[Senate Hearing 114-675]
[From the U.S. Government Publishing Office]
S. Hrg. 114-675
THE SMALL BUSINESS STRUGGLE
UNDER OBAMACARE
=======================================================================
HEARING
BEFORE THE
COMMITTEE ON SMALL BUSINESS
AND ENTREPRENEURSHIP
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
SECOND SESSION
__________
MAY 18, 2016
__________
Printed for the Committee on Small Business and Entrepreneurship
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED FOURTEENTH CONGRESS
----------
DAVID VITTER, Louisiana, Chairman
JEANNE SHAHEEN, New Hampshire, Ranking Member
JAMES E. RISCH, Idaho MARIA CANTWELL, Washington
MARCO RUBIO, Florida BENJAMIN L. CARDIN, Maryland
RAND PAUL, Kentucky HEIDI HEITKAMP, North Dakota
TIM SCOTT, South Carolina EDWARD J. MARKEY, Massachusetts
DEB FISCHER, Nebraska CORY A. BOOKER, New Jersey
CORY GARDNER, Colorado CHRISTOPHER A. COONS, Delaware
JONI ERNST, Iowa MAZIE K. HIRONO, Hawaii
KELLY AYOTTE, New Hampshire GARY C. PETERS, Michigan
MICHAEL B. ENZI, Wyoming
Meredith West, Republican Staff Director
Robert Diznoff, Democratic Staff Director
C O N T E N T S
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Opening Statements
Page
Vitter, Hon. David, Chairman, and a U.S. Senator from Louisiana.. 1
Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire.......... 3
Witnesses
Panel 1
Frank, Hon. Richard G., Assistant Secretary for Planning and
Evaluation, U.S. Department of Health and Human Services,
Washington, DC................................................. 5
Panel 2
Kunkel, Tom, President, Full House Marketing, Inc., Edgewood, MD. 26
Brey, Mike, President, Hobby Works, Laurel, MD................... 33
Kuhlman, Kevin, Director of Legislative Affairs, National
Federation of Independent Business, Washington, DC............. 37
Alphabetical Listing and Appendix Material Submitted
Brey, Mike
Testimony.................................................... 33
Prepared statement........................................... 35
Frank, Hon. Richard G.
Testimony.................................................... 5
Prepared statement........................................... 7
Kuhlman, Kevin
Testimony.................................................... 37
Prepared statement........................................... 39
Responses to Questions Submitted by Senator Enzi............. 67
Kunkel, Tom
Testimony.................................................... 26
Prepared statement........................................... 29
Responses to Questions Submitted by Senator Enzi............. 65
Shaheen, Hon. Jeanne
Testimony.................................................... 3
Prepared statement........................................... 62
Vitter, Hon. David
Opening statement............................................ 1
Prepared statement........................................... 54
THE SMALL BUSINESS STRUGGLE
UNDER OBAMACARE
----------
WEDNESDAY, MAY 18, 2016
United States Senate,
Committee on Small Business
and Entrepreneurship,
Washington, DC.
The Committee met, pursuant to notice, at 2:05 p.m., in
Room SR-428A, Russell Senate Office Building, Hon. David
Vitter, Chairman of the Committee, presiding.
Present: Senators Vitter, Risch, Scott, Fischer, Gardner,
Ernst, Ayotte, Shaheen, Cantwell and Cardin.
OPENING STATEMENT OF HON. DAVID VITTER, CHAIRMAN, AND A U.S.
SENATOR FROM LOUISIANA
Chairman Vitter. Good afternoon, everybody, and thanks for
joining us today in the Senate's Small Business Committee
hearing to discuss the impact of the Affordable Care Act on
America's small businesses and employees.
I would like to thank the Ranking Member, Senator Shaheen,
and the other members of the Committee, who should be on their
way, for participating today.
Since its enactment in 2010, the Patient Protection and
Affordable Care Act has forced so many small businesses to
change fundamentally the way they provide employer-sponsored
health insurance coverage for their employees. Currently, 60
percent of small employers do not offer health insurance to
their employees, and much of that is due to the high cost of
providing health insurance that must be purchased on the small
group market.
Clearly, in my opinion, the Affordable Care Act has failed
its namesake intention. From rising premiums and increased
health care cost, to reduced access to doctors and hospitals,
ObamaCare just is not working for so many Americans.
Now lest you think that is a partisan statement, let me go
specifically to demonstrated facts. Fact number one, premiums
and deductibles have risen every year since the ACA passed in
2010. Premiums have gone up 24 percent, deductibles have gone
up 67 percent. Wages, on the other hand, have only increased 10
percent.
Fact number two, ObamaCare has increased premiums for the
average American family. Now we all recall when the President
said he would sign a universal health care bill by the end of
his first term that would cover every American and cut the
costs of a typical family's premium by $2,500 a year. That just
has not happened.
Between 2009 and 2015, the average family premiums for
employer coverage have increased to $4,170. This year is just a
continuation of that trend, with average premiums for
benchmarked Silver plans on the Federal exchange rising by 7.5
percent this year, far surpassing inflation. For Bronze plans,
premiums have increased an average of 12.7 percent this year
and the fear is that next year they will go up even more.
Fact number three, over 4 million people had their plans
canceled because those plans did not meet the new ObamaCare
requirements. And of course, that is despite the President's
promise 37 times over that if you like your health care plan,
you can keep it.
Fact number four, visits to emergency rooms have increased
by 75 percent, which becomes enormously expensive for hospitals
and taxpayers. And this utterly contradicts one of ObamaCare's
biggest selling points, that once everyone got health insurance
coverage, emergency room care would go down significantly.
Fact number five, with all of this, there are still 33
million people who are uninsured.
When it comes to ObamaCare and small businesses, there were
a number of provisions meant to encourage employer-sponsored
health insurance coverage, particularly among small businesses.
Unfortunately that, too, did not play out as promised by
President Obama and his administration.
Today I want to focus on three ObamaCare provisions that
most directly relate to small businesses. Number one, an
employer penalty for not offering health insurance known as the
employer mandate. Number two, a tax credit to increase the
affordability of health care for the smallest firms. And number
three, small business health insurance exchanges designed to
increase plan options and lower plan costs.
The employer mandate punishes small employers who do not
offer adequate or affordable coverage if at least one of their
employees enters an individual health insurance exchange and
receives a premium credit. These related penalties were
scheduled to take effect in 2014 but, because of the political
implications, the administration delayed implementation for
businesses with 100 or more full-time employees until 2015 and,
for businesses with 50 to 100 until 2016.
Last year, small employers who offered to pay their
employee's medical expenses directly through a health
reimbursement arrangement were told by the IRS they could not
do that anymore and, if they did, they would be penalized $100
per day per employee, up to $36,500 a year.
It is worth noting that a $36,500 penalty is 18 times
greater than the $2,000 penalty on a large employer that does
not provide insurance at all.
That logic does not make sense to me. Small businesses
account for over 99 percent of employer firms in the U.S. and
we should be focused on helping them grow and create more jobs
instead of penalizing them.
Another ObamaCare failure is the Small Business Tax Credit.
The ACA provides a Small Business Tax Credit to for-profit and
non-profit organizations with fewer than 25 full-time
employees, phasing out as firm size increases. The problem is
that most small businesses are not signing up. The
administration estimated that 4 million small businesses would
be eligible and sign up for the tax credit, but only 181,000
claimed the credit in 2014, according to the GAO. A big gulf,
obviously, between 4 million and 181,000.
Small businesses are also avoiding the Small Business
Health Options Program and the SHOP exchanges, which were
specifically designed to help small business utilize the risk
pool mechanism of the newly established health insurance
exchanges.
Despite the Small Business Tax Credit and the SHOP
exchanges, businesses simply cannot afford to provide health
insurance for their employees in many cases. Not only do small
businesses pay approximately 18 percent more, on average, for
health insurance per employee, than large companies, they also
receive fewer comprehensive benefits.
Part of the small business struggle is having limited
options in health plans. Big insurance companies are bailing
out of the health insurance exchanges, leaving individuals--
especially folks in rural areas--with only one or two choices
in health plans. So choices are shrinking as we speak, not
expanding. This consolidation of health care providers is
forcing out the small independent physicians who are essential
to a competitive health care market.
Then there are the taxes that have been imposed, like the
health insurance tax and the Cadillac tax.
When you put all of these problem areas together, it is
quite clear to me that ObamaCare is failing American small
businesses.
I am hopeful that today's discussion will shed some light
on how folks are managing their businesses in the real world,
despite all of these impediments.
With that, I will turn to our Ranking Member, Senator
Shaheen.
OPENING STATEMENT OF HON. JEANNE SHAHEEN, RANKING MEMBER, AND A
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Shaheen. Thank you, Mr. Chairman. The purpose of
today's hearing is to examine the impact of the Affordable Care
Act on small businesses.
I am sure it will come as no surprise to anyone here in the
room that I have a very different view of how the Affordable
Care Act is working than Chairman Vitter.
I believe that the Affordable Care Act is working. Millions
of Americans, including tens of thousands of people in New
Hampshire, now have access to affordable health care coverage.
Just yesterday, the National Health Interview Survey
released estimates that showed that 9.1 percent of Americans
are currently uninsured, and that is the lowest uninsured level
on record. The survey also shows consistent declines in
uninsured rates since the Affordable Care Act took effect.
