'Junk insurance' is yet another blow to small businesses

'Junk insurance' is yet another blow to small businesses
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The federal government is letting America’s small businesses down when it comes to health care. Despite the obvious benefits of the Affordable Care Act (ACA) to small firms, the Trump administration and its allies continue to undercut the law, including their recent move to expand short-term insurance plans.

This month, a U.S. Department of Health and Human Services rule went into effect that allows insurance companies to sell short-term insurance plans that last up to 364 days and to renew those plans for up to three years.

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These policies are often referred to as “junk insurance” because they are not required to cover essential health benefits like prescription coverage or mental health treatment, meaning they don’t cover much of anything. While this extremely limited coverage normally makes these policies inexpensive on the surface, they typically carry high deductibles.

Leaving this rule in place will likely result in many healthy people exiting the Affordable Care Act (ACA) marketplaces, and that is very bad news for the millions of small businesses, small-business employees and solo entrepreneurs who depend on the marketplaces for quality, affordable insurance.

Since the customers for short-term plans tend to be younger and/or healthier, if the plans become popular, they will create an unbalanced risk pool that disrupts the individual marketplaces and raises costs for everyone else who remains in those marketplaces.

We fear an absence of healthy people in the ACA marketplaces will mean insurance companies won’t be able to offset the costs they incur to care for older or sicker people, so premiums will rise drastically and many small businesses will be priced out of the market.  

Given this clear problem for the small businesses that depend on the ACA for quality, affordable insurance, the U.S. Senate recently attempted to overturn the new junk insurance rule. Unfortunately that vote failed, meaning a Trump administration estimate that as many as 1.6 million people will purchase short-term plans by 2022 could still come to pass.

If the administration’s prediction is accurate, it will devastate small firms. More than 5.7 million small business employees or self-employed workers are enrolled in the ACA marketplaces, and more than half of all ACA marketplace enrollees nationwide are small business owners, self-employed individuals or small-business employees.

Without healthy people in the marketplaces to offset the costs insurance companies incur to care for older or sicker people, premiums will rise drastically and many small businesses will be priced out of the market.

What’s more, the ACA has been a game-changer for small-business employees and self-employed entrepreneurs, who were disproportionately uninsured before the law went into effect. In 2013, more than 28 percent of small-business employees were uninsured, while nearly 3 in 10 self-employed entrepreneurs were uninsured.

By 2017, however, only 19.4 percent of small-business employees were uninsured, and as of 2016, the uninsured rate for solo entrepreneurs fell by 35 percent.

Until Congress and the administration end their legislative paralysis, states must do what the federal government will not to protect small businesses. Fortunately, some states are already doing just that.

California recently blocked short-term health plans from being sold there, a move that will at least protect the many small businesses, their employees and solo entrepreneurs in the Golden State that rely on the ACA. Let’s hope more states quickly follow suit.

John Arensmeyer is the founder and CEO of Small Business Majority.