[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
            OBAMACARE AND THE SELF-EMPLOYED: WHAT ABOUT US? 

=======================================================================

                                HEARING

                               before the

               SUBCOMMITTEE ON CONTRACTING AND WORKFORCE

                                 OF THE

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              HEARING HELD
                             MARCH 6, 2014

                               __________

                 [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

            Small Business Committee Document Number 113-057
              Available via the GPO Website: www.fdsys.gov

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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                       BLAINE LUETKEMER, Missouri
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                   JAIME HERRERA BEUTLER, Washington
                        RICHARD HANNA, New York
                         TIM HUELSKAMP, Kansas
                       DAVID SCHWEIKERT, Arizona
                       KERRY BENTIVOLIO, Michigan
                        CHRIS COLLINS, New York
                        TOM RICE, South Carolina
               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                        JANICE HAHN, California
                     DONALD PAYNE, JR., New Jersey
                          GRACE MENG, New York
                        BRAD SCHNEIDER, Illinois
                          RON BARBER, Arizona
                    ANN McLANE KUSTER, New Hampshire
                        PATRICK MURPHY, Florida

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director



                            C O N T E N T S

                           OPENING STATEMENTS

                                                                   Page
Hon. Richard Hanna...............................................     1
Hon. Grace Meng..................................................     2

                               WITNESSES

Mr. Dean Baker, Center for Economic Policy Research, Co-Director 
  of the CEPR, Washington, DC....................................     4
Mr. Todd McCracken, President, National Small Business 
  Association, Washington, D.C...................................     6
Mr. Alan Schulman, President, Insurance Benefits and Advisors, 
  LLC, Rockville, MD, testifying on behalf of the Council for 
  Affordable Health Coverage and the National Health Underwriters 
  Association....................................................     7
Mr. Charlie Arnold, President/Owner, Arnold Powerwash, Lewes, DE, 
  testifying on behalf of the National Association for the Self-
  Employed.......................................................     9

                                APPENDIX

Prepared Statements:
    Mr. Dean Baker, Center for Economic Policy Research, Co-
      Director of the CEPR, Washington, DC.......................    22
    Mr. Todd McCracken, President, National Small Business 
      Association, Washington, D.C...............................    27
    Mr. Alan Schulman, President, Insurance Benefits and 
      Advisors, LLC, Rockville, MD, testifying on behalf of the 
      Council for Affordable Health Coverage and the National 
      Health Underwriters Association............................    31
    Mr. Charlie Arnold, President/Owner, Arnold Powerwash, Lewes, 
      DE, testifying on behalf of the National Association for 
      the Self-Employed..........................................    41
Questions for the Record:
    None.
Answers for the Record:
    None.
Additional Material for the Record:
    None.


            OBAMACARE AND THE SELF-EMPLOYED: WHAT ABOUT US?

                              ----------                              


                        THURSDAY, MARCH 6, 2014

                  House of Representatives,
               Committee on Small Business,
         Subcommittee on Contracting and Workforce,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 11:30 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Richard Hanna 
[chairman of the subcommittee] presiding.
    Present: Representatives Hanna, Huelskamp, and Meng.
    Chairman HANNA. Good morning. Barely, it is 11:30. Thank 
you for being here.
    I would like to thank each of our witnesses for taking time 
out of their schedules to provide testimony on the ways the 
Affordable Care Act is affecting the self-employed. We have an 
excellent panel, and I look forward to hearing their testimony 
and the discussion to follow.
    According to the Office of the Chief Counsel for Advocacy 
of the United States Small Business Administration, small 
businesses represent 99.7 percent of all businesses, employ 49 
percent of all workers in the private sector, and account for 
42 percent of the private sector payroll in the United States. 
Self-employed folks make up a significant portion of the 
businesses. According to the National Association for the Self-
Employed, over 77 percent of small businesses in the United 
States are self-employed businesses.
    As enacted, ObamaCare, the Affordable Care Act, requires 
large employers to offer full-time employees the opportunity to 
enroll in an employer-sponsored health care plan or pay a 
penalty. The law also requires individuals to enroll in health 
care insurance, either on their own or through the plans 
offered by their employer or pay a penalty. These requirements 
are referred to as the ``employer mandate'' and the 
``individual mandate.''
    While the administration has delayed the employer mandate 
twice, it has not delayed the individual mandate which became 
effective on January 1st. Typically, the self-employed purchase 
health insurance on the individual or nongroup market and would 
be required to carry coverage via the individual mandate.
    While meeting with my constituents and reading the 
witnesses' testimony, it was clear to me that the Affordable 
Healthcare Act, ObamaCare, is causing significant difficulties 
for self-employed individuals and small businesses in general. 
General confusion, higher prices and shrinking provider 
networks are a few of the problems we have consistently heard 
about.
    Earlier this year, the National Small Business Association 
released a study providing evidence that the healthcare law is 
having a significant impact on small businesses. Among the key 
findings were that 91 percent of respondents experienced 
increases in their healthcare plan at their most recent 
renewal, and 33 percent said they are purposefully not growing 
as a result of the healthcare law. Perhaps most significantly, 
the survey reported that the average monthly per-employee cost 
of healthcare insurance premiums for small businesses is 
$1,120, nearly double what it was five years ago.
    While the NSBA survey was for small businesses in general, 
a recent NASE survey specifically queried self-employed 
individuals and micro businesses. The survey found that nearly 
60 percent of respondents believe there is a ``low'' or ``very 
low'' chance they will be able to secure affordable and 
comprehensive coverage in 2014. Other key findings were that 
only 9 percent of those available to visit the website 
healthcare.gov, reported they had successfully enrolled in 
healthcare insurance plans for 2014, and almost 17 percent of 
those who responded indicated that they were foregoing 
healthcare insurance altogether in 2014 due to the cost.
    Just two weeks ago, the administration's own Center for 
Medicare and Medicare Services released a report predicting 
that the healthcare law could cause premiums to increase for 
nearly two-thirds of small- to medium-sized businesses. The 
report stated that 11 million individuals will experience 
increases in premiums as a result of the healthcare law.
    Clearly, the Affordable Healthcare Act is causing 
significant disruptions for American small businesses. What I 
hope to do today is identify the specific issues that are most 
critical to the self-employed and discuss potential solutions.
    Again, I thank you all for being here. I now welcome Ms. 
Meng, our ranking member for her opening statement.
    Ms. MENG. Thank you, Mr. Chairman.
    The Affordable Care Act introduced numerous reforms to the 
insurance market for both individuals and businesses. In this 
Committee, we focused on the effect the law has on small 
business owners. Today's hearing will allow us to turn our 
attention to the self-employed. Under the law, these business 
owners have access to the individual marketplace rather than 
the shop exchanges. Regardless of which market they used to 
obtain health insurance, these entrepreneurs remain integral to 
our global competitiveness, innovation, and growth, and that is 
why considering how the healthcare law affects this group is 
critical to their success and the nation's continued recovery.
    Prior to the law, the self-employed had to rely primarily 
on catastrophic plans. These limited plans provided very basic 
coverage, and for that reason many were eliminated. The 
individual exchanges took their place. This marketplace 
provides guaranteed health benefits and maximizes the ability 
to effectively pool participants, resulting in more competition 
and lower costs. Over six million uninsured, self-employed 
individuals will shop and purchase health insurance on these 
new markets. In fact, the most recent enrollment data indicate 
that roughly four million people have now signed up for a 
private health insurance plan through the marketplaces since 
October 1st.
    But enrollment has not occurred without a few hiccups. Like 
small businesses with employees, the self-employed have faced 
some questions in their attempts to enroll. This hearing will 
give us a chance to hear some personal experiences with 
enrollment and gather information on how it can be improved.
    While we know cost is one issue, the ACA is acting to 
balance premiums for those who once paid higher rates just for 
having a preexisting condition. Through modified community 
rating, guaranteed essential health benefits, prohibition of 
preexisting condition exclusions, and standardization of cost-
sharing burdens, coverage under the ACA is expected to create 
more stable premium pricing.
    Despite the stability, many self-employed business owners 
may still experience an increase in the cost to buy insurance 
coverage. However, these costs are mitigated by premium 
subsidies, one advantage of using the individual marketplace to 
help offset the cost of premiums. About 11 million uninsured 
Americans may be able to pay $100 or less per person for 
coverage purchased through the marketplace using the premium 
credits. Many of them will be the self-employed who could never 
afford coverage before the ACA.
    As more Americans gain quality health coverage, job lock 
will be reduced. This newfound freedom allows more Americans 
the ability to take risks and start their own businesses, 
spurring innovation and economic growth. One study estimates 
that the ACA will lead to an 11 percent increase in self-
employment. But the fact remains that any impact of the ACA 
cannot immediately be known as it takes time to implement the 
law and allow employers a chance to enroll. Purchasing health 
insurance, regardless of your business structure, is complex, 
and many factors must be considered. We are here today to learn 
more about those factors. In order to ensure the success of our 
self-employed, we must understand the challenges and benefits 
the law has for entrepreneurs.
    I thank all the witnesses for being here today, and I look 
forward to your comments.
    Thank you, and I yield back.
    Chairman HANNA. In the interest of Mr. Baker's schedule, we 
will let the ranking member introduce him.
    Ms. MENG. Our next witness is Dean Baker, the co-director 
of the Center for Economic and Policy Research in Washington, 
D.C. He is frequently cited in economics reporting and major 
media outlets, including The New York Times, Washington Post, 
CNN, CNBC, and National Public Radio. Mr. Baker has written 
several books, his latest being Getting Back to Full 
Employment: A Better Bargain for Working People. He previously 
worked as a senior economist at the Economic Policy Institute 
and an assistant professor at Bucknell University. He has also 
worked as a consultant for The World Bank, the Joint Economic 
Committee of the U.S. Congress, and the OECD's Trade Union 
Advisory Council.
    Thank you for testifying today, Mr. Baker.