Since the law was passed in 2010, the country has had over
74 straight months of job growth with more than 14.6 million
jobs created, and the unemployment rate has been cut in half.
In my home State of New Hampshire, our unemployment rate is 2.6
percent.
Now I know that we would all agree that we must continue to
create and promote policies that incentivize better health care
at lower costs. The Affordable Care Act has taken some
important steps forward to develop, test, and implement
innovative health care delivery system reforms. And this is
essential to controlling health care costs, which is important
to individuals and small business owners.
Because of the ACA, Americans now have health insurance
options and can no longer be discriminated against because they
have pre-existing conditions. This gives so many people the
opportunity to leave a job they may otherwise have stayed in
just because of the health benefits. So now they can pursue
their dreams in other areas.
It also allows some who are self-employed to get insurance
for the first time. Take, for example, Steve, who is a self-
employed real estate broker from Londonderry, New Hampshire.
Steve is 61 years old and he had a bypass 12 years ago. Because
of his medical history, prior to the ACA he was unable to
purchase health insurance. Once the ACA was enacted, he
purchased a Silver plan and two months later he had another
quadruple bypass. This year, Steve pays about $80 a month for
coverage, after a tax credit is taken into account. So the
Affordable Care Act saved Steve from financial ruin and it has
allowed him to continue to work.
I do appreciate, though, that despite the gains made under
the Affordable Care Act, there is still more work to be done. I
also have heard from small businesses who are concerned by
provisions in the ACA. They tell me about the impact of higher
insurance premiums, the reporting requirements that can be a
burden to some small businesses, and the effect the employer
mandate has on hiring practices.
I believe there are changes that need to be made to the law
to make it work better, especially for small businesses. For
example, I am pleased to support Senator Coons' legislation--a
member of this Committee--that would expand and simplify the
ACA's Small Business Tax Credit, making it available to more
employers for a longer period of time.
I am also a cosponsor of Senator Warner's Commonsense
Reporting Act, which makes important changes to streamline the
ACA's reporting requirements, making it less burdensome for
employers.
And last fall, Senator Tim Scott, another member of this
Committee, and I joined together to pass the first stand-alone
bipartisan Affordable Care Act change. The PACE Act will help
small businesses by protecting them from premium increases in
the small group market that could have otherwise occurred
without that legislation.
So it is my hope that we can continue to come together to
work in a bipartisan way to improve the Affordable Care Act,
particularly for small businesses in New Hampshire and across
the country.
I look forward to today's discussion. I look forward to
hearing from our first witness, Mr. Frank, and from our other
witnesses who will come later.
Thank you.
Chairman Vitter. Thank you.
Now we will go to our first panel, an Administration
witness, Dr. Richard Frank. He is the Assistant Secretary for
Planning and Evaluation with the U.S. Department of Health and
Human Services. As such, he advises the Secretary on the
development of health, disability, human services data and
science policy and provides advice and analysis on economic
policy.
From 2009 to 2011, Dr. Frank served as the Deputy Assistant
Secretary for Planning and Evaluation, directing the Office of
Disability, Aging, and Long-Term Care Policy.
Dr. Frank has a BA in Economics from Bard College and a
Ph.D. in Economics from Boston University, and is on leave from
his position at the Harvard Medical School.
Welcome, Dr. Frank. You have five minutes and are certainly
welcome to submit anything additional for the record.
STATEMENT OF HON. RICHARD G. FRANK, ASSISTANT SECRETARY FOR
PLANNING AND EVALUATION, U.S. DEPARTMENT OF HEALTH AND HUMAN
SERVICES, WASHINGTON, DC
Mr. Frank. Thank you, Chairman Vitter, Ranking Member
Shaheen, and other members of the Committee. Thank you for the
opportunity to discuss the progress that has been made in
reforming our health care system through implementation of the
Affordable Care Act and, most significant to today's
discussion, small businesses and their employees.
In the time I have with you today, I will touch on the
accomplishments of the ACA and the specific impacts it has had
on small firms. I will also touch on some of the economic
issues that have been raised in connection to the ACA.
In the past, although many small businesses have wanted to
offer health benefits to their employees, they have faced many
challenges. Historically, small businesses have been charged
more for the same benefits than large employers.
The ACA has equipped us with a number of tools for
addressing health insurance coverage in small businesses. These
include coverage expansion, small employer tax credits, the
creation of Small Business Health Options Program, or SHOP,
exemptions from the employer mandate. And we judge our success
by the impact of this whole package of policies.
In 2013, prior to the implementation of the ACA's coverage
expansion, more than 44 million Americans were uninsured. In
2012, it was estimated that 61 percent of uninsured workers
were employed by firms with 100 or fewer employees. Since then,
we have made historic progress in reducing the size of the
uninsured population.
In the years since the ACA passed, we estimate that 20
million Americans that were previously uninsured have gained
health insurance coverage. These coverage gains are
particularly notable for employees of small businesses. Data
from the Current Population Survey highlight the overall gains
in coverage among workers employed by firms with under 100
employees. Overall, there have been reductions in the number of
uninsured employees and owners of small businesses across all
categories of small businesses.
For firms with 10 or fewer employees, for example, the
percent of workers with no health insurance fell by 6.8
percentage points between 2013 and 2014, from 32.1 percent to
25.3 percent.
These gains have been realized while keeping spending
growth in check. Current enrollee spending growth for the
private sector, in private insurance, remains low. A similar
pattern is apparent when one examines the Bureau of Labor
Statistics Employment Cost Index. That measure measures changes
in the cost of compensating workers. The ECI data through April
of 2016 shows 12 month growth in employee benefit costs are at
3.3 percent, a continuation of historically low rates of cost
growth in health benefits.
When the ACA was enacted, there were predictions made by
some that the ACA would cause shifts from full-time to part-
time work and reduce total employment. Several studies have
been conducted examining the impacts of the ACA on labor
markets. The evidence consistently shows that there were no
significant negative effects on either total employment or the
mix of full-time and part-time employment attributable to the
ACA.
Some recent data from the National Federation of
Independent Businesses, NFIB, shows an increase to 53 percent
in the percentage of small businesses that are hiring or trying
to hire.
The Affordable Care Act created the Small Business Health
Options Program, or SHOP, to make it easier for small employers
to obtain health coverage for employees. The SHOP allows
eligible small employers to easily compare and select plans
that meet the needs of their employees. In 2015, some 85,000
Americans were covered by SHOP and had about 10,700 small
employers participating.
Now we continue to work on improving the consumer
experience through better technology, expanded choices for
employers and their employees, and existing research suggests
that these improvements can be expected to attract more
participants in SHOP in the future.
The ACA also offers a Small Business Health Care Tax Credit
for eligible employers with fewer than 25 full-time equivalent
employees to assist with up to 50 percent of their premium
contributions. Data from 2014 shows that $541 million in tax
credits due to this provision were claimed.
The ACA has used a range of policy tools to expand health
insurance coverage. Connecting workers to coverage regardless
of where they work helps improve productivity of the American
labor force and the evidence clearly shows that small
businesses are sharing in these benefits.
Thank you for your attention and I am pleased to take
questions.
[The prepared statement of Mr. Frank follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Vitter. Okay. Thank you.
You heard my critique of the actual experience of so many
Americans with ObamaCare since it was passed in 2010. You said
these provisions, like the tax credit provision for instance,
have to be judged by the success and impact of these policies.
Let us go to that because I think that is a good example,
certainly not the only one.
Again, if we can put up the relevant slide, the Small
Business Tax Credit slide.
The administration talked about 4 million small businesses
being eligible to take advantage of that. The actual experience
is 181,000, a trivial percentage of the 4 million. What
happened? And what is being done to change that?
Mr. Frank. I can tell you that we are doing a number of
things that we believe, and research supports, will allow this
market to grow. First of all, it is important to note that this
is an entirely new market and we are working in uncharted
territory. We are building a new market from the start.
In so doing, what we are working on is improving the
consumer experience by making choice clear and having
technology very supportive of consumers making choices and
businesses being able to negotiate the options out there.
Second, what we are trying to do is we are working with
partners such as brokers and agents. Recently, we have
completed training about 31,000 of these folks to help
consumers and employers find their way through the thicket of
options. And then finally, we are continuing to conduct
webinars and reaching out into the community in a variety of
ways to increase awareness of this program, which actually at
this point in time is still very low.
Chairman Vitter. So all of those things, I mean, we are at
181,000. The stated promise was 4 million. All of those things,
where are they going to get us over the next year, say from
181,000 toward 4 million?
Mr. Frank. I cannot tell you. I can tell you that we have
been talking to a number of states, and states like California
are projecting pretty rapid growth over the next two years in
their SHOP program by taking----
Chairman Vitter. First of all, I am talking about the Small
Business Tax Credit specifically. So do you have any estimate
or guesstimate about where we will go in the next year, from
181,000 toward the promise of 4 million?
Mr. Frank. Well, on the Small Business Tax Credit, that is
really sort of a Treasury jurisdiction, so I do not really have
the data that they have to sort of look at where the
projections are on that one.
Chairman Vitter. Okay. Can you submit for the record, by
talking to your colleagues at Treasury, where they expect to
get over the next year?
Mr. Frank. We can follow up with you on that.
