Small Businesses And The Not So Affordable Care Act

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?