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The Effects of Health Reform on Small Businesses and Their Workers

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Document date: June 21, 2011
Released online: June 21, 2011


This brief consolidates the results of several UI studies addressing the effects of the Affordable Care Act (ACA) on small firms.  We find generally positive effects of the ACA on small employers and their workers.  Employers with fewer than 50 workers will experience substantial savings on health costs; employers with 50 to 100 workers will see a very small cost increase.  The smallest firms are expected to have higher offer rates, resulting in a small increase in employer coverage.  Small firm workers and their families will reap substantial benefits from the Medicaid expansion and subsidies to low-income families.

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Several components of the Affordable Care Act have the potential to affect the health insurance choices and responsibilities of employers. The implications of the reforms will vary, however, depending upon employer size. Some have raised concerns, in particular, with the effects of the reforms for small firms. Specifically, claims have been made that the ACA will increase health care costs for small firms, which could reduce health insurance offers and coverage for small firm employees.1 Here we summarize the findings of several Urban Institute analyses related to the impacts of health reform on small businesses.2 We discuss the challenges small businesses face in the current system, as well as the components of the ACA with the strongest implications for this population. We also present estimates of the impact of the ACA on employer costs, offers and coverage from the Urban Institute's Health Insurance Policy Simulation Model (HIPSM).

Ultimately, we find little evidence that the ACA will negatively affect small firms, and, instead, we find evidence of significant benefits for these employers and their workers. The law expands coverage options for small firms while limiting the new requirements imposed on this group. The smallest firms will see a significant increase in offer rates under the ACA, and firms of all sizes will see substantial savings on premium contributions. While the effects of the ACA on employer sponsored coverage for small-firm workers and their dependents are estimated to be small, these workers and their families are expected to reap significant benefits from the law as a whole. When accounting for the effects of the Medicaid expansion, individual health insurance exchanges and federal subsidies for low- and moderate-income families, small-firm workers and their families are expected to experience large increases in insurance coverage under reform.

End of excerpt. The entire brief with footnotes is available in PDF format.

Topics/Tags: | Employment | Health/Healthcare | Poverty, Assets and Safety Net

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