Chairman Vitter. Probably the most fundamental fact that
has not played out was a promise that the President made 37
times over: If you like your health plan, you can keep it.
Has that promise been kept?
Mr. Frank. The vast majority of people who have liked their
health plan have been able to keep it.
Chairman Vitter. The promise was to everybody--if you like
your health plan you can keep it--37 times over. Has that
promise, that commitment, been kept?
Mr. Frank. As I said, we have worked very hard to make sure
that Americans are covered and the vast majority of people have
been able to keep their health plan and, in fact, many new
people--in fact, 20 million new people--have health plans that
they are now keeping.
Chairman Vitter. Well, the promise was not to the vast
majority. The promise was to everybody, right?
Mr. Frank. Well, there are 20 million people who now have
coverage and have the option of keeping their health plans that
did not have it before.
Chairman Vitter. Well, the promise was not about new
coverage. The promise was if you like your existing plan, you
can keep it. Four million folks, at least, have been forced off
their health plan. That promise has been broken. What is being
done to correct that?
Mr. Frank. We continue to work with all parties to do
things that will increase access, improve affordability,
improve quality of our health care system and our health
insurance system.
Chairman Vitter. Is that going to mean that those folks can
go back to their old plans that they were on and wanted to
keep?
Mr. Frank. Was that the question?
Chairman Vitter. The folks that were involuntarily thrown
off their former plans that they wanted to keep, is the work
that you are describing going to mean that they will be able to
go back?
Mr. Frank. We are working to try to get everybody
affordable, high quality health insurance. That is what I----
Chairman Vitter. Okay. That was not my question. So, can
you answer my question?
Mr. Frank. That is my answer.
Chairman Vitter. Okay, that was not my question.
Has competition in this important sector of the economy
increased since ObamaCare passed?
Mr. Frank. Yes. Actually, it has increased dramatically.
For the first time in years there are new entrants into the
small individual health insurance market. The provisions, for
example, we are putting into SHOP now allow people to choose
across issuers, within a middle level, which allows people to
really comparison shop in a way that they have not previously
been able to.
We have dramatically increased the transparency of
insurance offerings so that people can look at the cost-sharing
and look at the premiums and make easy comparisons between
them, including whether a plan includes their doctor or not.
That improves competition.
Chairman Vitter. So overall, as an economist, you believe
that overall competition has increased significantly?
Mr. Frank. I think competition in the individual health
insurance market has improved since the initiation of the
Affordable Care Act.
Chairman Vitter. Should that not stabilize and lower prices
instead of increase prices?
Mr. Frank. This is a start-up, and you have to remember
that prior to the creation of the Affordable Care Act, the
individual market was seeing double digit price increases
continuously, which was part of the slide that was not shown,
that they were growing very rapidly in the period prior to
2010. And what you have seen is, in fact, that level of growth
has actually stabilized and has come down a bit since the
initiation of the Affordable Care Act.
Chairman Vitter. So are you happy with what prices are
doing? And what do you expect in the near future?
Mr. Frank. We have work to do. We are not done, and I think
that is true on the small business side; it is true in the
individual market. And we are continuing to work within our
authorities to improve matters. But we are also anxious to work
with members of Congress to make changes that would improve
affordability, improve quality, and continue to grow access to
care.
Chairman Vitter. Okay. Well, I have a lot more concerns and
questions, but let me turn to Senator Shaheen. I am already
over time.
Senator Shaheen. Thank you, Dr. Frank, for your testimony.
One of the things that you pointed out is that there are
some jurisdictional issues around the Affordable Care Act. So
maybe it would be helpful if you could just clarify for me, and
for the Committee, what the role is of Health and Human
Services in terms of the Affordable Care Act and how you work
with some of the other agencies. You mentioned Treasury,
obviously the Department of Labor is also involved.
And then, if you would, talk about how you are working with
small businesses to address some of the concerns that you hear
from small businesses.
Mr. Frank. Thank you very much for the question.
The Department of Health and Human Services has a variety
of authorities. They relate, in part, to the exchanges. They
relate partly to insurance coverage. They relate very broadly
to what you termed delivery system reform.
Now we work very closely with the Small Business
Administration, the Department of Labor. Many of the insurance
regulations associated with the Affordable Care Act are so-
called tri-department regulations which involve Treasury, HHS
and Labor. In fact, yesterday I was down in Atlanta with my
Labor colleagues working on some mental health issues and
coverage policy there. That is just sort of an example of sort
of the way we do things regularly.
In terms of the small business side of things, the Small
Business Administration has been just fantastic partners to us.
They have done a tremendous amount of outreach to try to
increase awareness in the small business community, to try to
bring back ideas to us from their contacts. RCMS has worked
very closely with them to do webinars, to do visits around the
country. And we continue to work with our partners, including
the Small Business Administration, to train and support brokers
and agents in helping small businesses find their way into
things like SHOP.
Senator Shaheen. Thank you.
Obviously, rising health care costs are a concern that
everyone has, and I mentioned delivery system reforms in my
opening statement, as you pointed out. New Hampshire is proud
to have Dartmouth-Hitchcock Hospital and they are part of a
nationwide collaborative that is looking at delivery system
reforms and what that can do to lower health care costs.
Can you talk about how HHS is working on trying to address
some of those rising costs of health care and what you are
seeing in terms of the delivery system reform efforts?
Mr. Frank. Yes. Well, first of all, I do think it is
important to reemphasize that we are still in a period of
historical low rates of growth in spending. And that shows up
in savings to individual consumers and to employees of small
business. And we have seen some of the most dramatic effects--
--
[Audio system failure.]
Mr. Frank. In terms of delivery system growth reform, some
of the key elements are the way we pay providers. And we have
been making a dramatic pivot from the traditional fee-for-
service pay for volume [inaudible.]
Is this better?
Senator Shaheen. I think so. Try it again.
Mr. Frank. Usually they put a microphone on me to dampen my
voice.
[Laughter.]
What we have done is made this pivot from fee-for-service
pay for volume system to one where we are really trying to pay
for value. Our Secretary set a goal of moving the Medicare
program to a 30 percent pay for volume away from fee-for-
service by the end of 2016. We have already hit that goal.
Senator Shaheen. I am sorry, can you say that again?
Mr. Frank. So our Secretary, Secretary Burwell, when she
came in set a goal of getting 30 percent of Medicare no longer
just paying for volume, and moving toward value, including
quality through risk-based payments and the like. We hit that
goal at the beginning of this year, even though the goal was
for the end of this year.
So we are moving very aggressively to really changing the
incentives, so that all health care providers really are
focused on doing what is right and getting patients healthy, as
opposed to generating a lot of volume.
Senator Shaheen. Thank you. My time is up.
Chairman Vitter. Senator Ayotte.
Senator Ayotte. Thank you very much.
I wanted to ask Secretary Frank about, in particular, one
of the tools. I actually happened to have a meeting on Monday
with a number of small businesses in New Hampshire about this
topic. And one of the concerns that was raised in the meeting
by the small business owners was the restriction on the use of
Health Care Relief Acts. In other words, the Health Care Relief
Fund, I should say, reimbursement arrangements where you have
small businesses that have previously been funding their
employees' Health Savings Accounts. In fact, this one business
was doing it in supplement even to existing health care--they
had health care coverage for their employees and they provide
100 percent to their employees. And they had a health savings
account to allow their employees to help cover any gaps in
their coverage. So this is an employer who has gone--who is
doing a lot, really right, by their employees.
And yet, they raised the issue with me that they are very
concerned that now there is a regulation, currently a Treasury
regulation, essentially fining them $100 a day if they do that
as an employer. It seems to me, especially for our small
businesses, this is an important tool.
And I also think about our sole proprietors, too. I have
heard a lot from them, you know, that this Health Savings
Accounts can be a very important tool. And also, if you are an
employer who wants to help their employees--like this
employer--a health reimbursement account.
I am actually cosponsoring legislation to be able to
address that, but can you talk about this? Do you agree it is
an important tool that we should allow small businesses to have
access to help their employees?
Mr. Frank. Well, the HRAs are addressing--first of all, you
are correct that they are mostly sort of subject to the
regulations and the purview of the Treasury Department.
Senator Ayotte. Right. But we are talking about small
businesses, affordable health care. Do you think that that
regulation makes sense? Do you think that these types of
accounts are an important tool that consumers should have
access to, including small businesses?
Mr. Frank. So a couple things to note. First of all, HRAs
are not insurance. They are sort of these other types of
accounts and they do not meet the definition of insurance. So
one issue is that I think people conflate the two.
Senator Ayotte. I am not conflating. I am just being clear.
I have an employer that provides 100 percent coverage. They
have insured their employees. And they use the HRA as a
supplement to fill in any gaps in insurance.
Mr. Frank. As I said, this is mostly the purview of the
Treasury Department, but what I do know about is there are
provisions that if you have insurance and you want to do
additional funds through an HRA, that is permissible.
I think that what gets conflated in many quarters is sort
of where the line between HRAs and insurances are drawn.
Senator Ayotte. Okay, but do you think that--right now, you
would be fined $100 a day from Treasury. So do you think that
is a good idea?
Mr. Frank. Yes, I do not know the details. I do not
understand the details of that.
