It aims to simplify and control healthcare costs, but what would it mean for SMB owners?
- Medicare for All would transition the U.S. away from an employer-sponsored private health insurance model to a single-payer, government-run system.
- Current funding proposals for a Medicare for All system include the establishment of a 7.5% payroll tax, a 4% tax on all American households and reimbursement reductions for healthcare providers.
- Implementing Medicare for All would be a massive domestic policy shift that requires Congressional approval, and it is likely to take years to achieve.
The Democratic Party's primary season is already in full swing as the crowded field of candidates vie for the 2020 presidential nomination. A common theme in the discourse has been whether the U.S. should switch from an employer-sponsored health insurance system under the Patient Portability and Affordable Care Act (ACA) to a single-payer system frequently referred to as Medicare for All.
Presidential candidates Sen. Bernie Sanders and Sen. Elizabeth Warren have championed Medicare for All, while an alternative proposal sponsored by Rep. Pramila Jayapal and the House Progressive Caucus has been introduced in the House of Representatives. While it is unclear whether any of these initiatives will be implemented, even if Sanders or Warren were to secure the presidency in 2020, the question of how a Medicare for All healthcare system would impact small business owners has been on the minds of many entrepreneurs.
Would Medicare for All reduce the expenses associated with providing health insurance for employees? Or would tax increases required to fund such a program put a strain on small business owners? Does ending employer-sponsored health insurance remove a bargaining chip for companies trying to attract top talent in a competitive labor market? Or would it free up dollars to entice candidates with more attractive compensation packages?
The answers to these questions, as it turns out, are not so straightforward.
What is Medicare for All?
Medicare for All refers to a healthcare system in which the federal government replaces private insurers as the source of all Americans' healthcare coverage. The primary goal behind Medicare for All plans is to ensure that every American has active health insurance coverage, compared with the roughly 30 million who are uninsured today. As the name suggests, Medicare for All would achieve this goal by effectively expanding the Medicare program, which currently covers Americans age 65 and older, to every American citizen regardless of age.
There are important distinctions between Medicare for All bills and the current system. Both Sanders' and Jayapal's proposals, for instance, would provide Medicare for All to cover any essential treatments with no premiums or deductibles. Medicare today does have premiums and deductibles for participants.
"Medicare for All is pretty much what it says it is," said Gary Branning, assistant professor of professional practice at the Rutgers Business School. "It's universal coverage driven through the Medicare process."
An expansion of Medicare to all Americans would be a massive undertaking that requires a multifaceted funding mechanism, Branning added. Currently, Medicare for All proposals include a 7.5% payroll tax on employers and a 4% tax on all American households. Additionally, Branning said, a reduction in reimbursements to healthcare providers would likely also be necessary.
In addition to Medicare for All, there are hybrid proposals that would create a more robust public plan alongside the existing private insurance industry. One of the most prominent hybrid proposals is Reps. Rosa DeLauro and Jan Schakowsky's Medicare for America bill, which would provide universal health insurance coverage through some tax increases while preserving significant elements of the employer-sponsored private insurance system.
Additionally, Medicare and Medicaid buy-in proposals would allow more beneficiaries to enter those existing systems in exchange for paying a premium alongside the subsidized beneficiaries currently participating in those programs.
How would Medicare for All change the employer-sponsored health insurance system?
Under the current arrangement, both individuals and their employers pay a portion of insurance premiums. Generally, employees can select from several plans, which are chosen by their employers and vary in structure as well as in specific elements such as copayments and deductibles. These include preferred provider organizations (PPOs), health maintenance organizations (HMOs) and health savings accounts (HSAs), each of which comes with its own set of rules. Depending on the insurance company, the number of in-network healthcare providers can vary greatly. Today, about half of all Americans get their health insurance through their workplace.
Under the ACA, companies with 50 or more full-time employees must provide healthcare coverage or pay a penalty. This requirement, known as the employer mandate, is an essential element of the Obama-era healthcare law. Large companies generally can choose from group health insurance plans. Alternatively, large employers can use reimbursement accounts, such as Expected Benefit Health Reimbursement Accounts (EBHRAs) and Individual Coverage Health Reimbursement Accounts (ICHRA). Finally, large employers also commonly offer employees tax-advantaged HSAs.
"With more employees, more options are available," said Brian Cairns, founder of ProStrategix Consulting. "If you have less than 20 employees, your options are limited. You are likely better off with reimbursing employees, who carry their own coverage."
In that case, smaller employers can choose primarily from two major programs, Cairns said. These include Qualified Small Employer Health Reimbursement Accounts (QSEHRA) or the ICHRAs mentioned above. If this is all becoming confusing, rest assured, it's only the tip of the iceberg.
On the provider side of the equation, things get even messier. Generally, each payer has its own set of agreements with each provider, meaning it is rare that two different payers ever pay the same amount for the same set of services to the same providers. In many cases, even healthcare providers are uncertain of how much they will be getting paid for services rendered, or even when that payment will come. In addition, providers often must manage denied claims that insurance companies reject for a litany of reasons, which has turned revenue cycle management into a multibillion-dollar industry.