  STATEMENTS OF DEAN BAKER, CO-DIRECTOR, CENTER FOR ECONOMIC 
  POLICY RESEARCH; TODD MCCRACKEN, PRESIDENT, NATIONAL SMALL 
   BUSINESS ASSOCIATION; AIAN SCHULMAN, PRESIDENT,INSURANCE 
 BENEFITS AND ADVISORS, LLC; CHARLIE ARNOLD, PRESIDENT/OWNER, 
                        ARNOLD POWERWASH

                    STATEMENT OF DEAN BAKER

    Mr. BAKER. Thank you, Ranking Member Meng and Chairman 
Hanna. I appreciate you accommodating my schedule, and I 
apologize that I do have to leave at noon due to an earlier 
commitment. So I will have to leave early.
    I want to make three main points in my comments. First off, 
to expect the Affordable Care Act to end the job lock that 
people have felt because of the need for health insurance and 
based on research I think that is likely to lead to an increase 
in people turning to self-employment on the order of 15 to 25 
percent. That removes a major impediment to people taking the 
jump to self-employment.
    Secondly, it should improve job retention at small 
businesses. One of the reasons that workers often leave a 
smaller business is that they need healthcare insurance that 
smaller businesses often find it difficult to provide. By 
allowing people to get affordable insurance through the 
individual market, that should relieve one of the major reasons 
that good workers often leave a small business.
    And the third point is that there has been a big impact on 
cost. Costs have slowed rapidly. Clearly, not all of that is 
due to the Affordable Care Act, but I think it is fair to say a 
substantial portion of it is, and as a result of that I think 
small businesses, really all businesses, are paying lower 
premiums than would otherwise have been the case.
    Now, taking the first point, it is a difficult issue. 
Economists often find themselves scratching their heads. How do 
you measure this? Because we know that workers are less likely 
to leave a job that provides health insurance because in 
general those are better jobs, so that is not really news. 
Also, it will tend to be the case that you have workers that 
value security, so they will look for jobs with healthcare 
insurance. So we try to find ways that get around these 
factors.
    And there have been three recent studies that I think are 
especially compelling. In one case, the study took 11 years of 
data from the current population survey. That is the main labor 
market survey that the Bureau of Labor and Statistics uses, and 
it looked at the likelihood of people being self-employed 
depending on whether their spouses had health insurance. The 
idea being if my spouse has health insurance, I am able to get 
health insurance through my spouse, and I found there is a very 
big difference. People are much more likely to be self-employed 
if their spouse had insurance than if that was not the case.
    The other way in which it examined the issue, it looked at 
the rate of self-employment. As people turned 65 and became 
eligible for Medicare, there is a big jump in self-employment 
at that age. There is no comparable jump at age 60, age 55. 
Clearly, being eligible for Medicare makes a very big 
difference.
    A second study that, again, tried to get around the 
problems looking at this issue looked at the behavioral risk 
factor surveillance system, a very large survey. They had a 
sample of over 380,000, and the particular issue they were 
looking at was a healthcare reform in the individual market in 
New Jersey instituted in 1993. And they looked at the impact of 
that on self-employment in New Jersey relative to neighboring 
states and the rest of the country, and they found an increase 
in self-employment on the order of 11 to 20 percent, a very 
large increase.
    The third survey involved a very large sample. This was 
done with the American Community Survey, a sample of 2.6 
million. They were looking at young people, people 19 to 25, 
who were newly eligible to be covered by their parents' 
insurance because of the Affordable Care Act. And again, they 
found a very large chunk in self-employment among that group 
relative to people who were just older or just younger, 
suggesting that the option of being covered on their parents' 
insurance had a very big impact on their willingness to be 
self-employed. And I just point out that this is really 
striking because this is a group 19 to 25 who think healthcare 
insurance is generally not a very important factor, and 
nonetheless, they found very strong results.
    The second point I was going to make, there are a number of 
studies that show that people are more likely to leave a job 
that does not have insurance if they have a sudden need for it, 
and the usual item to test is if their spouse becomes pregnant. 
So you have married men that typically may not have much need 
for insurance. Suddenly, they are looking at a situation of a 
newborn child. They are very likely to leave their job. Having 
the option of getting insurance through the individual market 
is likely to decrease the number of people who leave jobs where 
they cannot get insurance through their job, which should be a 
big benefit to small businesses that lose a lot of good workers 
for that reason.
    The last point, as I was saying, it is well-known we have 
had a sharp slowdown in cost. Healthcare costs, if we look at 
Medicare costs, they are about 10 percent lower today than was 
projected back in 2008. That is pretty much across the board 
the story. I will not say the Affordable Care Act was the whole 
reason for the slowdown in cost, but I think it was certainly 
an important part of the reason. And what that means is even 
though a lot of the reasons the Affordable Care Act might make 
specific policies more expensive, in aggregate we are looking 
at situation where I think most employers are paying much less 
for insurance.
    So in conclusion, I would just say I think we will say a 
lot more people taking the leap to self-employment. I think we 
will look at a situation where small business employers will 
find it easier to keep people on the job, and also those that 
are providing insurance will be able to do so at a lower cost.
    Thank you.
    Chairman HANNA. Thank you.
    Our next witness is Todd McCracken, president of the 
National Small Business Association. Since becoming president 
in 1997, he has directed all activities of the advocacy-
oriented association. As director of its government affairs 
arm, Mr. McCracken plays a key role in developing the NSBA's 
policies on issues. Since coming to the association, Mr. 
McCracken has testified before Congress numerous times about 
issues ranging from fundamental healthcare reform to tax code 
restrictions.
    Mr. McCracken, you may begin.

                  STATEMENT OF TODD MCCRACKEN

    Mr. McCRACKEN. Thank you very much, Mr. Chairman.
    Thank you for inviting me today. I appreciate the 
opportunity to talk about these very important issues that are 
somewhat vexing to the small business community, especially to 
the self-employed. I will try to summarize my statement, which 
I understand will already be submitted into the record.
    We are deeply troubled by the ongoing difficulties our 
healthcare system creates for small businesses and their 
employees, and by the fact that the most recent national effort 
to reform the healthcare system has made many of these 
difficulties worse.
    I would like to summarize a survey that we do on a regular 
basis that looks at the issues facing small businesses in the 
healthcare arena.
    The latest one that we just released last month shows how 
America's small business are dealing with rising healthcare 
costs, what kind of benefits they offer, and how the Patient 
Protection and Affordable Care Act (PPACA) is impacting their 
businesses. The survey confirmed what has been widely reported 
about healthcare costs for our smallest companies: they are 
rising steeply, and entrepreneurs are deeply concerned about 
what the future might hold. But we continue to hear that 
medical information is down and overall healthcare costs are 
rising only slowly, which is certainly good news. Evidence of 
such trends are hard to find in the small business community, 
and in our recent survey, 91 percent of businesses reported 
increases in the health plan premiums at their most recent 
renewal and one in four reported premiums going up more than 20 
percent.
    Since 2009, which is when we started asking this question, 
the average per employee health premium has increased by 90 
percent. It is key to recognize that during this same period, 
growth and profits have largely been stagnant, so it is little 
wonder that businesses are focusing on this area of ever-
increasing costs and wondering whether the current system is 
one they can continue to afford, and increasingly worried that 
the Affordable Care Act will only add to their miseries.
    Remember, these costs have real world implications on how 
businesses are run. Our survey shows that a third of companies 
held off hiring a new employee, and more than half said they 
held off on salary increases for employees as a direct result 
of higher insurance costs. Of course, these employment 
decisions are both a reflection of current costs and a window 
into uncertainty about what the future may hold both for the 
economy and the healthcare system.
    The self-employed, of course, face very distinct issues as 
they move forward, and Dr. Baker I think talked about some of 
those that the self-employed face. Specifically, sort of 
nascent entrepreneurs' indecisions to start a company, and we 
have long held that appropriately structured healthcare reform 
can actually case the job lock that health insurance imposes on 
those folks and free more people up to start companies.
    Unfortunately, what we are seeing right now is that while 
there is an end to many insurance-rooted practices that have 
concerned people, there is also a great deal of uncertainty 
about whether the individual mandate will be effective at 
bringing in healthier lives and what the overall premiums are 
going to be. So the questions now are actually for relatively 
healthy, relatively young potential entrepreneurs and they no 
longer will be able to buy relatively inexpensive, high 
deductible health insurance for themselves. They are going to 
have to buy very expensive, much more comprehensive coverage if 
they go into the marketplace for themselves. So I think we are 
replacing one kind of job lock with another potentially and 
that is a little bit concerning.
    One of the things that we think we can do to help 
ameliorate that a little bit is at least for a while to loosen 
those age bands at least until we are clear that the individual 
mandate will be effective in stabilizing the overall health 
insurance market and that we really will have healthier risks 
subsidizing the higher risks. And we also think it is really 
important for Congress to provide some equity for the self-
employed through the tax code. I mean, right now most people do 
not realize this, but if you have a job and your employer pays 
for your premium, and even the part of your premium that you 
pay as an employee, all of that is tax tree. Not just for your 
income taxes but for your FICA taxes. It is totally pretax. But 
if you are a self-employed person providing insurance, your own 
portion of that is not exempt from FICA tax. Self-employed pay 
both halves of the FICA tax and the self-employment tax. It is 
15 percent that they pay on their health premiums that no one 
else in the workforce pays for their employer-provided health 
coverage. So we would like to see that corrected, and that 
would give you a 15 percent discount essentially for the self-
employed on the health insurance right off the top.
    I will stop there and welcome your questions. Thank you.
    Chairman HANNA. Thank you.
    Up next is Alan Schulman, president of Insurance Benefits 
and Advisors in Rockville, Maryland. Founded in 1989, his 
company is a full service employee benefit firm working with 
clients in size from two to 1,000. Mr. Schulman advises, 
implements, and services all employee benefits, including 
health, dental, life, long-term care, and disability insurance 
for his clients.
    Mr. Schulman, you may begin.