Senator Ayotte. Also, do you think that Health Savings
Accounts are good tools for people who--like, let us say you
are below the mandate level and you are an individual, and that
is something that is an important tool that you want to
utilize. What is your view on those?
Mr. Frank. Health Savings Accounts, for individuals?
Senator Ayotte. Yes.
Mr. Frank. I do not----
Senator Ayotte. What does Health and Human Service think--I
mean, the Affordable Care Act reduced the ability of what you
could use, in terms of over-the-counter medications and some of
these tools that we have had for Health Savings Accounts. So I
just wanted to know what is the administration's view on that?
Because I think it is an important tool that many have come to
me and say we want expanded access to these tools.
Mr. Frank. So, as I said, the details to that are really
the Treasury thing. I can tell you that HHS is focused on
really trying to get as many people covered as we possibly can
and that is sort of our number one priority here.
And really, the HSAs and the HRAs are really under the
purview of the Treasury Department. I am not that familiar with
the details of those regulations.
Senator Ayotte. I just think as we look at the big picture,
these are tools that we need to look at and we cannot have one
side of the Federal Government doing this and the other side of
the Federal Government interfering with other really important
tools that people use that, for some individuals, are very
helpful in covering their health care costs.
Mr. Frank. Okay.
Senator Ayotte. Thank you.
Chairman Vitter. Let me follow up with some questions that
Senator Ayotte brought up.
I realize you are in HHS, you are not in Treasury. But this
penalty is a big deal and it is a big part of the system and it
is a big impact on health care. And it is there to penalize
small business who want to do it one way versus the SHOP
exchange, which is what you are directly involved in.
So quite frankly, it just does not cut it to say you are
not in Treasury. This is a big deal and it is $100 a day
penalty per employee, up to $36,500 a year, small businesses
who are trying to pay their employees' medical expenses through
a Health Reimbursement Arrangement.
Do you think that draconian penalty is good policy? Because
that is a key policy that the administration is promoting.
Mr. Frank. So Senator Vitter, I appreciate your question
and really, the issue for me is I am not familiar with all of
the details. I do know----
Chairman Vitter. This is not exactly, you know, a comma on
page 672. This is a big deal, including for small businesses,
which was the whole purpose for this discussion.
Mr. Frank. I understand. I just am not familiar with all of
the details of that regulation. But what I think is important
is that we are interested, if there are problems, if there are
things that need to be changed, and they meet the test of
improving access, affordability and quality, we are happy to
work with Congress on that.
Chairman Vitter. Does that include lifting this penalty?
Mr. Frank. Look, we do have a variety of tools that we can
work on. We are willing to----
Chairman Vitter. Does that include lifting this penalty?
Mr. Frank. I think that we are willing to talk about moves
that will improve quality, access and affordability. I just do
not know--I have not been able to look into the consequences of
changing the policy you are talking about. It is for that
reason that I need to refer to the Treasury for the details.
Chairman Vitter. Thank you.
Senator Ernst.
Senator Shaheen. You mean Senator Cantwell.
Chairman Vitter. Oh, I am sorry.
Senator Cantwell.
Senator Cantwell. Thank you, Mr. Chairman.
Mr. Frank, good to see you here.
One of the issues, obviously, for small businesses, among
many people who are looking for affordable insurance these
days, is the ability to get leverage in the marketplace. One of
the provisions of the Affordable Care Act was the Basic Health
Plan. I do not know if you are familiar with it, but it is my
understanding that a couple of states have implemented that.
Do you see that as a way for smaller employers/employees to
leverage themselves in the marketplace, bundled up with others
to get more affordable rates?
Mr. Frank. Yes, I think so far we have seen these in New
York and Minnesota and we have about 400,000 people now signed
up in those and they seem to be doing well. They are set up in
a way that is fiscally very solid because they are budget
neutral. And again, it is a way of addressing some of the
problems that have historically plagued small businesses, which
is having difficulty to spread risk.
Other tools that we are using, such as the SHOP, are sort
of aimed at the same kind of fix.
Senator Cantwell. Well, you say spreading risk. I look at
it and say small businesses know that if you are an employee at
a small company versus a larger employer, you do not have the
same leverage in the marketplace. But what we have seen about
Basic Health Plans, at least when we had them, was that by
bundling up a large percentage of people together, 30,000 or
40,000 people, that you can gain a lot of leverage in the
marketplace.
And I think that is what these individual employees or
small entrepreneurs want to see, is their ability to get the
same kind of leverage as somebody that works for a larger
company.
Mr. Frank. Absolutely. In a sense, there are two things
that are accomplished at once. You grow the risk pool, you
spread the risk, and you bring a greater ability to move market
share and therefore bargain better in the marketplace.
Senator Cantwell. Well, I hope that--I know that it was a
challenge getting these rules out until just 2015, so it is
possible that other people could take this up and use it as a
solution in the coming years. Is that correct?
Mr. Frank. I think so, yes.
Senator Cantwell. Thank you.
Chairman Vitter. Okay, Senator Risch is next, and then
Senator Ernst.
Senator Risch. I just have a comment, not a question.
I have to tell you, Mr. Frank, I am astonished, sitting
here and listening to you tell us that you do not know the
details of these Treasury regulations that are so important to
what you do, that are related to what you do, that dovetail to
what you do, and you cannot answer simple questions that
Senator Ayotte or the Chairman has asked you about this.
This is an embarrassment. I mean, here you are in the
middle of this mess and you are supposedly administrating
certain parts of it, and you cannot tell us the details--as you
call them--of the other parts of it that are so important?
Can you imagine if you are a small businessman somewhere in
America who does not want to have anything to do with this and
who has to deal with this? And here you are, a bureaucrat that
deals with this every day. And you do not get it, you do not
understand it, you do not know about it. This is astonishing to
me, that you would come here before this Committee and give
those kinds of answers.
I will tell you, I am taken aback by this and it is
impossible for me to understand how whoever it is that is
running this can allow those of you who are further down,
trying to administrate it, not knowing what this is all about.
Mr. Chairman, this is--to me, this is just absolutely
astonishing.
Thank you.
Chairman Vitter. I agree, Senator. This is not a detail of
this legislation. It is a huge component with huge impact on
small business.
Senator Ernst.
Senator Ernst. Thank you, Mr. Chairman, and thank you for
coming today. I hope that we are able to get a number of
answers today.
I understand that earlier you were talking about the myth
that exists with small businesses that maybe are not able to
hire additional employees. And I would push back on that,
because that is not a myth in Iowa, because I hear it from
small businesses all the time.
One of those is a small business in Okoboji and the owner
had told me that they have had to halt plans to expand their
business, which was a thriving business. And then the ACA came
into play and because of the rules and the Affordable Care
Act's employer mandate, they decided not to expand and they
have stopped filling open positions. And what they did in that
transition period is they allowed people to retire and they
simply did not backfill jobs.
So that is not healthy for small businesses. When they have
an opportunity to expand and fill a gap that exists in our
marketplace, they should be able to do that without feeling the
heavy weight of the Federal Government.
I have heard those stories over and over again. Chuck
Grassley and I both do a 99 county tour across Iowa. What we
hear over and over again is about the detriment of the ACA,
whether it is the individual mandate or the employer mandate.
And so it is not a myth and we have got to stop saying it is a
myth because I see it and it is impacting people's lives.
Is your agency doing anything to address these challenges
that those employers have and the negative impact that the law
is having on job creation, specifically on job creation?
Mr. Frank. Well, first of all, I do not think I referred to
that as myth. We are always concerned about doing things that
will expand coverage for as many as we can and to promote the
interest of small business. That is why, in a sense, we have
exemptions from the employer mandate wherein 96 percent of
businesses are exempt from it. It is only--there is 2 percent
of businesses that are between 50 and 100 that are subject to
it that fall under the definition----
Senator Ernst. So timeout, just a second, 96 percent of all
businesses have exemptions?
Mr. Frank. Yes.
Senator Ernst. Then why did we need the ACA?
Mr. Frank. From the business mandate. There are other
provisions that are enforced.
The impact on the small businesses has been actually
strikingly positive. There have been very large decreases in
the uninsured rate among small businesses and particularly
among sole proprietorships. They have seen some of the largest
decreases in the uninsured rate.
And that, to us, is an incredibly important success here.
Senator Ernst. Okay. And you will count that as a success,
but I would like to push back from the other side to say--and
yes, I would agree that perhaps we do have more people that
have insurance, but they have extremely high deductibles. And I
spoke to a podiatrist yesterday that explained most of the
folks, especially young people, that are coming in and that
maybe have foot or ankle problems, they will come in and get
their initial evaluation to solve whatever issue they are
having with their feet. And because they have such a high
deductible, they will choose not to get a surgery. He said they
will limp around the rest of their lives on a bad foot, having
bad feet problems, because they do not ever meet that
deductible. They are young and healthy otherwise. Maybe they
have hurt their foot, but they are never going to meet the
point where they can actually engage in that surgery. They
simply cannot afford to do so.
So I would say yes, you know, they have got insurance. But
what good does it do when they have got such high premiums? It
is a real issue with folks in Iowa.
And I have got about 30 seconds, so if you could answer
that charge.
Mr. Frank. Sure. I think the important thing to recall is
deductibles have been increasing economy-wide for some time. In
the Affordable Care Act, there are a lot of provisions that try
to insulate people from that. For example, all the preventive
visits are now free, and so they do not count toward the
deductible.
