Gauging the Impact of Obamacare on SMEs

Supporters of Obamacare believe everyone should have access to healthcare. While universal access to healthcare is a noble goal, how the law will work and who will pay for it remains a divisive issue. In fact, the most recent polling data from Rasmussen Reports shows that 54% of Americans have an “unfavorable” view of the new healthcare law.

Politics aside, the full rollout of Obamacare is on the way. Consequently, attention is shifting from partisan battles inside the beltway to how the law will impact health insurance costs for millions of Americans.

An area of great concern is how businesses will pay for and provide health insurance for their employees. Although Small businesses (those with 50 or fewer employees) may be exempt from the Affordable Care Act, their potential growth will be asymmetrically handicapped. In a recent Gallup poll, 41% of small-business owners say they have held off hiring new employees and 38% have pulled back on plans to grow their business. Small business owners, whose companies have been traditional incubators of innovation and employment, have determined that it may be wiser to sacrifice future growth in order to avoid the potential penalties associated with managing the Affordable Care Act.

Richard Navarro, owner and president of Navarro Construction Services faces a double burden. Navarro, whose firm does high-end historical renovations, employs ten people 8 of which are Hispanic legal immigrants. Although he is used to navigating rules and regulations on behalf of his work force, Navarro says “Now, I have to try to explain a 2,700 page bill.” Like many people, Navarro believes in the goals of Obamacare, “I think overall the bill is a good thing, it’s a positive thing. A healthy labor force at the end of the day is vital to the business and helps with the bottom line.” Altruism notwithstanding, Navarro expects to pay more for health insurance, but if his rates double or triple, he says he will have to change how he does business.

Keith Murphy may be a Republican State Representative from New Hampshire, but as a small business owner he shares many of the challenges facing Navarro. Murphy is a restaurant owner, employing as few as 35 people in the winter and peaking at about 100 in July before his college-age servers and bartenders return to school. In questioning his accountant it has become obvious to Murphy that Obamacare will force him to make some very hard decisions. In reviewing his options, Murphy says he can: 1) Pay a fine of $2,000 per employee past the first 30 for not offering insurance. This would result in an annual fine of approximately $140,000, representing about half of his profits. 2) Provide his employees with a health insurance plan that exceeds a specified standard. Murphy calculates this option would reduce his profit by about $113,000 each year. Once again, a big hit to his bottom line. 3) Keep his head count under 50 employees. Similar to other small business owners, choosing this option keeps costs down, but squelches any plans of expanding. Murphy notes that, “politics aside, this law would impact a Democratic business owner just the same.”

Businesses employing 50 or more full-time workers don’t have the luxury of an exemption. Organizations that don’t provide adequate health-insurance coverage for their employees may, in the words of the administration, “face employer responsibility requirements.” Michael Ramlet of the American Action Forum predicts compliance with the Affordable Care Act will cost employers more than $50 billion between now and 2020. Ramlet states that not only will the penalties keep small businesses from expanding beyond 50 employees, it will encourage large employers to drop employee-sponsored health insurance to as many as 35 million Americans.

The Ohio Department of Insurance announced that, based on the rates submitted by insurers to date, the average individual-market health insurance premium in 2014 will come in around $420, “representing an increase of 88 percent” relative to 2013. Dave Dysinger, who runs a growing manufacturing business in Dayton, is worried about being subjected to the employer mandate as premiums in Ohio rise, according to the Dayton Daily News:

“Dave Dysinger of the Dayton-based precision machine business, Dysinger Inc., said business is booming, putting pressure on the firm with just under 50 employees to expand its workforce.

But if the company crosses the 50-worker threshold, it would be forced to comply with the provisions of the health care law or pay a fine.

The cost of insurance could skyrocket if Dysinger brings on a fresh new crop of younger workers, but the law would limit how much of that cost he could pass onto his employees in the form of deductibles, co-payments, and coinsurance.

“I am very concerned about what’s going to happen with the cost of health care,” Dysinger said. “But I’m going to save my whining until I actually see what’s going to happen.”

Wisconsin chief executive officers said they are pessimistic about their companies’ prospects in the second half of 2013 largely because of what they call the uncertainty created by the Affordable Care Act and overall political dysfunction in Washington, D.C., according to a new survey by Wisconsin Manufacturers and Commerce. “The responses are stunning and tell a tale of significant concern among business leaders at this moment in our nation’s history as we move to the health care entitlement,” the organization’s CEO Kurt Bauer told The Business Journal. Increased health care costs will be passed on to employees, Wisconsin CEOs report. Fifty-four percent of CEOs said their company will increase employee contributions and 28 percent report decreased benefit levels.

What options does the chief executive of an SME have to find the additional revenues needed to comply with Obamacare in today’s challenging economic environment?

This is the precisely the quandary facing Steve Laine, CEO of a California based consulting company. Laine’s firm currently spends $200,000 per annum on employee insurance premiums. In consulting with his broker, Laine learned his premiums could rise anywhere from 15% to 60%. Should, on the other hand, Laine cease providing insurance his business could face some $94,000 in penalties.

What makes this difficult situation worse for CEOs like Laine, is that no management decision provides a positive outcome. In Laine’s instance he will either a) pay a substantially increased sum of money to provide healthcare insurance for his employees, or b) cease providing coverage. Should he choose the latter, Laine stands to suffer such potential consequences such as losing employees to competing organizations that do provide coverage and receiving negative publicity.

While managing Obamacare might seem like a Sisyphean task for the chief executive, organizations from H & R Block to the National Federation of Independent Business have created space on their websites to assist in the decision making process.

And what of the individual citizen who purchases health insurance in the marketplace? How will he or she fare under the Affordable Care Act? Some experts and studies predict sticker shock for people with individual coverage, though others say the fears are overblown.

California is a good case in point. Some 38-million souls presently reside in California. It’s estimated that next year nearly 5-million Californians will be eligible to buy insurance through the marketplace, including thousands who have been previously denied coverage due to health issues. Covered California (the state’s official healthcare exchange) claims insurance rates for individuals will be falling, representing a “home run” for consumers. Forbes Contributor Avik Roy countered that claim, saying “Obamacare, in fact, will increase individual-market premiums in California by as much as 146%.” While some, including the Washington Post’s Ezra Klein have disputed Mr. Roy’s assertions, Covered California has not.

Nancy Pelosi (D-CA), in speaking about the Affordable Care Act once said, “we have to pass the bill so that you can find out what is in it.” Three years later, what have we found? A tremendously complex piece of legislation that will impact the nation for generations to come.





Source: New Hampshire Union Leader/How Obamacare will hurt my small business, others like it/October 30, 2012

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