January 1, 2014 is when the majority of the regulations that make up the Obama administration’s landmark health care reform bill known as the Affordable Care Act go into effect.
President Obama enacted the ACA as a way to insure that all Americans would receive health care coverage that’s both affordable and comprehensive. In addition to putting health insurance within the grasp of many Americans, the new regulations bar insurance companies from denying coverage to anyone seeking it, or charging more because of age, gender, or medical history.
Without a doubt the clear winners of the Care Act are uninsured low income Americans. Those that stand to benefit the most will need to have their yearly income fall between 133 and 400 percent of the federal poverty line. Within that range individuals and families will receive a nice tax credit to help them pay for health insurance.
While the Affordable Care Act is an important equalizer for low income Americans, the Care Act is not so friendly to small businesses. Especially businesses that don’t already provide their employees with health insurance and fear the cost of doing so. One might even say they are the losers of the Affordable Care Act.
Why small business loses
So why are small companies the losers? Well the regulations mandate that businesses with at least 50 full-time employees provide insurance coverage to them or face steep financial penalties of $2000 per year for every employee on their payroll minus 30.
This could potentially pose a significant financial problem for businesses right near that 50 worker mark. If such businesses are already having a hard time staying profitable in this economy, a large mandated cost is likely to make life even harder for those business owners.
Granted there are still plenty of businesses out there that fall shy of that mandate number, and of the ones who find themselves in this situation many likely already offer some form of health insurance to their employees.
But it’s still a question worth pondering: How are these businesses going to cope with the added costs of providing health insurance?
The cost of health insurance
According to the National Conference of State Legislatures, small businesses in the past have paid on average about 18 percent more than larger firms for the exact same health insurance plan.
Traditionally it’s always been the case that small businesses get the short end of the deal when it comes to purchasing insurance for their employees. They just don’t have the numbers to be able to negotiate a better price.
The Small Business Health Options Program or SHOP exchanges were supposed to fix this problem by allowing business to shop around for health insurance plans in a specially designed exchange. But instead, businesses in the majority of states (the ones where the federal government will be running the health care exchanges) will be limited to a single plan until 2015.
In a piece published in the New York Times in March, the newspaper profiled a California bakery about how they planned to comply with the ACA regulations. According to the article, the full cost of complying with the law for their employees would have cut their profits by 65 percent and not complying would cost them 64 percent.
The only way a small business could recover from such a hit to their revenues would be to raise prices and/or cut staff. Both of which would be detrimental to a business trying to grow in this economy.
Unconventional Definitions
As I mentioned earlier, small business employing 50 or more people will be the ones subject to the employer mandate. What gets confusing to employers just over or under the 50 employee mark are the definitions of full-time vs. part-time worker.
According to the legislation, a full-timer is anyone who works at least 30 hours a week. Part-timers can also count towards the total number of full-time workers. Their hours are added up and then divided by a 40 hour work week. So a couple of part-timers who work 20 hours a week add up to a full-time employee.
So for small businesses that have a good mix of part-time and full-time workers they could easily see themselves pushed over the 50 employee mark into the employer mandate zone and not even know it.
Whether the Affordable Care Act regulations actually live up to the predictions of economic catastrophe from its worst critics remains to be seen. To be sure, small businesses near the 50 employee mark are going to need to do a little bit of reorganizing and budgeting.
But one could make the argument that they’ve had years to get ready for this law. A law whose potential benefits for a large segment of the American population could certainly justify a little reorganization.
Michael Cahill is the editor of the Vista Health Solutions blog. Follow him on Twitter at @Vistahealth
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