People have choices among plans in most places, 90 percent
of people have choices of multiple plans where some deductibles
are higher and some are lower. And if they are low-income, they
have got cost-sharing reductions which insulate them further
from the deductible.
So I think that the statistics can be pretty misleading if
you do not sort of look at all of the nuances.
But I would like to go back to your point on the
employment. We have looked very hard because we are concerned
about employment. We worked closely with our colleagues at the
Department of Labor, who are really the main agency focused on
this. And we have been monitoring very closely changes in
employment, changes in full-time/part-time work among
businesses of different size. And overall, the trend is up.
I presented quite a bit of data on that in my written
testimony so I would be happy to share further details with
you.
Senator Ernst. Certainly. And I would like to make a point,
too, Mr. Chair, about those types of services that are
included, the preventive measures. One thing I have also heard
from physicians is that those that are not paying for those
services, they will call the doctor's office, they will make an
appointment, but they simply do not show up. And so the doctors
do block off time and then they are not able to recoup anything
for blocking off that time when they could be using that time
for a patient that really does want to be seen by a doctor and
treated.
So I know there are many issues out there and we really do
need to navigate through this and make sure that not only are
people receiving the health care that they need, but it is done
in a responsible manner and I do not think this law was done in
a responsible manner.
But I do thank you for your time.
Thank you, Mr. Chair.
Chairman Vitter. Thank you, Senator, and thank you, Dr.
Frank.
Now we are going to move on to our second panel. I will be
introducing them as they come to the witness table.
Tom Kunkel is President of Full House Marketing, Inc. He
started his own marketing company in 2007 and has over 30 years
of marketing, graphics, and business development experience
assembling his company that offers print, promotion, sign and
web solutions to local and regional businesses. Mr. Kunkel has
a degree from Towson University in marketing and mass
communications and had studied publications design at the
University of Baltimore.
Mike Brey is the owner of Hobby Works. That opened in 1992
and has expanded to five locations throughout Maryland and
Virginia. He had previously been a manager for larger retailers
such as Sam Goody, Tandy and Macy's. Hobby Works is a new breed
of retail store that brings a different shopping experience to
the consumer, combining the unique product mix of a specialty
shop along with the neatness of a chain store. It employees 48
employees in five locations.
Kevin Kuhlman is with the National Federation of
Independent Business. He is a Director of Legislative Affairs
there and he has also focused his advocacy efforts on health
care issues with members of Congress. Prior to his tenure at
NFIB, Kevin handled health care, labor, education and small
business issues for Congressman Peter Roskam from the western
suburbs of Chicago. He started his career on Capitol Hill,
working in support and research staff for the Ways and Means
Committee, serving under Chairman Bill Thomas, Ranking Member
Jim McCrery, and current Chairman Dave Camp. He holds a
Bachelor of Arts degree from the University of Illinois at
Urbana-Champaign.
With that, we welcome all of you. You will each have five
minutes. You can submit anything else you would like in writing
for the record.
We will start with Mr. Kunkel.
STATEMENT OF TOM KUNKEL, PRESIDENT, FULL HOUSE MARKETING, INC.,
EDGEWOOD, MD
Mr. Kunkel. Thank you, Chairman Vitter, Ranking Member
Shaheen, and members of the Senate Small Business and
Entrepreneurship Committee.
Thank you for this opportunity for me to testify today
before you and share my experience on how the Affordable Care
Act has impacted my business and my employees.
As you mentioned, my name is Tom Kunkel. I am President of
Full House Marketing and Print. We are actually neighbors. I
have a location based in Edgewood, Maryland, which is up in
Harford County, Maryland.
Growing up in a family owned business and then working
through various corporate positions, I was excited to return to
my hometown to fulfill my dream of owning my own small
business. In 2013, I took the plunge and left a full-time job
to take a part-time business that I was running to full-time. I
formed my company, Full House Marketing and Printing, as
mentioned. We are a full service marketing company. Over three
years, we have acquired and merged seven different companies in
all areas of marketing and printing into one company.
We provide the majority of our services in-house. We do
outsource some. We are able to provide cost effective marketing
and print solutions to local small- and medium-sized
businesses.
So I am not here only as a small business owner but also,
you know, a lot of small businesses are my customers, so I
obviously want a thriving customer base.
In 2015, we also opened several other locations. We
currently have four locations in three counties in Maryland,
with 25 full-time and six part-time employees.
I have a variety of employees, from retail positions
working at minimum wage to employees in the delivery and
production at $12 to $18 an hour, and then sales and technical
employees up to the $50,000 range, so a pretty diverse set.
Prior to the Affordable Care Act, as a small business,
growing up in a small business, it was difficult to compete for
employees with large companies with large benefit offerings.
Things like pre-existing conditions and few insurance options
for individuals, many qualified workers chose large businesses
over working locally because of their benefit programs.
From a small business perspective, the ACA actually could
have been a huge relief and benefit for us. We had hoped we
would be able to offer employees affordable health insurance
without pre-existing condition exclusions. They could choose a
variety of plans they wanted, not what our plan just offered.
And I was optimistic the ACA would help my 21 employees to
obtain health insurance.
I had several employees, one with diabetes and one with
high blood pressure, that actually--because they were
considered pre-existing conditions--could not get insurance.
I was reimbursing my employees for their premiums because
this offered me, as a small business, a way to compete with
larger companies who provided employer-sponsored health
insurance plans. I also had a Health Reimbursement Plan, still
do, that we set up. And we also offer supplementary insurance
programs.
I felt that I could better retain or compete to get better
employees because I had an affordable option for my employees.
And essentially, I offered the ACA as part of my benefits
program and my reimbursement as part of my benefit package.
However, in a meeting with my accountant in June of 2015,
just several weeks prior to the IRS Notice 2013-54, I learned
of that notice that prohibits employers from assisting with
employees' individual market health insurance. I was just
stunned. I could no longer help my employees with their health
care benefits, and there were also very steep penalties.
So mid-year, essentially July 1st, I had to pull my
employees together and tell them I could no longer reimburse
them for their health care and that they were essentially on
their own again. I had several employees who could not afford
their premiums without my contribution.
Since we were mid-year in their plans, they were forced to
cancel insurance, reenroll--some of them reenrolled in lower
cost plans with higher deductibles. Then they had to start over
with those deductibles for the year.
One of my employees, who happens to have cancer, was not
able to get his prescription refilled for over three weeks
because of the new plan, having to meet new deductibles. His
prescription is about $10,000 a month, so it is obviously very,
very difficult for him.
I do not believe this is what was intended by the
regulation, but it is the reality of what happened.
So now I had three options as a small business. I could
simply offer nothing at all, just tell them that we offer no
plans. My second option was to artificially inflate wages to
cover the cost for the employees. But to do that I would be
required to essentially inflate it by 35 percent, so that their
net pay would equal my previous contribution. In addition, this
option would have required me to pay additional expenses that
are employer-sponsored, including Worker's Comp, matching FICA,
Social Security, State and Federal unemployment. That equals
about $3.50 an hour in our case, or about $1,735 per employee
per year in additional costs for me, as an employer.
This also meant that any contribution would be subject to
individual income taxes and payroll taxes, which is the reason
for having to gross it up. And actually, the contribution
cannot be designated for health insurance, according to the
IRS.
For most workers, this inflated pay would have also caused
them to qualify for less of a subsidy through the Health
Exchange since they would have shown more gross income. I have
several examples of specific people and it would have
essentially reduced their subsidy by about $100 a month, which
essentially would have come out of their pocket.
My third option was to offer a group health plan. So, I did
go out, I researched a number of group options, spoke with a
number of different brokers, and I settled on a Maryland-based
plan that did not require a guaranteed participation--which was
a challenge with a lot of plans--and had very affordable rates.
I also did look at the SHOP program, but I was actually
told by two different brokers that it was too cumbersome and
that the tax credit would expire soon, so it was not worth
actually taking that as an option.
So I did offer the plan and, because of the expense of the
rates compared to individual plans in the exchange, none of my
employees elected to enroll in it. I do have several examples
which I can show later, but essentially it was several hundred
dollars a month more for someone to go on our group plan than
it was to go through exchange programs.
In a situation where my employees cannot afford insurance
and I am prohibited from helping, I look like the bad guy. I
tried to help them out and now I feel--or they feel--like I am
taking something away from them. I also expended a lot of time
and resources in exploring options and I am certainly not a
health insurance expert but none of them happened to work out
for my business.
Most recently, I lost a long-time employee who left to go
to a competitor who was able to offer him full-time benefits
and insurance. He cited his loss of that insurance contribution
as a major reason for his leaving. I also have another employee
that most recently left that I believe that was also part of
her decision.
IRS Notice 2013-54 has essentially taken us back to the
situation before the ACA, where a small business cannot afford
to offer health benefits to its employees. It has essentially
negated the ACA, from my perspective, for any of the benefits.
In today's political and economic climate, as a small
business it is difficult to operate in the global economy. I
feel the burden of many new initiatives as they affect my
company's ability to operate profitably and to hire and retain
employees. Many of these initiatives often have unforeseen
consequences and cause small businesses expenses and burdens
that can lead to actually less hiring, more expenses, and
sometimes lead to businesses closing their doors altogether.
