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The Affordable Care Act is not so affordable if you own or
if you are an employee of a small business. Here is why.
Consider the owner of a small service business with one or multiple
outlets (e.g., a large restaurant or a small chain of sit down restaurants, a
chain of barber shops, a taxi company.) The
owner has more than 50 employees but the business is still “small” with less
than 1000. It is a service business
where the usual wage is about $10 per hour or about $20,000 per year plus significant
tips. Many of the staff have been with the company for decades and some prefer
to work fewer hours for family reasons.
Let’s also imagine that the company has always offered a quality health
insurance plan to those who work full time (greater than 32 hours per
week). The owner selected a plan that
has a modest deductible of $200 per year, good catastrophic coverage and a
maximum out of pocket expense for each employee of $1,000. Company policy has always been for staff to
pay approximately 50% of the premium.
At the company whose owner I talked with, both the company
and a single individual are paying about $2,000 per year in premiums. Most
of the full time employees are not enrolled. Some have coverage through a spouse’s
employer. Others are young invincibles
and choose to use their wages for other purposes. But the owner encourages all
to participate who wish to or to sign a waiver that they chose not to do so. The
health care policy is (and has been) consistent with the ACA/Obamacare
guidelines for the various essential services that must be covered; it has
never been a “substandard” policy.
In 2014 all of the full time staff must, per the ACA, have
insurance or pay a penalty tax. That
means the young invincibles will be required to sign up somewhere. If they enroll in the company plan and pay
their share of the premium, they will have less take home pay – perhaps a
hardship. But every time one more
employee enrolls, the business will also have to pay its 50% share of that
premium as well. The owner is pleased
that the employee is now covered but this is a new and substantial expense for
the company.
But that is not all.
Beginning in 2015, an employee cannot be required to contribute more
than 9 ½% of wages for their insurance.
Since the full timers tend to earn about $20,000 per year, less for
someone working say 32 hours per week, a $2,000 per year share of the premium
exceeds the 9 1/2 % limit. To avoid a
significant penalty, the business will need to lower the employee contribution
amount, adding further substantial expense to the company.
So what’s the import?
Does it really matter?
There is general agreement that it is good for everyone to
have insurance. But this company’s prices
will have to go up to cover the new expenses.
And a price hike may make the business less competitive because other
companies in this business may have less than 50 employees and hence are not
affected by the ACA requirements. What the
owner will likely decide to do is preferentially hire part-timers even though
having fewer employees who work longer hours each is otherwise preferable.
So, in the end, all fulltime employees will have insurance;
some employees forced to buy insurance will now have a lower take home pay with
its consequences; the person who wants to work more hours will be pushed toward
less hours with yet lower take home pay; and the customer will pay a higher
price for the service. Is this affordable health care or is it is the law of
unintended consequences?
