New Plans Promise Lowered Health Insurance Costs for Small Businesses

The US Chamber of Commerce called the new regulation a 'victory' for small-business owners

U.S. President Donald Trump speaks alongside Secretary of Labor Alexander Acosta (R) during the National Teacher of the Year reception in the East Room of the White House in Washington on May 2, 2018. SAUL LOEB/AFP/Getty Images

The Trump administration has unveiled a new health care plan that could be a big win for millions of small businesses, employees, and their families.

The Department of Labor finalized a rule expanding Association Health Plans (AHPs) on June 19. The plans, also known as Small Business Health Plans, offer a more affordable health insurance option for small businesses by enabling them to group together.

Many small-business owners face high health insurance premiums and limited coverage options due to the Affordable Care Act, also known as Obamacare. Now they may gain many advantages enjoyed by large employers.

The U.S. Chamber of Commerce called the Trump administration’s reform a “victory” for small businesses.

“Previously, the unequal treatment of large and small companies left smaller employers with a stark choice: either pay for high-priced comprehensive plans or offer no health coverage at all,” stated Thomas Donohue, president and CEO of the U.S. Chamber of Commerce.

“AHPs are a major step in the right direction for small businesses and the millions of Americans who will now be able to buy lower cost health insurance plans.”

An estimated 4 million Americans would benefit from new AHPs, according to the Chamber of Commerce.

Small businesses don’t have economies of scale and hence they lack bargaining power. By banding together, they will benefit from higher negotiating power, lower administrative costs, and larger risk pools.

Under the new rule, employers will be able to form AHPs by city, county, state, or multi-state metropolitan areas. City chambers of commerce, for example, will be able to provide health insurance to their employer members.

The Las Vegas Metro Chamber of Commerce has already announced its intention to create a new association plan. The chamber used to offer a small business group health plan for nearly 30 years until it was discontinued under Obamacare.

“It’s going to be millions and millions of people, where they’re going to have tremendous negotiating rights to buy health care with the insurance companies,” said President Donald Trump at a roundtable discussion in Las Vegas on June 23.

“You can cross state lines. That means you have a lot more competition,” he said.

The new regulations eliminate the geographical restriction, allowing for a competitive AHP market to flourish across state lines.

By helping ease the regulatory burden of Obamacare on small businesses, the new rule will address inequities between small and large businesses.

“The regulatory burden on small businesses should certainly not be more than that on large companies,” Labor Secretary Alexander Acosta said on a call with reporters on June 19.

The Congressional Budget Office (CBO) estimates that 400,000 currently uninsured people will obtain coverage under AHPs.

Small-business owners have increasingly struggled to get affordable health insurance coverage for their employees, as a result of Obamacare. The percentage of small businesses offering health care coverage fell by about one-quarter between 2010 and 2017.

According to Linda McMahon, head of the Small Business Administration, the new rule is welcome news to small businesses.

“This reform will help empower small businesses,” she said in a statement.

“It’s an important step in reversing a multiyear downward trend in the number of small-business owners offering health insurance to their employees as a result of rising premiums and increasing deductibles.”

According to a survey by the National Federation of Independent Business, one of the biggest challenges for small-business owners is health care costs, which eat up a huge chunk of their budget.

In 2017, the average annual premiums for employer-sponsored health insurance were $6,690 for single coverage and $18,764 for family coverage, according to the Kaiser Family Foundation.

The premiums more than doubled between 2013 and 2017. As a result of the new rule, health-care costs for small businesses and their employees could drop by thousands of dollars per year, according to estimates.

Critics, however, are cautious about whether the plans will provide adequate benefits and sufficient protection to consumers.

The new regulation exempts plans from covering maternity care, prescription drugs, mental-health services, and other health benefits the Affordable Care Act requires. Acosta highlighted that the rules keep the same “consumer protection and health care anti-discrimination that currently apply to large companies.”

The rule allows AHPs to form under either the old rules or the new rules, depending on what works best for the business owner.

In October 2017, Trump issued an executive order, “Promoting Healthcare Choice and Competition Across the United States,” that called for the secretary of labor to work on expanding access to health coverage by allowing more employers to form AHPs.