IRS Notice 2013-54 is one such initiative. But the----
Chairman Vitter. Mr. Kunkel, I do not want to cut you off,
but I want to get everyone in and have time for questions and
discussion, so if you want to wrap up and we will go to Mr.
Brey.
Mr. Kunkel. Essentially, the Senate can help. The Small
Business Health Care Relief Act is one way in which it can help
in protecting small businesses from catastrophic IRS penalties
and restoring a business' ability to help their employees
afford individual affordable health care.
[The prepared statement of Mr. Kunkel follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Vitter. Thank you very much. And now we will hear
from Mr. Brey.
STATEMENT OF MIKE BREY, PRESIDENT, HOBBY WORKS, LAUREL, MD
Mr. Brey. Thanks for having me, Chairman Vitter and Ranking
Member Shaheen.
My name is Mike Brey. I am President of Hobby Works. We are
a hobby and toy store with four locations in the D.C. Metro
area, Maryland and Virginia. We have just under 50 employees, a
little over 30 full-time equivalents. Thanks for allowing me to
share my comments with you.
I started my business in 1992. I have been in retail my
entire life. So almost from the beginning I offered health
coverage, not only to help attract and retain good employees
but because, as a former retail employee myself, I had found it
difficult to get good affordable insurance.
My business has been successful, moderately successful, and
we have been able to expand on multiple occasions. But over the
years it became more and more difficult to continue offering
health insurance to my employees.
Prior to the passage of the Affordable Care Act, our
insurance rates were going through the roof. We were seeing
annual premium increases of 15 to 20 percent, sometimes even
higher. As a result, we were forced to ask employees to pay
more of their premiums and face higher deductibles in order to
continue offering coverage.
To put things in a little bit of perspective, from 2009 to
2010 we experienced increases of 18 to 21 percent. Prior to
2009, we experienced similarly large increases, usually double
digits, beginning in the early 2000s.
Once the Affordable Care Act provisions started going into
effect, our rates started improving and for a little bit of
time even stabilized. During the 2014 to 2015 enrollment
period, our rates went up 9.7 percent and the most recent
enrollment period our rates increased about 5 percent.
Other small business owners also struggled with rising
health care costs. Research shows that many small business
owners struggled to offer health insurance to their employees
due to costs. Small Business Majority's scientific opinion
polling found that the majority of small business owners
provided insurance to at least some of their employees. But of
those who did not, 70 percent said it was because they could
not afford it.
What is more, small businesses paid 18 percent more, on
average, for health coverage than large companies and we
received fewer comprehensive benefits.
So to me, inaction was inexcusable. The passage of the
Affordable Care Act was really the first thing that ever gave
me hope that the spiral of escalating costs and depreciating
quality of insurance coverage might finally end.
Many provisions of the health care law have been key to
making health insurance more accessible and affordable for
small businesses like mine. In addition to the marketplaces, a
multitude of cost containment provisions have gone in effect
that I feel like--at least in the short term here--are helping
to lower costs and provide more stability throughout the
system.
A survey conducted by Towers Watson and the National
Business Group on Health found that in 2013 employers
experienced the lowest increase in health care costs in 15
years. Some argue that the health care law is requiring many
small firms to drop their coverage. Analysis conducted by the
Kaiser Foundation found that the percentage of adults under 65
with employer-based insurance has held firm for the last five
years after steadily declining in the early 2000s.
Thanks to the health care law's cost containment
provisions, premiums are starting to stabilize and I believe
that I am finally starting to have some predictability and
stability when it comes to health insurance premiums and my
choice of plans.
What is more, in Maryland we actually have more options now
when it comes to insurance carriers and health plans. Where
before we only had a couple of carriers to choose from, we can
now choose between a variety of insurers that offer many
different health plans. The last cycle in Maryland, it was 110
options for my business to choose from.
Meanwhile, some claim that the health care law is a job
killer and that small businesses are being forced to make their
full-time employees to cut their hours. We have not felt that
same impact. For my part, I do not make expansion decisions
based on tax law. I do make expansion decisions based on
consumer confidence and how we expect sales to increase over
time. As a retailer, we are still recovering from the effects
of the recession but I, frankly, have never thought of
expanding or shrinking based on the health care law.
Some say that the health care laws are forcing small
businesses to hire more outside help in order to comply with
the law's requirements. As a small business owner, I can tell
you that the vast majority of owners, including myself, already
rely on the expertise of accountants and lawyers and brokers. I
had a broker before the health care law. I have a broker now.
I have been concerned about health care coverage costs and
how they impact my business and my employees since long before
anybody heard of the Affordable Care Act. And while the ACA is
not perfect and it will not solve our health insurance problems
overnight, it is the first meaningful law in decades that
attempts to meet many small businesses' core needs in regards
to rising health care costs. In this economy, policies that
allow us to spend less on health premiums so we can keep more
of our profits to reinvest in our companies and create jobs is
what we need most.
I will close by saying that strengthening and improving the
Affordable Care Act is the only path forward, I think, to
lowering the overall cost of health care and providing more
options for coverage for small business owners like myself.
Thank you for your time.
[The prepared statement of Mr. Brey follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Vitter. Okay. Thank you, very much, Mr. Brey.
Now we will welcome Mr. Kuhlman.
STATEMENT OF KEVIN KUHLMAN, DIRECTOR OF LEGISLATIVE AFFAIRS,
NATIONAL FEDERATION OF INDEPENDENT BUSINESS, WASHINGTON, DC
Mr. Kuhlman. Thank you, Chairman Vitter, Ranking Member
Shaheen, Senator Ernst and other members of the Senate Small
Business and Entrepreneurship Committee for hosting this
hearing today on this important matter.
My name is Kevin Kuhlman. I am a Director of Legislative
Affairs at the National Federation of Independent Business.
NFIB is the Nation's leading small business advocacy
association.
The ACA is and was the most significant overhaul of health
insurance markets and the tax code in more than 20 years.
NFIB's research and story collection demonstrate that the costs
to small businesses outweigh the benefits. The ACA has led to
higher premiums, increased compliance burdens, and decreased
benefit flexibility.
Congress does deserve credit for addressing some of these
concerns. Senator Shaheen referenced the PACE Act. But NFIB
urges further relief for small business owners and employees.
The Small Business Health Insurance Tax Credit and SHOP
Exchange were intended to incentivize small businesses to offer
group health insurance to employees. But these provisions
failed to deliver premium savings to a significant number of
small businesses due to fundamental limitations and
implementation problems.
The ACA added insurance requirements and taxes to help
insurance plans that were passed along in the form of higher
premiums. Congress thankfully suspended the health insurance
tax for the year 2017, saving an additional 3 percent in
increased premiums, but the tax restarts in 2018 and escalates
significantly in future years.
ACA implementation requires additional compliance and
paperwork burdens for small businesses, even when Federal
agencies have not fulfilled their responsibilities.
The biggest current compliance headache is the employer
mandate, which was fully phased in this year. Businesses with
50 or more employees must offer affordable and adequate health
insurance to employees or pay penalties. Business must track
the offers and cost of coverage for each employee monthly,
provide current and former employees with transmittal forms,
and provide the IRS with an additional form.
The IRS estimation of four hours and 12 minutes to conduct
research, complete paperwork, and file forms is grossly
understated. In reality, compliance requires much more time.
The SBA Office of Advocacy wrote that the employer mandate
would have a significant economic impact on a substantial
number of small businesses, triggering the Regulatory
Flexibility analysis. Unfortunately, Treasury disagreed and did
not conduct a small business economic analysis. The lack of
recognition from Treasury is frustrating for small business
owners.
The individual exchanges were supposed to notify employers
when they are at risk of a penalty because an employee receives
an advance premium tax credit on the exchange. But not a single
business has received a communication from the IRS yet.
Small businesses do not commonly employ human resource
professionals, so compliance responsibilities fall on the
business owner, like these gentlemen. Some of these functions
can be outsourced, yes, but those services are costly.
Many small businesses are unable to afford the high cost of
group health insurance. Instead, they directly paid for or
reimbursed employees individual market health insurance plans
and qualified medical expenses. This arrangement worked for
both employers and employees.
Now to be clear, this prohibition actually started with
HHS. I would be happy to go into further details on that during
questions. But in 2013, the IRS published sub-regulatory
guidance that prohibited employers from assisting employees
with individual plans. Enforcement began July 1, 2015, after an
initial delay, and continuing the practice risked that $100 per
employee per day penalty that was mentioned earlier. Penalties
of this magnitude would be disastrous for small businesses,
forcing many to close their doors. Certainly, lawmakers who
drafted the ACA did not intend to punish small businesses in
this manner.
Fortunately, bipartisan, bicameral legislation exists that
would right this wrong for small businesses. The Small Business
Healthcare Relief Act, S. 1697, would allow the flexible
practice to continue. NFIB urges Congress to consider this bill
and relieve small businesses from the threat of significant
harm.
Thank you again for allowing me to share NFIB concerns
before the Committee today. I look forward to answering any
questions and working with you to help provide further relief.
[The prepared statement of Mr. Kuhlman follows:]
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Chairman Vitter. Great. Thanks to all of you for your
testimony. Now we will get into some discussion.
