnership 23. S-Corporation 344. C-corporation 295. LLC 116. Not Sure 6

Total 100%N 921

D2. How long have you owned or managed this business?

1. <1 – 3 years 8%2. 4 – 6 years 63. 7 – 9 years 44. 10 – 14 years 135. 15 – 19 years 96. 20 – 29 years 257. 30—39 years 228. 40+ years 89. (Not Sure) 6

Total 100%N 921

D3. What is your highest level of formal education?

1. Did not complete high school *%2. High school diploma/GED 103. Some college or an associate’s degree 344. Vocational or technical school degree or certificate 25. College diploma 336. Advanced or professional degree 197. (Refuse) 1

Total 100%N 921

D4. Over the next three to five years, do you want this business to:

1. Grow a lot 37%2. Grow a little 403. Stay the same 124. Downsize a little 35. Downsize a lot 46. (Not Sure/Refused) 3

Total 100%N 921

D5. Compared to last year at this time, is this business currently:

1. Much more profitable 5%2. Somewhat more profitable 163. About as profitable 384. Somewhat less profitable 275. Much less profitable 136. (Not Sure/Refused) 2

Total 100%N 921

D6. What is the five digit zip code of your primary business location? (Grouped into regions.)

1. Northeast 21%2. Mid-east 133. Southeast 104. Mid-west 145. North Central 126. South Central 117. Mountain 78. Pacific 12

Total 100%N 921

D7. Sex

1. Male 63%2. Female 37

Total 100%N 921

Demographics

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D8. How would you describe your primary business activity?

1. Agriculture 2% 2. Construction 83. Manufacturing 94. Wholesale trade 55. Retail trade 256. Transportation and Warehousing 47. Information 18. Finance and Insurance 69. Real Estate and Rental/Leasing 610. Professional, Scientific, and Technical Services 1511. Administrative and Support, Waste Management, or Remediation Services *12. Education Services 113. Health Care and Social Assistance 514. Arts, Entertainment, and Recreation 115. Accommodations and Food 316. Repair and Maintenance Services or Personal Care Services 417. Other 7

Total 100%N 921

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methodology

The NFIB Research Foundation engaged Mason-Dixon Polling & Research in early 2013 to help it begin a projected three-year longitudinal survey of small business and the introduction of the Affordable Care Act. The purpose of this research is to follow small businesses as the new law takes effect and measure the changes that they experience over time. It likewise is intended to trace health insurance cost changes and small employer response to them. What the survey will not do is attempt to measure opinion about the Affordable Care Act. The answers to those questions appear reasonably well-established and well-known, and therefore require little additional attention here.

The Foundation’s research strategy for the project is to draw a nationally representative stratified random sample of small employers and then follow small-employer respondents to the first year’s survey for an additional two years. A stratified random sample is necessary to conduct the project due to the distribution of the small employer population. Ninety (90) percent of all small employers have fewer than 20 employees and 60 percent have fewer than five. Although the Affordable Care Act affects all small employers, its major direct impacts will fall on larger, small firms, principally those approaching the 50 employee employer-mandate threshold and larger. It is, therefore important that the survey contain enough cases to be able to say something about the larger, small business segment of the population. A suffi-cient number of cases from this group require over-sampling them. Hence, the Foundation targeted a sample size of 225 cases from each of four employee-sized strata: 2 – 9 employees, 10 – 19 employees, 20 – 49 employees and 50 – 100 employees. The choice to cap the definition of a small business at 100 employees rather than at some other point is arbi-trary, but probably not controversial. It is an intuitively satisfying dividing line; virtually all small businesses above that line already offer health insurance; adding another stratum of say between 100 – 250 employees appears to offer little additional informational value; owners of increasingly large firms are increasingly difficult to interview; etc. In the end, Mason-Dixon interviewed 921 small employers, numerically distributed across the four strata from smallest to largest as follows: 231 cases, 224 cases, 238 cases, and 228 cases. The survey incidence was 59 percent. Use of a random strati-fied sample means population totals can only be reached by weighting cases, smaller, small firms (under-sampled) being given greater weight per case and vice versa. Thus, population totals, totals for a 2 – 100 employee firm size population, or totals for a 20 – 100 employee firm size population are presented using weighted numbers.

The survey’s sampling frame is the Dun & Bradstreet file, an imperfect frame, but the best currently available from a non-governmental source. Mason-Dixon mailed the potential members of the sample an introductory letter outlining the project, asking for cooperation, and announcing gift-card incentives for randomly drawn participants. Telephone calls followed the introductory letters and respondents were given a choice of answering by telephone or by e-mail. Seventy-three (73) percent chose the telephone option. Interviewing began in mid-June and continued through late July.

The Obama Administration announced on July 2 that the employer-mandate, a major provision of the Act, would be suspended for one year. Interviewing was put on hold until July 8 in response. The Foundation reexamined the inter-view schedule during the interim to determine if changes were necessary in light of the announcement. One modest change was required. Mason-Dixon interviewed 27 percent of responses prior to July 3 and the remainder after.

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