Small business and Obamacare

per state premiumsHere’s a big New York Times story about the dilemma small business owners face – should they offer health insurance to their employees? The article focuses on restaurants and hospitality workers, many of whom are young part-timers.

It’s a tough question, and lousy reporting makes it tougher. The article itself is Exhibit A. It exaggerates the costs and omits the subsidies many small business owners for which small business owners are eligible. Towit:

Employee health coverage now averages nearly $6,000 for an individual plan. That is considerable for businesses like restaurants in which the majority of workers make $24,000 a year or less, according to research by the Kaiser Family Foundation.

The article sure makes it sound like employee costs will rise 25%.

I have no idea where the Times got that $6K per person estimate. Kaiser Family Foundation, which is probably the most honest broker of Obamacare information, reports that the average individual plan cost $215 per month in 2010. The handy map you are looking at shows how costs vary by state.

Even factoring in health care inflation, Kaiser’s estimate is half what the Times reported. The most expensive state, Massachusetts, had average premiums of $5,244 per year, or 13% less than what the Times reported.

I pay about $6,800 per year, incidentally, and live in New Jersey, where premiums are 50% above the national average.

And I’m 52 years old, and that’s significant in this discussion. My premiums are triple what a 20-year-old would pay (maybe more, I lost the rate card my insurer sent), and of course your typical wait staff is closer to 20 than to 50.

On top of all that, my health plan is fairly rich – out-of-pocket costs can’t exceed $5,000. There are cheaper plans.

In fact, to get an idea, I browsed through, a government web site that compares health plans. For a 20-year-old, nonsmoking male in Essex Count, the cheapest plan was $150 a month, or $1,800 per year. It’s not a great plan – it covers zero out of network costs. On the other hand, it’s individual coverage, which tends to cost more than group plans.

And of course, employers doesn’t have to pay the entire premium. But Obamacare subsidizes the cost of what they do pay. The feds will reimburse via the IRS half of what the small business pays – as long as the business pays more than half the premium. (Details are here, page 3.)

So let’s play with the numbers, and see what it’s likely to cost a restaurateur.

For a high estimate, let’s start with my premium, $6,800 a year. In fact, let’s round it up to $7,000 to make the math cleaner. Comparable coverage would cost a 20-year-old $3,500 a year (probably less, but I’m trying to be conservative even here). The employer would have to pay for half – $1,750. And of that, the government pays for half.

So it’s not costing the employer $6,000 per year. It’s costing $875.

Run the same drill on the crappy $1,800-a-year plan, and the cost is $187.50.

Now that’s a real cost, and if you are making $50K from your business and have 50 employees, you have a real problem. Your costs will have to rise. (Of course, your competition is likely in the same position.)

But it’s more than a bit misleading to suggest that employee costs will rise 25%, as the Times data suggest. A more reasonable estimate is $875, or less than 4%. But one could make the case it will be less than 1%.

By the way, I think it’s more than a little creepy that the people handling my food don’t have health insurance.


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