                   STATEMENT OF ALAN SCHULMAN

    Mr. SCHULMAN. Thank you, Chairman Hanna.
    Good morning. My name is Alan Schulman, and I am a self-
employed health insurance agent from Rockville, Maryland. I 
represent my professional association, the National Association 
of Health Underwriters, and my client, the Council for 
Affordable Health Care. I help my clients purchase health 
coverage and service those benefit plans all year. Almost all 
of my clients are self-employed or have less than 50 employees. 
Thank you for inviting me to testify.
    The impact of health reform on small business owners is 
often downplayed because we do not have to follow the employer 
mandate. Really, though, we are in the middle of a seismic 
shift due to health reform, and for us, no new requirements 
have been delayed.
    I will focus today on three key issues. For many small 
business owners, most of the impact of the law will not be 
fully felt until this coming fall. The new rules and related 
cost increases are changing small business health plan options. 
Owners are seriously reevaluating coverage. There are practical 
and bipartisan solutions to the problems faced by small 
businesses. Small employers renew their health plans year-
round, and most small group changes take effect on the 
anniversary of the businesses' plan year in 2014. Last year, a 
variety of circumstances caused many small employers to switch 
their anniversary date to December 1. Eighty percent of my 
clients switched. These employers will not really experience 
health reform until this coming September and October when they 
start reviewing their new health plan options for the year 
ahead.
    President Obama famously campaigned on ``If you like your 
health plan you can keep it.'' Millions with individual 
coverage realized that was not exactly true on January 1. Many 
more small employers will find out that over the course of this 
year, too, and most of them this coming fall.
    A big and unexpected change for small employers is the cost 
to modify community rating and the new national Health 
insurance premium tax or the HIP. There are some bipartisan 
bills to fix these cost drivers, including H.R. 763 to repeal 
the HIP and H.R. 544 to fix the law's current, very narrow age 
bands.
    However, the way HHS has implemented the age bands is 
causing a separate big problem for very small employers, too. 
Before health reform, rates did not reflect the ages of all the 
employees in a group, but employers and employees never felt 
the breakdown because they always got a composite rate, so all 
employees were caused the same average price. Composite rates 
were both an administrative convenience and an important 
protection against age discrimination. Now, due to the way the 
age band rules were written by HHS, it is virtually impossible 
for a carrier to give an employer a composite rate.
    Here is a real life example. Due to HIPAA privacy 
constraints I can only give you the basics of this group. The 
employer has between 20-30 employees. Last year, the single 
composite rate for everyone in the group, whose ages range from 
early 20s to mid-50s, was approximately 300 a month per 
employee. The employer paid about two-thirds of the single 
coverage cost for all employees. Last month, I shopped for a 
group plan looking at all of the health plan options available 
in the state of Maryland. The best scenario for fully-insured 
group coverage had a rate of approximately 325 a month for the 
youngest employee, and over 900 a month for those employees in 
their 50s. Naturally, the employer was extremely distressed, 
and not just about the increased costs. The idea of explaining 
to the older employees how much more they will have to pay is 
unsettling, and my client was worried about legal costs should 
an employee file a complaint. My client considered dropping 
coverage, but ultimately moved to a level funding arrangement 
exempt from both the age bands and the hit.
    This scenario is going to happen to small business owners 
nationwide each month this year, with most learning about the 
problem next fall when they go to renew their current coverage 
and find out they cannot. Prices will be increasing and plan 
options are also going to change. The new law imposes a 
deductible cap of 2,000/4,000 for small employers only, which 
will make it much harder for employers to offer consumer-
directed health plan options.
    I want to make this point clear. The cap only applies to 
small groups. It has no peer requirement for individuals or 
companies like IBM. House Bill 2995, a bill to repeal the cap, 
has been introduced by Congressman Tom Reed, a republican, and 
Mike Thompson, a democrat.
    CAHC commissioned a study by Avalere showing that it would 
help employers retain coverage, thereby lowering premium 
subsidy costs by 1.2 million over 10 years. My hope is that 
every member of this Committee will cosponsor the bill and that 
Congress will take action to restore health plan choice options 
for small employers.
    Another problematic change for small employers is the out-
of-pocket limit cap, which is being implemented in a way that 
conflicts with time-tested benefit practices. The essential 
health benefit requirements for pediatric vision and dental are 
barely understandable to benefit professionals and issuers. For 
the small employer just trying to run his or her company, they 
are mind-blowing.
    Large employer concerns may command more media and 
regulatory attention, but health reforms compliance and cost 
burdening is causing a ton of anxiety and disruption for self-
employed guys like me, too. It is making employers change their 
hiring practices, explore other ways of providing coverage the 
private market may offer and consider dropping coverage 
altogether. But I have highlighted the bipartisan solution to 
some of these problems. My hope is that republicans and 
democrats can rally around these solutions because small 
businesses and the self-employed are facing real problems right 
now.
    Thank you for the opportunity to testify, and I welcome any 
of your questions.
    Chairman HANNA. Thank you, Mr. Schulman.
    Our next witness is Charlie Arnold, president and owner of 
Arnold Powerwash in Lewes, Delaware, which does both commercial 
and residential cleaning of all types of exterior surfaces. He 
is on the board of directors for Powerwashers of North America, 
holding the positions of secretary and environmental chairman 
of the Eastern United States, as well as being an author and 
instructor for certification classes.
    I thank you for being here, Mr. Arnold. You may begin.

