John Locke Update / Research Brief

How NC’s health insurance mandates put small businesses at a disadvantage

posted on in Economics & Environment, Health Care

It is well known that a huge part of the cost of labor for American business is health insurance. A small firm employing as few as 15 or 20 people could easily be paying well over $100,000 a year to insure their work force, even for a relatively basic policy. These high health insurance costs make up a significant part of labor costs overall, which in turn raises the cost of doing business, limits entrepreneurial activity, and reduces the amount of labor being used in the production process.

Eliminating health insurance as part of a worker’s compensation package is not really an option. First, all businesses with over 50 employees are required by the Affordable Care Act (Obamacare) to provide health insurance to their employees. But even if you operate a smaller business, most workers have come to expect that health insurance will be part of their pay and companies, regardless of size, will need to provide this benefit simply to attract quality employees. It is especially the case under Obamacare, where those who are not receiving health insurance benefits from their employer have to turn to the state exchanges where costs are skyrocketing and options are shrinking as that system comes close to collapsing.

So how is the state of North Carolina making things worse, especially for smaller firms that do not have hundreds or thousands of employees? It mandates that all businesses that don’t self insure provide insurance plans that include dozens of benefits that people may or may not want and, in the absence of the mandates, may or may not be willing to pay for.

The state of North Carolina mandates 56 health benefits that have to be covered by “all” licensed health insurance providers. In fact, North Carolina ranks in the top 15 states nationwide in the number of mandates imposed on insurance companies and, therefore, purchasers of health insurance. The state mandates a wide range of benefits that include everything from chiropractic services and many dental services, to marriage therapists, HPV vaccines and nurse midwives (even for policies only covering men). These are services that must be paid for whether or not they are wanted with every benefit adding close to 1 percent to the cost of the insurance.

But there is an exception, indeed a huge exception in the law created by the federal government. Because of the Fed’s ERISA rules, none of the mandates apply to companies or government agencies that self insure. What this means is that they bypass insurance companies, except for possibly hiring them to administer their programs, by creating their own policy, paying the premiums to themselves, and paying out employee claims from their own revenues. Because only companies with a very large employee base can afford to self insure, these rules advantage large business firms and larger employers over smaller ones. While a local pizza parlor, an immigrant run grocery store, or an auto repair service company with only a dozen employees will have to pay for every one of these mandates, large employers with thousands of employees are essentially exempt. Employers in the state that are able to cast off the massive costs of these mandates by self insuring include IBM, Walmart, the U.S. EPA, Cisco, Rex Hospital, Glaxo Smith Kline, and N.C. State University, among many others, including the state of North Carolina government which could voluntarily abide by the rules that they are imposing on others but has decided to take advantage of the federal loophole.

North Carolina health insurance mandates violate the principle of equal treatment under the law and amount to a regulatory penalty on the state’s small businesses. If the legislature is truly concerned about encouraging entrepreneurship and reducing the cost of running a small business, abolishing these health insurance mandates would be a good place to start.

Roy Cordato is Senior Economist and Resident Scholar at the John Locke Foundation. From January 2001 to March 2017, he held the position of Vice President for Research at the Locke Foundation. He also holds the title of Lecturer at… ...

Donate Today

About John Locke Foundation

We are North Carolina’s Most Trusted and Influential Source of Common Sense. The John Locke Foundation was created in 1990 as an independent, nonprofit think tank that would work “for truth, for freedom, and for the future of North Carolina.” The Foundation is named for John Locke (1632-1704), an English philosopher whose writings inspired Thomas Jefferson and the other Founders.

The John Locke Foundation is a 501(c)(3) research institute and is funded solely from voluntary contributions from individuals, corporations, and charitable foundations.