STUDY: Obamacare Reduces Costs For Small Businesses

One of the attacks leveled against Obamacare is that it will further hamper the already sluggish economy by imposing new costs on employers who want to hire. But a new study by the Urban Institute — modeling the effect of Obamacare’s various provisions on employer behavior had the law been in effect in 2012 — found the health care reform law would’ve only impose a modest increase of 2.2 percent on total employer spending. More strikingly, for small businesses of 100 employees or less, total spending would’ve actually decreased by 1.4 percent:

The drop in total spending for small firms was due to three factors. One, Obamacare exempts employers with 50 workers or less from penalties levied for not providing mandated coverage. Two, it provides a tax credit for two years to employers with 25 workers or less — and an average pay of $50,000 or less — in order to help with the costs of premiums. Third, Obamacare’s exchanges are expected to lower costs by providing a centralized marketplace in which both firms and individuals can comparative shop. On net, these factors completely overwhelm the new costs imposed on smaller businesses from Obamacare’s new coverage requirements.

Because larger businesses will still be subject to the new coverage requirements, but won’t enjoy the tax credits or the exemption for the smallest firms, their total spending increases under the model. For businesses of 101 to 1,000 employees, overall spending would increase 9.5 percent, mainly due to expanded enrollment. For businesses over 1,000 employees, the increase would be 4.3 percent. In both cases, those increases fall on larger firms more capable of absorbing the costs.

The findings from The Urban Institute’s model are also in line with real world results from the health care reform that was passed in Massachusetts. Like Obamacare, that reform imposed new requirements on businesses to cover their employees along with penalties for the firms that failed to comply. As a result, the percentage of small businesses offering coverage to their employees jumped from 70 percent to 77 percent, and employers saw their costs rise 9 percent between 2009 and 2010. At the same time, no evidence of reduced employment could be found.