                  STATEMENT OF CHARLIE ARNOLD

    Mr. ARNOLD. Thank you, Chairman Hanna and Ranking Member 
Meng, and the members of the Subcommittee. Thank you for the 
opportunity to share today the impact the Affordable Care Act 
is having on small businesses and the self-employed.
    My name is Charlie Arnold and I am president and owner of 
Arnold Powerwash LLC, located in Lewes, Delaware. It is a 
family-owned professional powerwash company organized in 
commercial and rental divisions, cleaning all types of exterior 
surfaces, along with fleet washing and dry ice blasting.
    Like many self-employed, I wear various hats--from being a 
small business owner to a community leader. In addition to 
owning and operating Arnold Powerwash, I am also proud to serve 
as Pastor of Seaside Church, director of Emergency Services for 
1-800-Boardup, director of sales for E-Clean Magazine, and I 
volunteer as EMS captain for Lewes Fire Department and past EMS 
chief. I also served as vice president of Powerwashers of North 
America, and finally, it is my role on the member council for 
the National Association of Self-Employed (NASE) that I am 
offering my testimony today.
    NASE is our nation's leading advocate and resource for 
America's 23 million self-employed micro business owners. It is 
in all of these roles that I am able to provide a unique 
perspective and first-hand experience regarding the impact the 
Affordable Care Act has had on nearly 23 million self-employed 
Americans, the largest potential consumers of ObamaCare. Until 
recently, I found myself ignoring the Affordable Care Act 
because I have insurance coverage that I am happy with, but I 
found out that it may change June 1st. I am a business owner 
with fewer than 50 employees. My employees have insurance that 
are provided elsewhere. Therefore, I thought it would have no 
impact on my business or me, but I was wrong. My eyes have been 
opened and I see the devastating effect that AC is causing 
because it is not based upon lies, opinions, ideas, or rumors 
but upon what I have been told personally in the last two weeks 
especially by other business owners and their employees. 
Quickly put, real skyrocketing premiums with increases ranging 
from $300 to $1,600 a month, partially because of the new age-
banding pricing, a fact based upon letters in my possession, it 
is causing not just fear but terrified households and 
realistically means less discretionary income, which translates 
into much less job opportunities for my business.
    One proposed answer has been tax credits, but they cannot 
replace what you do not have in the first place. Fear causes 
lack of confidence, which causes stagnation in the marketplace. 
I would also like to reemphasize in the recent conducted survey 
by NASE that 60 percent of the respondents said that they 
thought there was a low or very low chance that they would be 
able to secure both affordable and comprehensive coverage in 
2014.
    Last year, my business dropped over 50 percent because 
people were afraid of the economy. I could graph the drop in 
business every time the government talked about budget problems 
and could not make a decision. This year, people are not only 
afraid, they are terrified, because all of a sudden they have 
an average of $500 a person a month being taken out from under 
them by mandate to pay for health coverage, and $500 is the 
average cost to clean a house in my business. The bottom line 
is the United States government has become my greatest 
competitor last year and this year.
    Greater liability and greater ACA penalty liability may be 
imposed upon my company because I lease my employees. Not only 
have my direct costs to lease employees gone up 3 percent, but 
based on the interpretations of the law, my cost to lease these 
employees may go up, containing the cost of providing the ACA 
coverage, even though I only have two full-time employees and 
seven part-time seasonal employees. I am glad, however, that 
the U.S. House passed a much needed one-year extension for the 
compliance for small businesses and individuals. It never makes 
sense to me as a small business owner why large businesses 
always get the breaks when small businesses make up the 
majority of the businesses in America. There are far more 
people like me than CEOs like at GM. The majority of jobs and 
the spreading of wealth take place at the small and micro 
business level. The constraints also placed upon the usage of 
Health Reimbursement Arrangements (HRA) has made them almost 
unusable. Unless I provide ACA coverage for my employees, then 
I cannot offer them help for any other health-related expenses, 
which makes no sense to me. It seems to me that a little help 
is better than none, but it seems like as it is written now and 
rulings have been put in place, that it is another all or 
nothing idea which helps no one because it will default to 
nothing.
    The simple effect of consumer reforms need to stay in 
place, like not being declined for pre-existing conditions, no 
lifetime limit on coverages, and caps on out-of-pocket 
expenses. We must work together to overcome these fears, the 
mis-conceptions and the wrong interpretations of the ACA 
causing such great confusion.
    I, on the behalf of the National Association of Self-
Employed, thank you for the opportunity to offer the self-
employed perspective on how the ACA has impacted our community.
    Chairman HANNA. Thank you. Thank you very much.
    Mr. McCracken, a couple things. Mr. Baker mentioned--I am 
glad he is still here--the portability. Okay, good thing. 
Everybody likes it. Do we need the Affordable Healthcare Act to 
have portability, which has apparently become one of the major 
defenses of this act?
    Second thing, how can an act or a healthcare law that 
represents close to 18-20 percent of the economy, and we have 
seen increasing costs up until recently, but how--and Mr. 
Baker, I will give you a chance to respond--how can it possibly 
be that a healthcare law that has only been in existence for a 
very short period of time can make the claim that it has, 
indeed, cut costs?
    And thirdly, we talk about job lock and we mentioned--Mr. 
Baker mentioned that people 65 and older are going into 
businesses of their own, but I mean, that is probably the most 
logical thing to do at 65 if you are healthy and interested 
after you have retired from a full-time job and perhaps are on 
Medicare. So Mr. McCracken?
    Mr. McCRACKEN. Yeah. I think on the last point it did 
strike me as certainly I know a lot of people who retire from 
work and then do a little bit of consulting and they are 
therefore, that does strike me that is the likelier explanation 
for a big jump in self-employment at retirement than health 
insurance, although plainly health insurance could play a role 
for some people.
    The job lock issues, I do not think we have to have the 
Affordable Care Act as currently structured to deal with the 
job lock. In fact, the high costs that come with the Affordable 
Care Act because of the high level of benefits and so forth and 
the very tight rating bands really do make us concerned whether 
the individual mandate will even be effective in achieving 
anything close to universal coverage and should be that 
individual mandate that helps to create the right kind of 
market forces to enable the kinds of insurance reforms.
    Chairman HANNA. To that end though, is it not also true 
that the four million people that have already signed up for 
the most part already had insurance?
    Mr. McCRACKEN. I believe that is the case. I do not have 
those exact numbers but I think a lot of people have moved from 
one form of coverage to another.
    Chairman HANNA. Go ahead. I am sorry.
    Mr. McCRACKEN. But certainly, job lock is an issue, and if 
we can get the right kind of affordable coverage available 
broadly that is not always tied to a workplace, that clearly 
would help the small business community. I do not think there 
is any doubt about that. I do not think there should be any 
debate about that. But the question is is this kind of 
performance going to get us there? And we do not think so.
    Chairman HANNA. In the interest of Mr. Baker's schedule, 
Ms. Meng?
    Ms. MENG. Thank you, Mr. Chairman. I know that Mr. Baker 
has to leave soon. I apologize. I will momentarily have to 
leave also. We are in the middle of a markup on a bill 
regarding Ukraine in the Foreign Affairs Committee, but I will 
be back.
    Mr. Baker, the Affordable Care Act contains some provisions 
that may increase the cost of coverage, while many others, like 
the small business tax credits, the availability of the 
exchanges and premium subsidies hold costs down. All things 
considered, do you believe the ACA has helped expand coverage 
for the self-employed who have previously been completely shut 
out of traditional markets?
    Mr. BAKER. Well, I would say my assessment at this point is 
almost certainly yes. You know, just to refer back to a couple 
of the points Representative Hanna raised, the efforts to have 
portability, these go back, you know, at least a quarter 
century. We passed COBRA back, I think it was 1985, if I 
remember correctly, and then there was the Health Insurance 
Portability and Affordability Act I think in 1995 or 
thereabout. And those were somewhat beneficial but those did 
not solve the problem clearly, and we have a lot of data 
showing that. So I think that allowing this portability, and 
again, getting back to your point about allowing people with 
small businesses, allowing people the freedom to start small 
businesses and not have to worry about getting affordable 
health insurance, I think that is a very big net positive.
    And then also in terms of the healthcare cost, again, it is 
well documented healthcare costs have slowed sharply. Many 
provisions of the Affordable Care Act came in as early as 2011. 
Among other things there was a limit on a requirement that 
there was a medical loss ratio of at least 80 percent. I know 
my own think tank, we received rebates from our insurer for 
both 2011-2012 because of that provision, and also, again, how 
much this is due to the Affordable Care Act or not, I cannot 
really say. Our costs actually increased much, much less. We 
were used to double-digit price increases through most of last 
decade, and we have had very slow increases in the cost of our 
insurance.
    And just the last point on age 65, of course people will 
take the opportunity when they retire, but most people actually 
retire well before 65. The median age at which people start to 
collect their social security benefits is 62 and 11 months. It 
might be 63 now but it is well below 65. So that would not 
explain this break that we see. There is a big jump when people 
turn age 65 and quality for Medicare.
    Chairman HANNA. Thank you.
    Mr. McCracken--Mr. Huelskamp?
    Mr. HUELSKAMP. Yeah, quick question if I could before Mr. 
Baker leaves, and I do not know if Mr. McCracken answered that 
but the other two gentlemen did, what do you do--Mr. McCracken, 
do you have employees? And how do you handle insurance for 
them?
    Mr. McCRACKEN. Well, we are named ``association'', but we 
are essentially a small business and we provide health 
insurance for our employees.
    Mr. HUELSKAMP. Okay. And Mr. Baker, yourself?
    Mr. BAKER. Yeah, we have insurance at our workplace for 
roughly 20 people, and we have had insurance pretty much since 
we started in 1999.
    Mr. HUELSKAMP. And your premium increases, do they match 
what I have heard for other small businesses?
    Mr. BAKER. We have been very pleased with our increases the 
last three years. They have been somewhere in the area of 2 
percent. I will not vouch for that exact number but it was in 
that ballpark where in 2008, 2009, 2010 we were looking at 
double-digit increases, and again, I am not trying to say the 
Affordable Care Act explains that falloff, but we have very 
little to complain about in terms of recent price increases.
    Mr. HUELSKAMP. Great. I appreciate that. I know you are 
leaving.
    Mr. Arnold, I appreciate your testimony from--is that 
Lewes, Delaware? Is that how you pronounce that?
    Mr. ARNOLD. Lewes.
    Mr. HUELSKAMP. Lewes.
    Mr. ARNOLD. Yes.
    Mr. HUELSKAMP. Population 2,797? That is kind of what I am 
used to as well.
    But Mr. Arnold, we have seen with this administration in 
the last number of months, 29 times I think is the latest count 
where the administration simply waived some executive wand and 
made changes particularly for large employers. If you had to 
pick one that you would like the president and the 
administration to waive their wand again, which one would you 
pick to say this is the most troublesome aspect for the next 12 
months for small businesses and your association that you 
represent?
    Mr. ARNOLD. Because of some of the information that is 
coming forward now, I would say this extension of the deadline 
for small businesses and individuals because there still is so 
much myth and misunderstanding out there that I cannot tell you 
that I can be completely compliant. I need the extension.
    Mr. HUELSKAMP. And that is what I hear from a lot of the 
small businesses. Even if they are trying to comply, they are 
not certain if they can, and they certainly cannot afford it in 
many cases. For folks that are worried about a job trap, I am 
worried about small business men and women actually trying to 
make their payroll and meet their obligations they feel to 
their employers. It has become exceedingly difficult. And maybe 
it is obviously different across the states if you are under 35 
in Kansas and you are self-employed, your penalty for being 
self-employed was a 100 percent increase of your premiums on 
January 1st. And who would want to step into that situation? 
And that is an incredible burden, so I appreciate the real-life 
experience.
    Lastly, on the self-employed tax plan--I am not sure if Mr. 
Schulman or Mr. McCracken brought that up, but I was not here 
when the previous majority passed the president's healthcare 
plan. Any explanation why they left such a significant penalty 
on small businesses on the owners? This is just amazing and 
shocking that they would leave that penalty in place when they 
had an opportunity to change that.
    Mr. McCRACKEN. Well, yeah, I think it comes down to 
priorities in terms of the revenues. We advocated strongly for 
that being included. It has been a disparity in the tax code 
for quite a number of years and we have been arguing for its 
change for a very long time. There was a very brief period in 
2000--I lose track of time--2010, I think, 2011, where we 
actually did achieve some measure of equity there for a short 
period of time. It expired after a year, and we think we need 
to restore that.
    Mr. HUELSKAMP. Okay. All right. Thank you, Mr. Chairman. I 
yield back. I appreciate it.
    Chairman HANNA. Thank you.
    Mr. McCracken, the administration's latest unilateral 
change--not the one last night but the one last week--delayed 
the requirement that coverage meet minimum coverage standards. 
Does this delay not come after many small business owners had 
already purchased more expensive coverage? How do we make them 
whole and how does this affect them?
    Mr. McCRACKEN. Yeah, it comes out to lots of decisions have 
already been made unfortunately. Unbalance is probably better 
to have that decision than not to have had that decision, but 
it is rather late in the game. It probably is going to have a 
relatively negligible impact in the real marketplace as a 
result of that fact. I frankly am not quite sure what we do 
about it moving forward and what would be the best.
    Chairman HANNA. So, I mean, the idea is that compliance has 
become its own penalty.
    Mr. McCRACKEN. There is something to that. And meanwhile, 
the compliance with the overall way to purchase insurance has 
been lost in the mix is already a very low penalty and that is 
really our biggest ultimate concern is that we are requiring 
insurers to guarantee coverage to everybody, regardless of 
their past coverage, regardless of their past health 
experience, and within a relatively narrow age band. And if we 
do not see significant progress towards getting everyone into 
this market, it is going to become unaffordable for most people 
who are trying to buy coverage, and that is ultimately our 
biggest concern. And the whole thing is simply going to 
collapse.
    Chairman HANNA. Mr. Schulman, how have the many 
cancelations and postponements that the administration has 
announced been difficult for you and insurance professionals 
like yourself? What have you seen on the street?
    Mr. SCHULMAN. Not speaking specifically to that, but what I 
do see on the street after reading everybody's studies and 
surveys is in December I received in my group a 73 percent 
increase. In January, the group I mentioned in my testimony was 
a 62 percent increase. I am leaving here to see a restaurant in 
D.C. with a 43 percent increase. Yesterday, I received three 
client renewals for May. The lowest one was a 43 percent 
increase. They ranged in the 60s, and another one in the 80s. I 
believe that everything that is going on, the committees, all 
the talk, all the back and forth, is spending money that is 
rolling back into the ACA.
    Chairman HANNA. Have you seen any decreases at all on any 
of your clients?
    Mr. SCHULMAN. Mr. Hanna, I did not get time to say anything 
to Mr. Baker, but in the last 24 months I have not delivered a 
renewal that was reduced, not increased.
    Chairman HANNA. How many renewals would that be?
    Mr. SCHULMAN. In the last 24 months I have delivered to 
each of my clients, twice every 12 months, 100 renewals. So, 
and again, I am glad to send to anyone on the Committee with 
names redacted, we can leave the zip code so we can see this is 
Maryland, D.C.----
    Chairman HANNA. But to get this straight, your business, in 
all your client base, you have not seen a single reduction in 
cost?
    Mr. SCHULMAN. No, sir.
    Chairman HANNA. My goodness.
    Mr. SCHULMAN. And to the beginning of your question, the 
delays add more confusion, more problems at the workforce for 
all these people that are represented here, and myself, because 
as soon as you get ready to do one thing there is a change from 
last night or two weeks ago. So it has all been negative to the 
end-user which is where I interface with a renewal----
    Chairman HANNA. Have you seen anyone go out of business 
over this? Have you--other than threats, anxiety, have you seen 
anyone actually say, ``I am out. I cannot do it''?
