Public Plan Reduces Costs For Small Businesses

The House's America's Affordable Health Choice Act includes an “employer responsibility” provision. It is also know as an employer mandate or pay-or-play provision. The bill is written so that including the pubic option will reduce the burden of the employer mandate and costs for small businesses. This is very complicate but please stay with me.

An employer must provide “qualified” health insurance coverage for its employees or pay a penalty. The minimum amount that an employer most contribute to an employee's health insurance is no “less than 72.5 percent of the applicable premium...of the lowest cost plan offered by the employer that is a qualified health benefits plan.”

An employer may directly purchase health insurance for its employees or provide funds to the Health Exchange to enable their employees to select their own plans. For employers that provide their employees coverage through the Health Exchange the “applicable premium of the lowest cost plan” is equal to the “reference premium amount” in the area.

The “reference premium amount” is defined as “the average premium for the 3 basic plans in the area for the plan year with the lowest premium levels.”

Now, the CBO concluded that the public plan in the House bill would be on average “about 10 percent cheaper than a typical private plan offered in the exchanges.”

Since the public plan would be one of the three cheapest plans offered, it would reduce the size of the “reference premium amount” and also the size of the applicable premium.

Therefore including the strong public plan lowers the minimum amount an employer, who provide coverage through the Exchange, must pay to insure an employee.

At the start only small businesses will have the option of providing insurance through the exchange. Using some rough calculations the public plan should save small businesses, which have their employees selection a plan on the exchange, roughly $450 an employee a year. The public plan will potential save around $3 billion a year for the small businesses that are allowed to use the exchange. The amount of savings to business would dramatically scale upwards if more companies are permitted to using the exchange to provide coverage.