Mr. Kunkel, obviously your testimony focused on health
reimbursement arrangements. If that draconian penalty against
what you did previously were removed, what would you do in your
small business? What would be the impact for employees?
Mr. Kunkel. Well, it would allow me to offer what I was
offering for a period of time, before the regulation took
effect. It would allow me to provide a set amount, a set
reimbursement to my employees essentially as a health plan for
them. And then it would allow them to go into the open market
and purchase whatever plan best suited them.
Because when we actually looked at even our own plan, our
own group plan, I am limited to three different plans that I
can choose and it is very, very difficult to have three plans
meet all of my employee's needs. So it would allow them to go
and get whatever plan they needed, whatever best fit them, and
then I am contributing to them and doing my part in helping
them have affordable health care.
Chairman Vitter. So again, if that major penalty were
lifted, would you, in fact, go back to that sort of
arrangement?
Mr. Kunkel. Absolutely.
Chairman Vitter. And in your opinion, how would your
employee's health care situation compare under that arrangement
versus now?
Mr. Kunkel. It would very definitely improve. One is that
it would allow some that are maybe paying right now out-of-
pocket because they wanted to keep health care. Now, if I am
giving them, for example, $300 a month they can use that to pay
for their entire plan. Or some people will probably get a
better plan and use the $300 to supplement and pay the rest out
of their pocket. But it certainly would give them better
opportunity to have health care. And again, from a competitive
standpoint now, I am able to say I offer a health care plan or
health care option that helps me retain employees and get
additional employees.
Chairman Vitter. Okay. Mr. Brey, I got the impression from
your testimony, and maybe I missed something, that you never
participated in that sort of HRA arrangement. Is that accurate
or not?
Mr. Brey. No, we did not. We always tried to offer full
health insurance plans and, at various times, covered different
amounts toward people's premiums. So at one point, when we
first start offering, we paid 100 percent of coverage. Now we
are down to somewhere in the 40 or 50 percent range.
Chairman Vitter. And understanding that you never directly
participated in that HRA, do you have an opinion about the
$36,500 penalty against it?
Mr. Brey. You know, I am opposed to anything that prevents
myself and my employees from having access to health care
coverage.
Chairman Vitter. Okay. Excuse me, one minute.
[Pause.]
Mr. Kuhlman, what are your members' concerns about
premiums, what they are doing 2017 and beyond? And what do you
think that is going to do in terms of small businesses offering
any health care?
Mr. Kuhlman. The high cost of health insurance has been our
member's number one concern every time we have asked them since
1986. So it continues to be that problem.
I think the initial requests for 2017, especially in the
individual market, where about 41 percent of small business
owners themselves purchase their coverage, is very concerning.
I think the requests on the small group side, the small
business side, traditional employer insurance, are a little bit
more moderated but they are still increasing.
So it is definitely a concern. The number one reason
business owners do not offer health insurance is cost. And if
you continue to offer--if costs continue to increase, you are
going to see a decrease in offer rates. What I mean by that is
in 2010 there were 39 percent of businesses with fewer than 50
employees that offered health insurance. In 2014, there was a 7
percent drop and only 32 percent of businesses with fewer than
50 employees offer health insurance. Those are HHS figures.
Chairman Vitter. Okay. Previously, Senator Ernst brought up
disincentives to job growth. And the most obvious one is the 50
employee line. Talking to your members, which you do both
informally and, I assume, you take surveys as well, is there a
meaningful disincentive for them to cross that 50 employee line
because of the employer mandate?
Mr. Kuhlman. I probably heard the most concerns with people
who were near or at that threshold. They breathed a little bit
of a sigh of relief when there was the upward adjustment for
the year 2015 to businesses with 100 employees and then it was
fully phased in this year, in 2016. So there was a little bit
of relief there, but anyone needs to be very concerned about
moving below that threshold because you can set yourself up for
ERISA lawsuits even after that.
So it is certainly a disincentive to grow, and dropping
could bring you new legal liability.
Chairman Vitter. Okay. Thank you.
Senator Shaheen.
Senator Shaheen. Thank you all very much for your testimony
and for being here today.
Mr. Brey, one of the challenges, I think, is to--as you
pointed out and Mr. Kunkel pointed out--is getting small
businesses to offer insurance and cost is the top concern that
they have. What more can we do to try and encourage small
businesses to help cover their employees?
Mr. Brey. You know, that is a big question. I think a lot
of small businesses, cost is obviously the number one issue.
And sort of the struggle to know what is coming the next year.
Especially in the years before the Affordable Care Act, it was
very frustrating for me to be providing coverage knowing that I
basically had just advanced the cause by one more year and that
next summer we might be having a similar conversation with our
broker, how can we lower the average age of our group, what
kinds of things--one year I think it was a 33 percent increase
because not only did costs go up a lot that year, but we also,
as a group, crossed an age band, which is how it used to work
in Maryland before then.
So that was really the most frustrating thing, the high
cost and the unpredictability of future costs.
Senator Shaheen. And Mr. Kuhlman, I appreciate the concerns
that NFIB has that you have heard from small businesses, and
that there is probably a disagreement among members of this
Committee about what we should be doing around health care. I
would bet that most of the members on this side of the room
would say we should repeal the law and most of the members on
this side of the room should say we should not.
So let us assume that we are not going to repeal the law,
because I do not think we are. I do think there are changes
that we should be looking at that we can make that would
improve it, make it work better, address many of the concerns
that small businesses have.
So can you talk about those changes that you would like to
see? Assuming the law stays in place, what would you like to
see done to improve it so that it works better for small
businesses?
Mr. Kuhlman. Thank you, Senator.
Again, I want to thank you for helping lead the effort on
the PACE Act. Had that not been passed, we would have seen
some----
Senator Shaheen. Right
Mr. Kuhlman [continuing]. Tumult in the market this
upcoming year.
I think what Tom identified and what I identified in my
testimony would be number one on the priority, the Small
Business Healthcare Relief Act. It has 14 bipartisan cosponsors
in the Senate, over 90 bipartisan cosponsors in the House. I
think it was just one of these unintended consequences, a game
of regulation telephone almost, where IRS says HHS says this
and HHS says IRS says that.
Senator Shaheen. So this is primarily the HRA issue?
Mr. Kuhlman. Yes, ma'am.
Senator Shaheen. Are there other things in there that you
think are important?
Mr. Kuhlman. I think Congress did some help with the end-
of-the-year legislation when they provided some relief from
some of the taxes. I think the Cadillac tax is going to be not
only a problem as we get closer to that threshold and above it
but, just reading from the two initial IRS notices, the
compliance responsibilities on the Cadillac tax for small
businesses is going to be far worse than the compliance
responsibilities for the employer mandate.
Further relief from the health insurance tax, I think,
would be another good place to--or a good effort to pass
because any of those excise taxes are just passed along in the
form of higher premiums.
Senator Shaheen. One of the things that we have heard a
fair amount about as the Affordable Care Act was being worked
on were efforts by admittedly larger companies like Safeway to
try and look at their employees and incentivize personal
activities that made them healthier; to try to encourage
exercise and reduce smoking and some of the challenges to
health care costs.
Are there things like that that small businesses have
looked at, that you are aware of, that have made an impact on
the cost of health care?
Mr. Kuhlman. I think those might come downstream in the
future but I just do not think the luxury is there yet. Usually
those are efforts by the human resources department to say hey,
we are going to put a big effort into a wellness program. In
this case, it would probably have to be the bosses here who
would have to say hey, we are all going to wear Fitbits and
walk 20,000 steps today. So I would defer to them.
Mr. Brey. We are in retail, we walk all the time.
Senator Shaheen. We have been trying to get people in
Congress to do that, as you know.
Do either of you have--have you all looked at that option
and have you thought about trying to encourage healthier
behavior among your employees?
Mr. Kunkel. That is--again, that is not a luxury,
typically, within a smaller business. I mean, I am the HR
department, I am the IT department, I am the accounting
department. So certainly we encourage our employees to be
healthy and do certain things, but, you know, I am typically
worried about getting orders out the door and answering the
phone. That is the reality of a small business.
Mr. Brey. I mean, we are in retail, so you know, people are
on their feet, walking around all day anyway.
But sort of the bigger answer to the question is that is
why I have been trying to provide health insurance since a year
or two after I started the company, especially in retail at the
time. It was very difficult to get any kind of health
insurance, even if you were a low level manager.
Mr. Kunkel. I think the challenge in that is that the
concern I saw was a lot of employees that--especially younger,
who thought they were invincible--that would not get health
insurance because they could not afford it, because they were
not providing it or were not providing an option. So they were
not getting their regular checkups and dental and all of that.
So I think us being able to afford it, in my case the
reimbursement was a way that I could provide that to them. That
was certainly preventative care from their standpoint.
Otherwise, they were waiting until they had to go to the
hospital before they sought health care.
Senator Shaheen. Well, thank you all very much.
Chairman Vitter. Senator Cardin is on the way so as we wait
for him, I think he will be here momentarily, just a comment
following up on Senator Shaheen's really good point.
I think when you talk to those companies like Safeway who
have done a lot of that, one big thing they will tell you is
the way to have an impact is not through feel good
encouragement but through provisions that have a bottom line
impact to the employee's bottom line, to their wallet, to their
take-home pay, to what they keep and enjoy.