    Mr. SCHULMAN. A couple groups that were just in the twos I 
have seen decide to just let go of their employees and try to 
go it literally on their own.
    Chairman HANNA. So you have seen in some cases a loss of 
employment?
    Mr. SCHULMAN. Two groups in the last 12 months, clients of 
mine have done that.
    Chairman HANNA. And do you know from your experience 
talking to other people that do what you do, is this fairly 
widespread?
    Mr. SCHULMAN. Yes. Recently, about three weeks ago, the 
National Association of Health Underwriters had their annual 
capitol conference here on Capitol Hill, and brokers from as 
far as Alaska, Washington are there, and we also have a 
convention once a year we meet. And every single person I speak 
to has that issue.
    Chairman HANNA. Thank you.
    Mr. Arnold, as you know, the employer mandate has been 
postponed but the individual mandate, which requires 
individuals to purchase health insurance has not, which is what 
we are talking about. We voted yesterday to delay the 
individual mandate but we have to wait on action from the 
Senate and the president. Do you think it is fair that self-
employed, small business owners, who must obtain insurance on 
the individual exchange have been excluded? I guess that is 
kind of a loaded question, but we do that around here.
    Mr. ARNOLD. Yeah, it truly is unfair. Again, why are the 
larger businesses getting the breaks when small business does 
not? Larger businesses have a greater percentage of their cash 
flow to be able to deal with different things, a small business 
does not have wiggle room to be able to deal with any kind of 
new issues that come up, especially when they blindside you 
like they are right now.
    Chairman HANNA. Mr. McCracken, how many people in the 
country are like Mr. Arnold--individual, self-employed, 
smaller, sometimes single proprietorships?
    Mr. McCRACKEN. I believe there are about 11 million self-
employed people who derive their primary income from self-
employment, and there is another at least that many who do some 
level of self-employment activity that may have other sources 
of income as well.
    Chairman HANNA. So they are left hanging through this?
    Mr. McCRACKEN. That is right.
    Chairman HANNA. They really are not part of the--they are 
not being given latitude through relief from the individual 
mandate, and yet in some strange way they are also not 
considered part of that. Is that----
    Mr. McCRACKEN. Yeah, there are lots of places, particularly 
in our tax code, where business owners, even if they are 
single, are not considered ``employees,'' and we define lots of 
various kinds of benefits around going to employees, which is a 
lot of the issues around the self-employment tax and health 
insurance that I described before.
    Chairman HANNA. Mr. McCracken, is there anything--I mean, 
you have such a wide network, what would you envision an 
effective healthcare system look like? If you want to limit it 
just to portability, which is clearly kind of the fallback 
support for this healthcare law, it seems to me there are lots 
of ways to provide portability. And of course, we have heard of 
a couple.
    Mr. McCRACKEN. There are lots of them. We have been 
committed to having a private healthcare marketplace, and there 
was a time we started about healthcare reform more seriously in 
2009 and we were hopefully optimistic because we do think it 
should revolve around the individual and we do think that 
providing portability so that people can make decisions about 
employment regardless of their healthcare situation makes a lot 
of sense. So we do think a system in which individuals take 
primary responsibility, but employer can still have incentives 
to offer coverage makes a lot of sense, which from our 
perspective looks something like what we have.
    The problem is as the efforts to create the log out rolling 
the levels of required benefits, the tightness of the rating 
rules and everything else added a great deal of expense to the 
system. So we have essentially shacked individuals who they 
mandate to a really expensive system, and now we are wondering 
why they are not jumping to buy it in the face of a $195 
penalty or something.
    Chairman HANNA. Which apparently we do not have the 
mechanism to collect.
    Mr. McCRACKEN. It is in some level, again, for a very high 
level it is the right framework but very, very poorly designed 
to actually function.
    Chairman HANNA. Mr. Schulman, do you want to weigh in?
    Mr. SCHULMAN. Thank you.
    Hard to know where to start. Certainly, everything Mr. 
McCracken said and just the whole approach to this I believe is 
going to leave more people uninsured. The exchanges are a 
nightmare. People that know how to enroll health insurance are 
having trouble with the exchanges. Client groups just do not 
know what to do or where to go.
    A very quick example just to illustrate what does happen to 
business, you mentioned businesses that are dropping coverage. 
A client of mine that had insurance a few years ago had to give 
it up because their business went down with the economy. They 
called me and said, ``We are ready again.'' I went and met with 
them in December. Now, normally, I would have enrolled their 
three employees in about 48 hours in a computer in my office 
with my staff. They would have had temporary ID cards about two 
weeks later. It all would have gone perfect in D.C. Well, my 
office manager reminded me, ``Alan, this is an old group for 
you but it is a new group in the system, so they have to go 
through the D.C. exchange.'' It took from December 27 to 
January 15 to enroll them. On January 15, my office manager 
said to me, ``Alan, you have to call the group and tell the 
employees now that I have the group enrolled, they have to 
individually go into the exchange with their password and set 
themselves up.'' I said, ``No, Monica. You will email the 
group. You will get their social security number, their 
password, and all their information, and you will go in and 
enroll them because that is what we do.'' Now, Monica tells me 
three days later, ``Well, everything is done and it is fine, 
but you promised them a January effective date.'' I said, ``So 
they will have February?'' I said, ``It is all done January 
27th. I can understand they will not have a January date.'' 
They said, ``No.'' She said, ``You have not been reading your 
emails from the D.C. Exchange, Alan.'' I said, ``Well, what is 
it?'' She said, ``They will be effective April 1.'' What do you 
tell that employer and the two young ladies that are off their 
parents insurance now and are waiting for their insurance to be 
effective, have doctors' appointments that they certainly 
changed from January to February, but now they will be 
effective April 1. Why? That to me is not getting people----
    Chairman HANNA. Do you have a sense of how the fines to 
employers will affect their willingness to--Mr. McCracken, you 
are smiling so we are on the same plane here, but affect their 
willingness or how they incentivize employers to maintain their 
own historical insurance plans.
    Mr. McCRACKEN. I do not think they affect them one way or 
the other honestly because--in essence, one of the essential 
problems was it is very difficult for employers who are over 
that threshold where they may face a penalty to assess whether 
or not they are going to have a penalty or not until it is 
actually imposed because of the enormous complexity of the law 
and there is no way for an employer to know what the household 
income is of any given employee. They only know what they pay 
them. There are rules where you are looking back at what people 
made last year, but applying it to what the situation is this 
year. So I think employers in that boat are simply going to try 
to do the calculations as best they can and the fine is the 
fine. I think that has to be the way they approach it.
    Chairman HANNA. Mr. Schulman?
    Mr. SCHULMAN. Another example, but first I will mention 
there are play or pay calculators that have been developed by a 
lot of entities where you can put in scenarios for an employer, 
and I definitely agree with Mr. McCracken. The employers are 
looking at it, but I do not think it is really going to matter 
to them. Either they are going to or they are not. And what is 
worse is every time they spend the time to do it, to look at 
the cost calculators to see what it costs to play in the market 
or pay the penalty, they scratch their head and they go, 
``Well, I will wait and see what happens,'' and it keeps 
getting delayed.
    But another example I will give you is that I have a blue 
collar group in Virginia that all of their employees are 
roofers and these gentlemen do not speak our language, do not 
understand it, and they are totally confused about healthcare. 
Well, they are going to pay individual penalties come April 
because they are not enrolled in any healthcare. This group is 
actually going to get health insurance for these employees and 
ask them to contribute what their fine is, instead of them 
being fined because this employer cares to have health 
insurance in his company. He is already building into every new 
bid to the consumer a cost for that employee's health 
insurance.
    Chairman HANNA. Can you tell me--anybody, Mr. Arnold, maybe 
you can weigh in--I will make the assumption that the marginal 
gain to hiring a new employee with the kinds of healthcare 
issues that the three of you are talking about are reduced? 
Increased? What do you think? As opposed to say overtime or we 
know about the 40 hour to 30 hour issue. How have you seen that 
play out, if you have, Mr. Arnold? If not, anyone?
    Mr. ARNOLD. The reality of what Mr. Baker said a while ago, 
and I am sorry he is not here, but with all due respect, I do 
not know what planet that gentleman is from because what he was 
telling us a while ago about job security and increasing people 
staying in small businesses is exactly the opposite. For 
example, my cardiologist. He has 25 employees. He paid 100 
percent of all their medical costs, their out-of-pocket costs 
and everything until recently. They just went through the 
renewal process that the gentleman here was describing, and 
their cost went up ridiculously high, anywhere from $300 per 
person to the $1,600. That is where those numbers came from. 
This one lady had been working for the cardiologist for 10 
years. She was a good employee, but now her rate has gone up 
$500. That is what she makes in a week. And so she is now faced 
with either paying the $500 additional a month or quitting work 
and paying to get her insurance through her husband's insurance 
because evidently he has not gone through the renewal process 
yet and she can get it for a $35 increase. So she is not going 
to be working at the cardiologist's office anymore.
    I experienced the same thing in my own business where I 
cannot increase their pay enough for them to be able to help 
them to pay those exorbitant costs, even if they go to the 
personal exchange, and so one of my employees left that had 
been with me three years, was a top employee, to go work for a 
larger restaurant firm so that he could get insurance paid for 
by them. So the idea of the ACA helping small business keep 
employees is absolutely ridiculous because it is not happening; 
it is the opposite.
    Chairman HANNA. Mr. McCracken, anything left you want to 
talk about? We have time here.
    Mr. McCRACKEN. I am not sure I have a lot to add to that, 
but certainly, if we could have a system where employees and 
workers have a sense of security, I think it would give people 
an additional reason to think about leaving employment and 
starting their own business because that is one of the chief 
concerns--how am I going to find health insurance? And at some 
level the ACA does address how he can find health insurance, 
but of course the other piece of it is how am I going to afford 
health insurance? And I think that is the side of things where 
people are still deeply concerned and where the law continues 
to fall down a bit. If you are going into self-employment you 
might think maybe I can get one of these subsidies for health 
insurance because they are being pretty generous, but you do 
not know what you are going to make when you go into self-
employment. And you really do not know what that individual 
market is going to look like because people have seen the 
bungled rollouts of the exchanges and they hear all the news, I 
think appropriately positioned that the individual markets, no 
one can really predict what those premiums are going to look 
like because of the fragility of those markets and the likely 
inability of individual mandate to truly bring all the right 
risks into one pool.
    Chairman HANNA. And that does not seem to be happening now 
either, does it--people signing up?
    Mr. McCRACKEN. It does not seem to be.
    Chairman HANNA. Thank you.
    Go ahead, Mr. Schulman.
    Mr. SCHULMAN. I would like to take this opportunity to 
thank you. I will try not to be too long here but this is my 
passion.
    There is a handful of things that are immediate and 
absolutely should be done. And some example is the age bands. 
The composite rating is the way it should be. The age bands are 
much too narrow. A perfect example is everyone in this room. If 
we averaged the age here we would come up with X number, yet we 
all would pay the same premium. However, if we left it the way 
it is now, the youngest person in this room could be paying the 
lowest premium, and us in our 60s could be paying the highest 
premium. I could be perfectly, absolutely lucky ironman but the 
young person in the room could have diabetes, could have 
Crohn's, could have God forbid anything. They are paying the 
most. It does not make sense.
    The second thing is these mental plans. If I sat with every 
person in this room and did a survey of them, what do you think 
a deductible, copay, coinsurance, what would that be? I would 
have to graph it out and come back to the Committee because 
every person in this room would have a different idea of their 
healthcare.
    Blue Cross Blue Shield owns this marketplace--that is just 
how it is, The Greater Washington Metropolitan area, Northern 
Virginia, D.C., Maryland suburbs--so I am usually selling Blue 
Cross Blue Shield. They have 83 percent of the market. I used 
to be able to go to a group of five people in Maryland or D.C. 
or Virginia and they could choose three plans. And they would 
say, ``Why, Alan?'' I would say, ``Well, you are old and have 
children at home and you are probably running to the 
pediatrician all the time.'' ``Did my wife talk to you?'' 
``Yeah.'' ``Well, you probably want a copay plan and you do not 
mind paying a little more premium.'' You said, ``Yeah, she does 
not want to deal with deductibles.'' Yet, the 24-year-old that 
just ran a marathon, he says, ``No, I do not want to pay $300 a 
month. I want to pay $150 a month. Give me a 1,500 
deductible.'' Then you get to another sheet after 100 plans on 
a sheet. You get to a sheet of about 20 prescription plans. So 
for 100 a month, you could have a prescription plan that had a 
250 deductible. Well, if you did not want a 250 and you just 
wanted the copays, you could pay 175 a month, take away the 
deductible, have a copay. All of that has been snatched from 
America. You have been told you can have platinum, gold, 
silver, bronze, and now we are considering a copper plan. But I 
have gone from taking groups of three to 30 to a real 
constructive conversation of how do you think your healthcare 
should work to literally give them again a choice of three 
plans and three prescription plans so that you might satisfy 
this whole room somehow. There is not any way conceivable to do 
that now.
    Chairman HANNA. So it is limited choice?
    Mr. SCHULMAN. Limited choice.
    Chairman HANNA. Limited competition. In your experience, it 
has increased cost. Thank you.
    Mr. SCHULMAN. You are welcome.
    Chairman HANNA. It is a philosophy in search of a plan that 
I think it probably did not find.
    Mr. Arnold?
    Mr. ARNOLD. Yes, sir. I would like to applaud what he just 
said. The idea of changing from this--and I do not know where 
it came from--the age banding to the composite pricing probably 
would be the most significant suggestion I have heard 
throughout this whole thing about how it would help reduce the 
ridiculous increase in the cost. As a small business owner, I 
do not understand how something that is entitled the Affordable 
Care Act is so unaffordable. The cost is so bad and so high, 
people just flat cannot do it.
    Chairman HANNA. Mr. McCracken, if some people do not sign 
up that dynamic is not going to change, is it?
    Mr. McCRACKEN. No, it is not.
    Chairman HANNA. I mean, that is the key to this. And your 
key, Mr. Schulman, is that maybe some of those people are not 
paying--because of the banding, are not paying perhaps what 
they should?
    Mr. SCHULMAN. Correct.
    Chairman HANNA. So that could be a permanent condition as 
long as you entice young people at a very, very low rate that 
that will have the net effect, and we have seen that have the 
net effect of increasing disproportionately cost to older 
people. But who can argue--I mean, I would say personally 
people with preexisting conditions should certainly have access 
to good healthcare.
    Mr. SCHULMAN. To affordable health care. This act is not 
going to accomplish that.
    Chairman HANNA. Thank you. That is probably the note that 
we can end on.
    I want to thank you all for being here today. We have seen 
that the implementation of the healthcare law has been 
problematic, to say the least. American small businesses 
deserve fair and equitable access to comprehensive and 
affordable healthcare, but clearly, the Affordable Healthcare 
Act is causing significant disruptions for American small 
businesses.
    While many parts of the law have been unilaterally delayed, 
particularly the employer mandate, it seems that the smallest 
of the small firms that purchase insurance on the individual 
markets have been neglected. I hope that the administration 
takes note of this. These issues are not going away and we here 
on the Small Business Committee will continue to maintain 
active oversight on all of these issues.
    I ask unanimous consent that members have five legislative 
days to submit statements and supporting materials.
    Without objection, so ordered.
    This hearing is now adjourned. Thank you very much.
    [Whereupon, at 12:28 p.m., the Subcommittee was adjourned.]
                            A P P E N D I X


