Remarks Delivered by Brian Blase at SBE Council’s Small Business Policy Expo 2019

By at 2 February, 2019, 9:03 pm

Brian Blase, Special Assistant to the President for Economic Policy, National Economic Council, The White House

January 30, 2019

Small Business Policy Expo 2019

Reforms and Actions to Improve Health Coverage Affordability and Choice for Entrepreneurs and Small Businesses  

As prepared:

Thank you for inviting me to participate today.

Let me start by giving you a little perspective on the National Economic Council. First, I work for an excellent person and economist—Larry Kudlow. In April of last year, Larry replaced Gary Cohn, who was also excellent to work.

The National Economic Council is small but very important. We have about a half dozen special assistants to the president. As one of the White House policy councils, we are responsible for coordinating the formation and execution of the president’s economic policies, including for health care. This means that we oversee the process for setting administration policy, advising the president, and monitoring implementation of policy throughout the Administration. We work closely with other components within the White House, like the Office of Management and Budget, and I work closely with three main departments—Health and Human Services, Treasury, and Labor.

Obviously, we are very proud of the economic record of the administration. More than 5 million net jobs have been created and the unemployment rate is under 4%. Economic growth has been well above expectations, growing at 4.2% in the 2nd quarter of 2018 and 3.4% in the third quarter. And worker wages are rising with average hourly earnings rising by 3.2% over the past 12 months while real median household income has reached a new post-recession high.

Small business optimism remains historically high, according to the NFIB Small Business Optimism Index. Plans to raise compensation have approached 30-year highs as owners seek to attract more qualified candidates.

In 2018, small businesses have reached record high levels of job openings, hiring plans, net reports of compensation increases, and earnings growth. In August, small business optimism reached its highest level ever recorded.

From 2012 until October 2016 – the last report before the election – NFIB reported that regulation was cited as the top concern for small businesses about 45 percent of the time. Since the election, regulation has never been cited as the top concern of small businesses.

Now to health care. Despite the broader congressional health reform efforts fizzling out last year, the president was determined to help Americans most harmed by Obamacare—those in the middle-class without access to employer-sponsored insurance and small businesses crushed by growing health care costs. For firms that employ 3-24 workers, the percentage of workers covered by employer health benefits has fallen from 44% in 2010 to 30% in 2018. For firms that employ 25-49 workers, the percentage of workers covered by employer health benefits has fallen from 59% in 2010 to 44% in 2018.

In October 2017, President Trump signed an Executive Order on promoting health care choice and competition across the United States. This order spurred several actions, 3 of which I want to highlight.

First, we expanded Association Health Plans (AHPs). This action made it easier for businesses, including many sole proprietors, to join together to obtain more affordable coverage for themselves and their families.

The way an AHP works is it allows small employers and sole proprietors to join together as a single group to purchase insurance in the large group market. The New Rule allows more employer groups and associations to form AHPs, and allows AHPs to offer coverage to some or all employers in a state, city, county, or a multi-state metro area, or to businesses in a common trade, industry, line of business, or profession in any area, including nationwide.

AHPs have existed for many years, however, the Final Rule, provides a new pathway for AHP formation. The New Rule does not affect previously existing AHPs, which were allowed under prior Departmental guidance.

The Rule contains a popular policy as nearly 80% of Americans believe that small businesses and sole proprietors should be allowed to band together to offer the same kind of lower-cost health insurance plans that large companies already offer.

The New Rule has a staggered effective date depending on the type of plan.  All associations, either new or existing, could establish a fully-insured AHP starting on September 1, 2018, by purchasing a group health insurance policy from an insurance company. Existing associations that had experience operating an AHP on or before the date the new rule was published could expand within the context of the new AHP rule beginning January 1, 2019; and all other associations (new or existing) may establish a self-funded AHP starting on April 1, 2019.

An anecdotal example of the effect of the New Rule is the Las Vegas Chamber of Commerce AHP.  Prior to the New Rule, the employees of a 15-person company enrolled in the Las Vegas Chamber’s AHP paid an average monthly premium of $413.  Now, under the Chamber’s AHP established under the New Rule, those same employees have an average payment of $234 per month which reflects a 44-percent cost savings.  The Las Vegas Chamber itself has enrolled its staff into the AHP plan. The Chamber tells us it is saving $24,000 per year and the staff, together, is saving $12,000 per year.  In addition, the Las Vegas Chamber said approximately 650 employers are in process of signing up for coverage and more than 100 group plans have been written.

A new report out yesterday showed that 28 AHPs have formed so far under the new regulation with several more in the pipeline. Most are regionally-based with local and state Chambers of Commerce being very active in this area. The maximum premium savings approach 30% and nearly half of AHPs contain the self-employed and sole proprietors. According to this report, the Georgia Chamber of Commerce is in the processing of setting up a self-insured AHP that it expects that eventually 800,000 people will enroll.

Some states need to take action to allow businesses to take full advantage of the new AHP rule and that is something that the business community should monitor and work with their state legislators and their insurance commissioner on.

Another component of the Executive Order that will benefit many small employers and their workers are Health Reimbursement Arrangements (HRAs). The administration issued a proposed rule on October 29th to expand Health Reimbursement Arrangements in a way that promotes individually-selected and portable coverage. This is our attempt to help the growing number of people who work at smaller firms that do not receive employment-based coverage and to provide them a greater choice of coverage. 80 percent of employers that offer coverage only provide one option. The proposed rule that would, among other things, provide opportunities to all employers, including small and mid-sized employers that currently do not offer coverage or that face large administrative burdens in offering coverage, to finance individually-selected health insurance on a tax-preferred basis.

In effect, the proposed regulation extends the tax advantage for traditional employer group insurance—the exclusion of premiums from federal income and payroll taxes—to HRA reimbursements of individual market insurance premiums.

Many employers that do not currently offer coverage would like to be able to help their workers and their families by giving them tax-preferred funds to pay some of the premiums for coverage that workers purchase on their own.

Current Obama administration regulations prohibit employers from doing so and thus restrict worker choices of coverage.

According to preliminary estimates from the Treasury Department, once fully phased in, roughly 800,000 employers are expected to provide HRAs to pay for individual health insurance coverage to over 10 million employees.

Some experts, such as Harvard Business School professor Regina Herzlinger, suggest the effect could be larger since expanded HRAs will create a more efficient health care system as consumerism will be unleashed. This phenomenon could lead to increased workforce investment and higher wages as less is spent on health insurance and could spur innovation among providers and insurers as they directly compete for consumer dollars.

One final element of the Executive Order I want to mention was the issuance of an administration-wide report in December entitled Improving America’s Health Care System Through Choice and Competition. This report comprehensively reviews government policies that limit choice and competition and raise costs for Americans. We believe this report is a great resource for policymakers at both the federal and state level.

Why are choice and competition important? As business leaders, this is not a surprise to you. Choice supports competition, competition fuels innovation, and innovation is the only way to make things better and cheaper. While some look to increase government’s role in the health care system; we want to reduce and eliminate government policies that reduce choice and competition.

We know that innovation and productivity in health care lag almost every other sector of the economy. Barriers to choice and competition explain a large part of why. When government policies and regulations suppress competition, producers can use their market power to raise prices, produce lower-quality goods and services, or become complacent in innovating.

The report contains more than 50 recommendations and shows strong support for taking on anticompetitive policies at all levels of government. Implementing these recommendations would lead to a profoundly improved health care system, with higher quality of services and lower costs.

Thanks again for the opportunity to be with you today.

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