Small Businesses and the Excise Tax

Kaiser Health News and National Public Radio have a jointly-produced story today on small businesses and the excise (Cadillac) tax. It’s reported by Jenny Gold who writes

Higher-cost plans, dubbed “Cadillac” policies by some, often have generous benefits with low deductibles and co-payments, but this is not always the case. Premiums may also be high because customers are charged more because of their age, gender, geographic area or heath status.

Small businesses are at a particular disadvantage. A study published in 2006 in the journal Health Affairs found that the smallest employers pay an average of 18 percent more than large businesses for the same health plan, because they don’t benefit from pooled risk the way a large business does, and administrative costs tend to be higher.

I think there’s more to the story than what was included in the piece. First of all, small businesses will have access to the exchanges. So they won’t be subject to the high loading fees they experience today. Second of all, the risk pool of exchange-based plans will be the entire population in those plans, not the specific population of an employer. Finally, it is my understanding that the excise tax will be modified to accommodate variations in age of risk groups and geographic variation in health care costs.

Putting those reform features together, it doesn’t seem that a small employer has much to be concerned about. In fact, on the whole, I would expect small employers to be better off under health reform. I think the excise tax is only something to fear if one views it in isolation, without consideration of the other reforms that benefit small businesses. But nobody is proposing to pass just the excise tax. So, analysis of it apart from the full package makes little sense and leads to incorrect conclusions.

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