        The Impact of the Affordable Care Act on Self-Employment


                    Testimony of Dean Baker

      Co-Director, Center for Economic and Policy Research

                           Before the

             U.S. House Committee on Small Business

           Subcommittee on Contracting and Workforce

                       AT the hearing on

        Obamacare and the Self-Employed: What About Us?

                         March 6, 2014

    ----------------------------------------------------------
--

    Thank you, Chairman Hanna and Ranking Member Meng, for 
inviting me to address the Subcommittee on the impact of the 
Affordable Care Act (ACA) on self-employment. I will make three 
points in my testimony.

          1) There is considerable research showing that the 
        fear of losing health insurance coverage discourages 
        workers from leaving a job that provides insurance to 
        start their own business. By allowing workers to get 
        affordable insurance through the individual market the 
        ACA will substantially increase the rate of small 
        business formation.
          2) There is also evidence that workers leave jobs 
        that do not provide insurance to get jobs that do 
        provide insurance. Since many small businesses have 
        found it difficult to provide insurance for their 
        workers, their ability to get insurance through the 
        individual market should make it easier for small 
        businesses to retain workers.
          3) The rate of health care cost growth has slowed 
        sharply over the last six years. While the exact 
        reasons for this slowdown are disputed, it is almost 
        certain that the ACA played some role. This slowdown in 
        health care cost growth has reduced the burden for many 
        small businesses that provide insurance.

    For these reasons, the ACA is likely to prove to be a 
strong net positive for small businesses, leading more to be 
started and making it easier for the existing businesses to 
prosper.

    The Impact of Employer-Provided Insurance on Self-
Employment

    There is an extensive literature examining the impact of 
employer-provided health insurance (EPHI) on self-employment. 
The basic issue is whether workers fear the prospect of being 
uninsured and therefore are less likely to leave a job that 
offers health insurance to start their own business than would 
be the case if they were not dependent on their job for 
insurance. While studies using data from the 1980s were 
inconclusive on this issue, several recent studies found strong 
evidence showing that EPHI discouraged workers from starting 
their own businesses.

    For example, a recent study pooled eleven years of data 
from the Bureau of Labor Statistics' Current Population Survey 
(CPS) (1996-2006) to determine whether workers with EPHI were 
more likely to experiment with self-employment if they were 
able to get insurance through their spouse than if they had no 
alternative source of health insurance.\1\ As a result of 
pooling so many years of data from the CPS, the study was able 
to get a very large sample, with 81,214 employed men and 75,317 
employed women between the ages of 25-64. In statistical tests 
that controlled for a variety of personal characteristics (e.g. 
education, age, industry), the analysis found sharply lower 
rates of transitions to self-employment among workers with a 
EPHI who could not get insurance through their spouse. This 
result held up across a number of different specifications, 
which indicates that it was not driven by a statistical fluke.
---------------------------------------------------------------------------
    \1\ Fairlie, Robert W., Kanika Kapur, and Susan Gates. 2011. ``Is 
Employer-Based Health Insurance a Barrier to Entrepreneurship?'' 
Journal of Health Economics, vol 30, pp. 142-162.

    The study then examined the rate at which workers started 
new businesses as they turned age 65 and became eligible for 
Medicare coverage. The study found a sharp increase in the rate 
of self-employment as workers reached the age of Medicare 
eligibility. There was no comparable upturn in self-employment 
around other landmark birthdays, such as age 55 or 75, 
suggesting that hitting the age of Medicare eligibility was the 
key factor. Once workers were no longer dependent on their job 
for insurance, they were more willing to try their chances with 
---------------------------------------------------------------------------
starting a new business.

    Another recent study examined whether the creation of 
Individual Health Coverage Plan in New Jersey in 1993 led to an 
increase in self-employment compared with neighboring states 
and the rest of the country.\2\ This study used the Behavioral 
Risk Factor Surveillance System (BRFSS) for the years 1991 to 
1996 to determine if there was a difference in the rate of 
self-emp0loyment in New Jersey in these years compared with 
those in surrounding states and the rest of the country. The 
study looked at individuals between the ages of 25-59. This 
gave a sample size of 18,409 for the Pennsylvania comparison, 
40,880 for the Mid-Atlantic states, 66,893 for the Northeast 
region, and 382,670 for the comparison with the country as a 
whole.
---------------------------------------------------------------------------
    \2\ DeCicca, Phillip. 2010. ``Health Insurance Availability and 
Entrepreneurship,'' Upjohn Institute Working Paper, no 10-167.

    The analysis found solid support in each case for an 
increase in self-employment in New Jersey relative to the 
comparison group. The implied increase in self-employment from 
---------------------------------------------------------------------------
the insurance reform was between 16-20 percent.

    Finally, a recent study examined whether the ACA's 
requirement that children up to the age of 26 could remain on 
their parents' insurance policy increased the rate of self-
employment among workers between the ages of 19-25.\3\ The 
study used the Census Bureau's American Community Survey to 
compare the change in rates of self-employment among this age 
group in the period just after the provision just took effect, 
with changes in self-employment rates among workers a little 
younger or older (ages 17-19 and 27-33) who would not be 
affected by the provision. This gave them a sample of 
2,637,376.
---------------------------------------------------------------------------
    \3\ Baily, James. 2013. ``Health Insurance and the Supply of 
Entrepreneurs: New Evidence from the Affordable Care Act's Dependent 
Coverage Mandate.'' Available at SSRN: http://ssrn.com/abstract=2230099

    The study consistently found evidence of an increase in 
self-employment among the affected age group in a variety of 
specifications. The implied increase in self-employment was 13-
24 percent. This result is especially striking since this is an 
age group in which we would not expect health care insurance to 
---------------------------------------------------------------------------
be an especially important consideration.

    These three studies examined the impact of EPHI on self-
employment using very different tests and completely different 
data sources. In all three cases the sample sizes were quite 
large. (By comparison, some of the earlier studies had samples 
with around 1000 workers.) Based on the findings of these and 
other studies, it is reasonable to conclude that the ACA will 
increase self-employment by between 15-25 percent when its 
effects are fully felt in the next few years.

    The Impact of the ACA on Job Retention at Small Businesses

    The overwhelming majority of large businesses provide 
insurance to their workers. Many small businesses find it 
difficult or impossible to provide insurance to their 
employees. This is partly due to the fact that a smaller pool 
of workers is likely to face higher costs and also simply a 
result of the fact that arranging insurance can involve a 
substantial commitment of a business owner's time. However, not 
providing insurance can leave small businesses at a serious 
disadvantage in hiring and retaining workers compared with 
larger competitors.

    Several studies have examined a ``job push'' pattern, where 
workers leave jobs with which they were otherwise satisfied in 
order to find a job that provides health insurance. This 
pattern was most closely examined in a 1997 study that used the 
National Longitudinal Youth Survey.\4\ This study examined job 
changes among men between the ages of 20-27 in 1989. The sample 
had 5,305 job spells.
---------------------------------------------------------------------------
    \4\ Anderson, Patricia M. 1997. ``The Effect of Employer-Provided 
Health Insurance on Job Mobility: Job Lock or Job Push?'' Unpublished 
Paper, Dartmouth College.