A Medicare for All, single-payer system would dramatically alter this existing landscape. Instead of many private insurance companies acting as payers, as well as state governments and the federal government in the case of Medicaid and Medicare, there would be just one: the federal government. The goals are relatively simple: Extend health insurance coverage to every American, control the price of healthcare and pharmaceuticals through the leverage of a single large entity, and simplify the insurance landscape to create new efficiencies. However, there is some debate about whether Medicare for All would achieve these goals in practice.
Pros and cons of single-payer healthcare for small business owners
It is difficult to answer the question of how, exactly, Medicare for All would impact small businesses. The primary challenge, of course, lies in the fact that Medicare for All has not been implemented.
Making the task even more difficult is the multiple different proposals currently on the table, whether it is Sanders' or Jayapal's single-payer plans or one of the many hybrid proposals. For the sake of simplicity, let's examine some of the pros and cons claimed by advocates and critics alike around a single-payer system, such as the one described by Sanders, who first elevated the idea to a national discussion during the 2016 election.
- A single-payer system eliminates health insurance expenses: Perhaps the most obvious benefit of a single-payer system would be that businesses no longer have to pay for employee health insurance. Theoretically, Medicare for All could free up cash that businesses are currently spending on health insurance packages and allow them to direct it toward other uses. Whether that means better employee compensation or increased investment in operations, more liquid capital is a good thing. Of course, that's only true if increased business taxes don't completely eat up the difference. "Small business owners face a complex and tangled web of options, which is ripe for exploitation by unscrupulous actors," Cairns said. "Medicare for All would greatly simplify things. No more alphabet soup. One plan; no administrative costs. Now comes the kicker: Who pays for it?"
- A single-payer system likely requires business tax increases: A single-payer system would inevitably require tax increases. Sanders and others have proposed a number of ways to raise the needed revenue, many of which include increased business taxes either in the form of a payroll tax or capital gains tax. Depending on how funding for a Medicare for All system is raised, the increased taxes could fall on small businesses as well. "Though we would save on premiums, several politicians have also said that they would help to pay for this single-payer system with significant employer taxes," said Danielle Kunkle Roberts, founding partner and senior executive at Boomer Benefits. "I worry that those taxes would be higher than what we spend on healthcare coverage for employees."
- Medicare for All simplifies benefits documentation: Under the current system, healthcare benefits are one of the most complicated aspects of an employee's compensation package. Documentation, training and education all take substantial time and dollars. A single-payer system would take this burden off employers and remove a complex part of administering employee benefits. "Smaller employers are more cost-conscious," said Branning. "When you think about the healthcare expense, it's quite a burden on a smaller employer. And part of it is not being able to compete in the global marketplace; a small employer competing on a global scale is disadvantaged from the start [compared to a company from a country with single-payer healthcare.]"
- A single-payer system eliminates health benefits as a recruitment tool: Today, many companies are using their healthcare benefits to differentiate themselves from competitors when trying to attract skilled job candidates. In a tight labor market, every company is looking for a competitive edge in recruiting; a single-payer healthcare system would remove this element from a company's recruitment playbook."Shifting to Medicare for All would certainly change a major part of compensation and benefits for small employers," said Kunkle Roberts. "The health insurance plan that I offer to my employees is a major part of attracting and keeping good employees. This benefit would not be something we can use in the future to increase employee longevity."
- Single payer would require a lengthy and complex implementation process: Shifting to a Medicare for All single-payer system would likely require a massively labor-intensive process that could take years. Branning highlighted the flawed launch of the much smaller-in-scope ACA as evidence of just how difficult implementing Medicare for All could be. "If something passed following the election, we're talking probably a minimum of five years," Branning said, adding that the public exchanges established under the ACA were only able to sign up six beneficiaries on day one – even after four years of preparation. "We're talking about people getting insured that have never been insured before and also changing everyone's insurance over to a Medicare package."
Baked into all these pros and cons are a lot of "what-ifs," most of which depend on the specifics of any single-payer healthcare bill proposed in Congress. Of course, that bill would also have to pass Congress and be signed by the sitting president at the time. Then the law would have to be implemented, which is no small task. A shift toward Medicare for All would be a massive undertaking that impacts trillions of dollars in spending.
That kind of shift doesn't happen overnight, and the impacts would not be felt immediately.
Medicare for All's impact on small businesses depends on a lot of moving parts
A Medicare for All single-payer system would be a dramatic change to a sprawling and complex health insurance system. Precisely how that change would be implemented (if it were implemented) could influence a wide range of actors, from employers to individuals to healthcare providers to insurance companies.
How a single-payer program would be funded and whether it allows private insurance companies to exist alongside it or not are major variables that could determine whether it would be a boon or a detriment to small businesses.
Answering the question "how would Medicare for All impact small businesses" is not a straightforward endeavor, but rather depends on the many moving parts in the ceaselessly complicated world of American healthcare.