Now obviously, we do not want to do anything that penalizes
genetics but outside of that, I think the way to have that sort
of healthy behavior impact is to make it pay for the individual
to go to this class, to lose weight, to not smoke or to
penalize things in the opposite direction.
Is Senator Cardin still on the way?
The Clerk. Yes, Senator.
Chairman Vitter. Well, would anybody like to break into
song, tell a good joke?
Mr. Kunkel. I have been involved--I am also on another
advisory board for Maryland Health Benefits Exchange. I know
there is a lot of talk about the SHOP program. So I certainly
see any kind of modifications in that--I mean, I was told by--I
do not know a lot about it, quite honestly, but I was told by
two different brokers not to--it was very cumbersome. You had
to apply with--essentially if you had three different insurance
companies, you had to fill out the paperwork for each of those
three.
So I was discouraged going into that. So I certainly see
that as a viable option moving forward, as long as it was made
a little less cumbersome for small business owners.
Mr. Kuhlman. Regarding the SHOP, I think there was a great
opportunity, and NFIB was long supporters of the concept of the
SHOP. I think either through the regulatory process and the
implementation process things kind of got lost in translation.
I think if it would have acted more like a vehicle where you
could do these HRAs or a defined contribution that allows
employees to pick a plan that fits theirs and their family's
needs, and the employer plays a supporting role, but is not
doing everything, that might have been--and it is a technology
tool that would help do that. I think that would be an
opportunity there.
The last thing is I would just discourage participation
requirements, minimum contributions requirements, because these
things serve as barriers of entry. And they can exist,
sometimes in just the State ones, but the Federal one has a
participation requirement barrier, as well.
Mr. Brey. Just as a Maryland small businessman, to add on
to this a little bit, let us not forget that as a small group
in Maryland we basically had no choices prior to the Affordable
Care Act coming along. Maryland already mandated in their small
group a lot of--like Maryland did not have pre-existings. They
already mandated small group coverage. So if you wanted to sell
small group coverage in Maryland, you had to abide by certain
rules.
And so as a result, we basically had two choices, plus
Kaiser. Kaiser did not work for us because we span three
states. So when the Affordable Care Act came along, frankly, I
understand that it is easiest and most fun to beat up on it.
But let us be honest, the coverage we had to choose from went
from almost nothing to dozens and dozens of plans, maybe too
many, almost.
But I would certainly rather have to fight through too many
plans than be stuck with this is the plan that you can get for
small groups this year.
Senator Shaheen. Mr. Brey, let me just say that in New
Hampshire we had some of those same problems. And in fact, when
the ACA started in New Hampshire, we only had one insurer in
our marketplace. We have now grown to five insurers and 11 plan
options, I think, have grown. I cannot remember how many now.
But it has been--it has had that same impact, and hopefully
that will continue and we can make the kinds of changes that
you all are encouraging in a way that makes it even more robust
and available for people who need it.
Chairman Vitter. Senator Scott.
Senator Scott. Thank you, Mr. Chairman. I know that you, I
believe, have already discussed the PACE Act a little bit
earlier and the importance for keeping the threshold of small
businesses defined at 50. We are very thankful for the passing
of our bill.
Senator Shaheen. I gave us credit.
Senator Scott. Oh, did you? Good job. Thank you very much.
Teamwork works, even in the United States Senate. It is a great
thing.
Mr. Kuhlman, ObamaCare imposed a new tax on--we call it the
HIT tax--which has been delayed for a year. But this is a
massive tax. Over the next couple of years, by 2018, it should
cost about $14.3 billion. And while we have that one year
moratorium on the HIT, the question really is how will that
impact small businesses in 2018 and beyond? This will be passed
on in higher premiums, without any question.
As a small business owner myself for about 14 years, it is
hard to wrestle with the reality that small businesses can pay
higher taxes, they can deal with higher amounts of red tape, or
they can hire more employees. It is almost impossible to do all
three.
Mr. Kuhlman. Yes, sir. Yes, Senator, it is passed along
dollar for dollar, so it is--in real numbers, it is $350 to
$500 per employee, on the individual market per family member.
It is problematic. And that is just when it does come back in
2018 at about $14.3 billion. Ten years down the road it is
going to be nearly double that, and that is just another added
cost there.
So we recommend--NFIB recommends any further relief that
can come from that. We are very thankful for the one year
moratorium and hope that it can be revisited soon.
Senator Scott. Thank you.
Chairman Vitter. Senator Cardin.
Senator Cardin. Thank you, Mr. Chairman. I appreciate it.
I want to thank all of our witnesses. I particularly want
to acknowledge with pride two Maryland people that are on our
panel. Mr. Kunkel, welcome. Mr. Brey, welcome.
I want to--I am a strong supporter of the Affordable Care
Act. I make no pretense otherwise. However, I think it can be
improved. I think we can make it better for small businesses.
That is why I think this hearing is particularly important on
how we can improve our health care system to help particularly
small companies. That is why this hearing, to me, is very, very
appropriate.
I have been in Congress long enough to remember the
hearings in which we had small businesses present on health
care before the passage of The Affordable Care Act. I served on
the Ways and Means Committee in the House of Representatives
and I recall very vividly the hearings that we had.
The number one issue, by far, that was brought up when we
had small businesses before us was the availability of
affordable quality health insurance.
And there were several reasons for it. One, there was a
huge escalation of costs of health care. And in fact, if we
used the pre-2010 Health Index, if that cost curve had not been
reduced, the average family health premiums today would be
$2,600 higher. So we have been able to bend the cost curve.
Now did the Affordable Care Act do that? I think it
contributed to that. But clearly, the cost curve is not what it
was pre-2010.
Secondly, there was a huge differential between small
companies that did not have a risk pool similar to larger
companies that caused, in my State I think we set up a small
market reform in my State to try to deal with it. But it was
about an 18 percent differential generally, between small
companies and large companies, for identical policies. That is
not totally eliminated but we have dealt with that under the
Affordable Care Act.
And then lastly, everyone who had insurance was paying for
those who did not have insurance because of cost-shifting. We
know that not just hospitals, which is pretty direct, the cost-
shifting to those who pay their bills, but all health care
providers there is a cost shift because of people who do not
pay their bills. In Maryland, the uninsured rates have dropped
from 13 percent down to about 7.5 percent.
So we have seen those three trends.
So Mr. Brey, if I could just start with you. Has there been
a noticeable effect on smaller companies as a result of these
dynamics occurring within the last five years in the health
market?
Mr. Brey. Well, since the full implementation of the
Affordable Care Act, we have seen premium increases in the
single digits compared to mostly double digits before. I think
I said in my testimony 9.7 percent in the 2013-2014 and then 5
percent--I am sorry, 5 percent in the current year and 9.7
percent before then.
Rates prior to that were increasing anywhere from 13
percent to 25 percent. That is each year. Not 24 percent over a
period of time since the passage of the Affordable Care Act,
which people point to quite a bit now. I am talking about those
were increases each and every year.
Senator Cardin. And of course, every employer and every
plan dealt with that differently. Some changed the benefits,
reduced the benefits. Some added to the costs for the
beneficiaries, copayments, deductibles, et cetera. And some
increased the premium contributions by employees. And of
course, employers put more money in, in some cases. It was a
combination of all of that.
So it is difficult at times, when you see premium
increases, to compare apples to apples because the Affordable
Care Act, of course, requires a certain benefit structure.
Mr. Brey. Correct. In fact, we did every single one of
those things, depending on the year. When I first started, we
paid 100 percent of people's coverage. And as I explained
earlier, by the time we got to the end, we are about 50 percent
covering the cost of their premiums. We had also switched to
plans that had higher deductibles, et cetera. So we had done
all of those things, trying to keep costs under control for us
because the number one thing I wanted to do is continue to
provide coverage for our employees.
Senator Cardin. Of course, the other thing we saw is, of
course, some companies just terminated their policies because
the premiums were unpredictable and they just could not do it.
So they had to terminate their policies. We also saw that in
the marketplace.
I am not saying it has been solved. I am saying this is
where we were before the passage of the Affordable Care Act.
And sometimes we forget where we were before we had a more
level playing field for small companies.
And the one practice that I always remember small companies
telling me, they would hold their breath every year to see
whether someone had a major illness. Because if they had a
major illness, one person, one family, it could very well
affect the ability to continue a health insurance plan because
of the costs going up reflecting that particular individual's
experience.
Mr. Brey. You also did not want your employees to get old
because they worked on the average age of the whole group.
Senator Cardin. Yes. I just think that it is useful for
Congress to reflect on that because if you look at it in
absolutes today--and obviously, there are dynamics occurring in
health coverage that we have to deal with. But if we did not
have the number of people insured, if we did not have a level
playing field, if we did not have broader pools available for
smaller companies, the circumstances would be far more
difficult to us to find affordable coverage for employees of
small companies.
Thank you, Mr. Chairman.
Chairman Vitter. Thank you.
One last point, there has been some criticism of the Small
Business Exchange. I just want to say for the record, I think
that is a fabulous deal if you are a member of Congress. If you
are a small business, I am not sure. But that is a different
topic and a different hearing.
And so with that, we will thank all of our witnesses. Thank
you for being here today. Thanks for what you do for the
economy.
We are adjourned.
[Whereupon, at 3:44 p.m., the Committee was adjourned.]
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