    This study found that married men working at jobs without 
EPHI were substantially more likely to quit their jobs when 
their spouse became pregnant. This would seem to imply that 
workers became more concerned about finding insurance through 
an employer when they suddenly faced a greater need for in 
insurance. While most of the research on this topic has focused 
on the extent to which EPHI discourages workers from leaving a 
job where they have insurance, this study and others provide 
evidence that the need to get insurance is also an important 
factor leading workers to leave jobs that do not offer 
---------------------------------------------------------------------------
insurance.

    For this reason, the ACA should be an important factor in 
leveling the playing field for many small businesses. Since 
workers will now be able to buy affordable insurance in the 
individual market, they will not feel the need to leave jobs 
that don't provide insurance in order to make their families 
secure.

    The Impact of the ACA on Health Care Costs

    There has been a lot of attention given to the ways in 
which the ACA may lead to higher insurance costs. Specifically, 
by setting minimum standards for acceptable policies, there 
will be cases where individuals or employers have to pay more 
than they did when they held policies that did not meet these 
standards. While there are cases where the ACA has caused some 
policies to cost more, it is important to note that this is 
against a backdrop of sharp slowdown in health care costs. 
Health care costs have consistently risen as share of GDP for 
more than sixty years. Their share of GDP has been virtually 
flat in the last four years and actually fell slightly in 2013.

    To get an idea of how important this slowdown in health 
care costs has been, in 2008 the Congressional Budget Office 
projected that the country would spend $671 billion Medicare in 
2014.\5\ The most recent projections show that the government 
will spend just $603 billion in 2014, a savings of 10.1 
percent.\6\ Most other areas of health care spending have seen 
a comparable slowing of costs. This means that most health 
insurance policies will cost less in 2014, even with the 
requirements imposed by the ACA, than if health care costs had 
continued on their previous trajectory and the ACA had not been 
passed. If this slower growth persists then the savings will be 
even larger through time.
---------------------------------------------------------------------------
    \5\ Congressional Budget Office, The Budget and Economic Outlook: 
Fiscal Years 2008-2018, Table 3-1.
    \6\ Congressional Budget Office, The Budget and Economic Outlook: 
Fiscal Years 2014-2024, Table 3-1.

    At this point the causes of the slowdown in health care 
cost growth are not clear. While the economic downturn in 2008 
was undoubtedly a factor in the slowdown, the recession can't 
explain why cost growth has remained slow even as the economy 
has recovered in the last few years. It will take longer to 
determine the extent to which cost containment provisions in 
the ACA have been responsible for slowing the growth in health 
care costs, but they almost certainly played some role in this 
---------------------------------------------------------------------------
dramatic reduction in the pace of health care inflation.

    This is certainly good news for employers who provide 
health insurance coverage. Most immediately this has lessened 
an important source of cost pressure on businesses. In 
principle, this slower pace of cost growth should allow workers 
to earn higher wages in the years ahead.

    Conclusion

    The main motivation for the ACA was to extend insurance 
coverage to people who did not have it; however the law will 
also have important implications for the labor market. A 
substantial body of research implies that workers who 
previously felt tied to their jobs because of the need to get 
insurance from their employers will now more readily change 
jobs. Many more workers will also be willing to experiment with 
starting their own businesses.

    In addition, many workers had previously left jobs that did 
not offer insurance in order to find a job that did. Now that 
workers are able to get insurance in the individual market, 
more workers will remain employed at small businesses that are 
not able to offer insurance.

    Finally, there has been a sharp slowdown in health care 
cost growth over the last six years. The ACA was one of the 
factors behind this slowing of health care inflation. This has 
substantially reduced the cost of most insurance policies 
compared with their prior path. This will lead to large savings 
for businesses that provide insurance.

    For these three reasons, the ACA has been a substantial 
benefit for small businesses. This will become more apparent as 
the impact of the law is increasingly felt over the next few 
years.
             Statement of Todd McCracken, President and CEO


                  National Small Business Association


    Before the House Small Business Subcommittee on Contracting and 
                               Workforce


                 United States House of Representatives


                             March 6, 2014


    Mr. Chairman, and Members of the Subcommittee:

    I am Todd McCracken, President and CEO of the National 
Small Business Association (NSBA). The NSBA is the nation's 
oldest small-business association, focusing on advocacy for 
small companies since our beginnings in 1937.

    Thank you for inviting us to speak today about one of the 
most vexing problems facing small businesses, the enormous 
costs and ongoing uncertainty surrounding our health insurance 
system. NSBA has long ranked health care reform and cost 
containment as one our highest priorities. We are deeply 
troubled by the ongoing difficulties our health care system 
creates for small businesses and their employees, and by the 
fact that the most recent national effort to reform the health 
care system has made many of these difficulties even worse.

    Escalating Small Business Health Insurance Costs

    In February, NSBA released its 2014 Small Business Health 
Care Survey which shows how America's small businesses are 
dealing with rising health care costs, what kind of benefits 
they offer and how the Patient Protection and Affordable Care 
Act (PPACA) is impacting their businesses. The survey confirmed 
what has been widely reported about health care costs for our 
smallest companies: they are rising steeply, and entrepreneurs 
are deeply concerned about what the future might hold. 
Unfortunately, these rising costs are not new. Small firms have 
been facing, oftentimes, double-digit increases in the cost of 
their health care over the past two decades. Unfortunately, 
PPACA has done little to stem these increases, and could 
actually make it worse for many small firms.

    Though we continue to hear that medical inflation is down 
and overall health care costs are rising only slowly, evidence 
of such trends is hard to find in the small-business community. 
In the NSBA survey, 91 percent of businesses reported increases 
in their health plan premiums at their most recent health 
insurance renewal, with one in four being hit with increases 
exceeding 20 percent.

    Since 2009 (the first time NSBA conducted a similar health 
care survey), the average per-employee health premium reported 
in the survey has increased by 90-percent. During this same 
period, growth and profits have been stagnant. It is little 
wonder that small-business owners are focused on this cost 
center, openly wondering whether the current regime is a system 
they can continue to afford, and increasingly worried that 
PPACA will only add to their miseries.

    Remember, these costs have real-world implications: the 
NSBA survey shows that one-third of small businesses held off 
on hiring a new employee and more than half say they held off 
on salary increases for employees as a direct result of high 
insurance costs. Of course, these employment decisions are both 
a reflection of current costs and a window into uncertainty 
about what the future may hold, both for the economy and the 
health care system.

    Despite its volatile costs and complexity, health insurance 
is a key component to small firms' benefits package. The NSBA 
survey also found that while the majority of employers think 
offering health insurance is very important to recruiting and 
retaining good employees, just 51 percent of the smallest firms 
are able to offer health benefit. Of the 70 percent of small 
firms overall that do offer health insurance, the majority 
report paying for more than half of the cost of their 
employees' plans.

    Today the average monthly per-employee cost of health 
insurance premiums for a small firm is $1,121. When asked in 
2009 for the estimated monthly cost of their health benefits 
package, per employee, small firms reported $590 per month.

    The Self-Employed and the Individual Health Insurance 
Market

    Of course, we are here today to explore those particular 
and unique issues faced by our smallest members, the self-
employed. These business owners generally do not have 
employees, so they purchase their health insurance in the 
individual market in the vast majority of states. These markets 
are undergoing the most significant changes as a result of 
PPACA.

    Though the degree of change varies according to the rules 
previously existing in a state, PPACA has brought three areas 
of significant reform to the health insurance market place:

          1. Rating Rules. PPACA has imposed much tighter ``age 
        bands'' than previously existed in most states, 
        limiting the variation of premiums between the oldest 
        and youngest policy-holders. At the same time, the law 
        eliminates the ability of insurers to rate on the basis 
        of health status. While these changes ameliorate 
        premiums for some older and sicker individuals, average 
        premiums for most actually rise, in some cases quite 
        steeply.

          2. Guaranteed Issue. The law requires insurers to 
        accept all applicants regardless of health status (and 
        then set premiums without regard to health status; see 
        above). While this provision--in theory--is necessary 
        to achieve universal coverage under an individual 
        mandate system, it clearly increases premiums by 
        allowing some to circumvent the mandate and only 
        purchase insurance once they ``need'' it. It is still 
        an open question to what degree the individual mandate 
        will limit this behavior.

          3. Minimum Benefit Requirements. PPACA imposes 
        mandatory benefit requirements that are greater than 
        had been imposed by many states, and greater than 
        individuals might otherwise have purchased for 
        themselves. By imposing these additional costs, the law 
        makes it less likely that younger and healthier 
        individuals will see the ``value'' in purchasing 
        coverage, leaving higher average premiums for the rest 
        of the market. These requirements have also been a 
        prime driver in the cancellation of current policies, 
        since they do not meet the new PPACA minimum benefits.

    In combination with the individual mandate, the rules 
outlined above create a scenario where most health insurance 
premiums in most places for most individuals--and the self-
employed--are going up, at the same time that small businesses 
are being crunched to find savings and reduce spending across 
the board. The confluence of these forces requires our nation's 
self-employed individuals to make very difficult choices. And 
when combined with the bungled roll-out that so far has 
characterized PPACA and the exchanges, small businesses have 
little faith in the potential for improvement and an ultimate 
positive outcome.

    The highs costs and complexity they face today, combined 
with enormous uncertainty around any future improvement, have 
conspired to make many small businesses re-think whether their 
companies should continue to be entangled in the provision of 
health insurance. Of course, there is no such choice for our 
nation's self-employed. Whether health insurance is an 
individual or employer responsibility, they cannot avoid 
participation. So, how can we improve the current law, so that 
it keeps costs in check and better meets the needs of most of 
the self-employed?

    Solutions for the Self-Employed

    While we would like to see a ``do-over'' of this law, we 
think the following reforms are key changes that could 
specifically improve the law for the self-employed in the near-
term:

     Adjust Rating Bands. The current 3:1 allowable age 
rating ratio is a primary factor in driving up premiums for 
current policy-holders. It would be wise to widen these age 
bands (perhaps to 5:1) at least until the efficacy of the 
employer mandate can be evaluated over time. The narrower the 
rating bands, the higher the average premiums will be. And the 
biggest increase in premiums will be for younger (and likely 
healthier) workers, putting a finger on the scale of their 
cost/benefit analysis for purchasing coverage. Will the mandate 
be sufficient to keep these individuals in the market? We 
simply don't know. Until we have a clear sense of the effect of 
the mandate, we should not give more incentives for healthier 
individuals to flee the market.

     Allow the Self-Employed to fully deduct health 
premiums against their for self-employment taxes. In 2003, 
small-business owners finally were able to deduct all of their 
health insurance expenses against their income taxes. 
Unfortunately, we are still only part of the way to real health 
insurance tax equity for small businesses and the self-
employed. Currently, employees are allowed to treat their 
contributions to health insurance premiums as ``pre-tax,'' 
whereas business owners are not (owners of pass-through 
entities are generally not defined as ``employees''). This 
distinction means that those premium payments for workers are 
subject neither to income taxes, nor to FICA taxes. While the 
self-employed owner of a nonce Corporation can deduct the full 
premium against income taxes, that entire premium is paid after 
FICA taxes.

    Compounding matters, these business owners pay both halves 
of the FICA taxes as employer and employee (the so-called self-
employment tax) on their own income for a total self-employment 
tax burden of 15.3 percent. The average cost--nationally--of a 
family policy has been pegged at $16,000 for 2013. A business 
owner who makes $60,000 and purchases this plan for his or her 
family pays over $2,400 in self-employment taxes on that 
policy. An employee who makes $60,000 and has the same plan 
pays nothing in income or FICA taxes on that policy. By 
treating this business owner the same way that everyone else is 
treated in this country, we can give entrepreneurs an immediate 
15-percent discount on health insurance premiums.

    Thank you again for the opportunity to speak before you and 
to address these questions on the minds of so many of our 
smallest businesses and start-ups. Health insurance and its 
associated costs can often be a barrier to the innovation and 
growth that our country so desperately needs. I look forward to 
your questions and a continuing dialogue.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

    Chairman Hanna, Ranking Member Meng, and Members of the 
Subcommittee, thank you for the opportunity today to offer the 
self-employed's perspective on the Affordable Care Act (ACA) 
and to share with you its impact on those of us trying each and 
every day to keep our businesses afloat so that we can leave a 
lasting legacy for future generations.

    My name is Charlie Arnold and I am the President and owner 
of Arnold Powerwash LLC, located in Lewes, Delaware. Arnold 
Powerwash is a family-owned, professional power washing company 
organized in commercial and residential divisions, cleaning all 
types of exterior surfaces, along with fleet washing and dry 
ice blasting divisions.

    Like many self-employed, I wear various hats--from small 
business owner to community leader. In addition to owning and 
operating Arnold Powerwash, I am also proud to serve as the 
Pastor of Seaside Baptist Church and as the Emergency Medical 
Services (EMS) Captain for the Lewes Fire Department. Finally, 
it is in my role on the Member Council of the National 
Association for the Self-Employed (NASE) that I am offering 
today's testimony. The NASE is our nation's leading advocate 
and resource for America's 23 million self-employed and micro-
business owners. It is in all of these roles that I am able to 
provide a unique perspective and first-hand experience 
regarding the impact of the Affordable Care Act has had on the 
nearly 23 million self-employed Americans, the largest 
potential consumers of Obamacare.

    At first glance, the impact of the ACA on my business 
appears to be limited. I currently have only two full-time 
employees and several seasonal employees defined as ``leased'' 
employees. Yet, I have found myself in a continued state of 
confusion to the status of my current health care coverage. As 
well as the additional confusion caused by the restrictive 
actions taken by both the Departments of Treasury and Health 
and Human Services toward the rules governing Health Savings 
Accounts (HRAs), and the continuing disparity faced by the 
self-employed versus ``big business'', namely the two reprieves 
given by the Obama Administration to larger businesses in the 
last year that grants them freedom from complying with the new 
law. However, the self-employed are left having the March 31, 
2014 enrollment deadline looming over our heads, while we are 
forced to confront the potential for possible penalties for not 
enrolling in Obamacare.

    Since October 1, 2013, the self-employed have been caught 
between a rock and hard place, trying to navigate the complex 
nature of the requirements under Obamacare and how it impacts 
us, our families, and our businesses. In fact, in a survey 
conducted by the NASE leading up to open enrollment in the 
Exchange Marketplace, 60% of respondents said they thought 
there was a ``low'' or ``very low'' chance they'd be able to 
secure both affordable and comprehensive coverage in 2014.\1\
---------------------------------------------------------------------------
    \1\ ``Majority of Small Businesses Feel They Will Be Unable to 
Secure Comprehensive, Affordable Health Care in 2014'' http://
www.nase.org/Research/NASESurveyResults/2013/11/21/new-survey-majority-
of-small-businesses-feel-they-will-be-unable-to-secure-comprehensive-
affordable-health-care-in-2014

    We can all acknowledge the launch of the Exchange 
Marketplace was fraught with confusion. The last minute 
cancellations of millions of health care plans was both 
unexpected and detrimental to many Americans--many who were 
assured their health policies would be carried over as 
``grandfathered'' plans. This was especially challenging for 
the thousands, if not hundreds of thousands, of self-employed 
small business owners who had these types of plans and had not 
been previously planning on purchasing health care via the 
---------------------------------------------------------------------------
Exchange Marketplace.

    For example, an NASE member in Illinois had no intention of 
enrolling in a new health care plan via the Exchange 
Marketplace, because she had a grandfathered health care plan. 
As head of the household, her plan covered not just her and her 
husband, but also an adult child with severe disabilities. 
Eventually, after President Obama attempted to salvage the 
millions of plans that were cancelled, she decided to pursue 
her options via the Exchange Marketplace. But, this was proven 
to be a disaster for her and her family. Since their 
enrollment, she has experienced higher than anticipated costs, 
especially for prescription medication needed to care for her 
disabled son. In fact, several medications were not allowed 
under their new plan, and they have since had to jump through 
hoops to get approval for medication essential for their son's 
care.

    I, myself, find the situation to be perplexing as I try to 
determine the best course of action for my business. For 
example, while I have two full-time employees, myself and my 
wife, I sometimes employee seasonal workers throughout the year 
to help me manage the workload during busy periods. This allows 
me to manage cash flow and overhead in order to keep my 
business afloat in lean times. These seasonal employees are 
``leased'' through a professional employer organization. Late 
last year, the Department of Treasury released regulations 
suggesting that businesses who hire workers through temporary 
and employee leasing agencies may find themselves deemed to be 
co-employers with the agencies and, thus, are jointly and 
severally liable with the agencies for ACA penalties,\2\ To say 
this was unexpected is an understatement. The bottom line is 
that this decision could single-handedly bankrupt my business. 
This is a prime example of how the agencies tasked with 
implementing the Affordable Care Act have manipulated the 
legislative intent of the law. Congress must act in order to 
ensure that small businesses, like mine, are able to utilize 
seasonal or ``leased'' employees, without facing additional 
costs, an unintended consequence of ACA compliance.
---------------------------------------------------------------------------
    \2\ http://www.irs.gov/pub/irs-drop/n-12-58.pdf

    Another unintended consequence of the implementation of the 
Affordable Care Act is another interpretation by the Department 
of Treasury, Health and Human Services, and Labor in regards to 
Health Reimbursement Arrangements ``HRAs''. HRAs are both a 
popular and effective tool for the self-employed and micro-
business community that allows for an employer to provide 
reimbursement to an employee for health related expenses. The 
employer must offer this arrangement to each employee at the 
same reimbursable rate, which provides a unique and flexible 
way for micro-and small business owners to still access 
individual health care coverage, even when they are unable to 
afford group health care coverage. However, in technical 
guidance issued in September 2013 \3\, the Department of 
Treasury, Health and Human Services, and Labor, determined that 
HRA plans could be offered by an employer only if they also 
provided a health care coverage that met the Essential Health 
Benefit requirements as set forth by the Affordable Care Act, 
regardless of company size. The NASE does not dispute that an 
HRA is not, nor should it be, a qualified health care plan. Nor 
are we advocating that offering an HRA should meet the employer 
mandate; however, that is not how HRAs were established or 
previously used by micro-or small businesses. HRAs were 
originally used to provide minor financial assistance to 
employees for the overall costs of health care, including but 
not limited to: out-of-pocket expenses, prescription costs, and 
co-pays; expenses that still exist even if an employee has 
purchased health insurance through the Exchange Marketplace in 
order to meet the individual mandate requirement. The NASE 
strongly objects to the guidance provided and requests that 
Congress seek to clarify the intent of the law. In addition, we 
suggest allowing for the use of HRA plans by micro-and small 
businesses that fall under the employer mandate threshold as a 
tool to help provide financial assistance to their employees in 
covering health care expenses.
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    \3\ http://www.dol.gov/ebsa/newsroom/tr13-03.html

    Finally, I would be remiss if I did not echo the calls by 
the NASE for parity between the ``big business'' community and 
America's smallest businesses. The self-employed and micro-
business community, representing nearly 76 percent of the 
entire small business community, continues to struggle in 
meeting the ACA's compliance requirements while our corporate 
counterparts continue to get a pass from the Administration. 
Specifically, the NASE is calling for a one-year delay in the 
individual mandate penalty for one calendar year--in fact, this 
week we anticipate that the House of Representatives will vote 
on H.R. 4118, Suspending the Individual Mandate Penalty Law 
Equals Fairness Act, introduced by Representative Lynn Jenkins 
(R-KS), which would delay the individual mandate penalty. I 
hope that this subcommittee, and the committee as a whole, will 
support the measure and provide much needed relief to those who 
are struggling to meet the requirements of the law. 
Additionally, due to the problems with the launch of the new 
health care system, we also urge the Administration and 
Congress to extend the open enrollment period until the end of 
2014. This extension would allow adequate time for both 
individuals and small business owners to properly educate 
themselves about the best and most affordable health care plans 
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available to meet their unique needs.

    For the self-employed, the impact of the Affordable Care 
Act on us, our families, and our businesses has been enormous, 
but not all of those impacts have been negative. In fact, since 
the implementation of the Affordable Care Act, NASE members 
have been able to access comprehensive and affordable health 
care coverage in the Individual Marketplace, especially those 
who had previously faced barriers, such as pre-existing 
conditions and/or age discrimination. However, those success 
stories are often buried under the significant challenges too 
many of us are continuing to have to face. Even the simple act 
of enrolling in the Exchange Marketplace has placed a hardship 
on many of us who have attempted to navigate a complicated and 
too often broken system laced with misinformation, inaccurate 
pricing and hidden costs. Compliance is not made any easier by 
the continued unilateral action taken by the Administration to 
delay or interpret the law without input that leads to further 
confusion and mistrust in the system.

    It is a challenging time for America, but I believe that 
together we can help identify solutions to problems that lead 
to a strong country that offers fair and equitable access to 
comprehensive and affordable health care. Now is not the time 
to repeal and replace this new law, rather fix it so it works 
for all Americans.

    I, on behalf of the National Association for the Self-
Employed, thank you for the opportunity to offer the self-
employed perspective on how the ACA has impacted our community.

                                 
