Small Businesses and ‘Obamacare’

The recent U.S. Supreme Court ruling on health care reform has left many people divided on the benefits, and that division extends to small-business owners as well. The …

The recent U.S. Supreme Court ruling on health care reform has left many people divided on the benefits, and that division extends to small-business owners as well. The new law will require businesses with 50-199 to now provide coverage for employees or face a penalty for those who elect to pay for their own through the new insurance exchanges, whereas in the past federal law only required those companies with 200 or more employees to provide coverage. While some argue the individual mandate will help draw down costs by spreading it across a broader base, many advocacy groups say the new rule will hurt entrepreneurs in the long run by adding more costs. For more on this continue reading the following article from TheStreet.

Although Thursday’s Supreme Court decision to uphold President Obama’s health care law was somewhat surprising — and led to outcry from some groups representing business owners — small businesses by and large are resigned to the law and preparing to move ahead with the required health care changes.

The controversial Patient Protection and Affordable Care Act of 2010 brought before the U.S. Supreme Court by 26 states and several advocacy groups was upheld in a ruling announced Thursday morning.

The court ruled that the law’s individual mandate survived as a tax. The Medicaid provision was limited but not invalidated.

Beginning in 2014, the health care law places an owner responsibility on businesses with 50-199 full-time employees to provide health insurance coverage for their workers. Businesses are not federally required to enroll employees in health insurance unless they have 200 or more full-time workers, according to the Kaiser Foundation. Businesses with fewer than 50 employees are exempt from the ruling, but self-employed individuals will be required to purchase insurance, or else pay a tax of as much as 2.5% of household income.

So those employers who fall in the middle are required to either buy insurance for employees or employers pay a penalty if the employee chooses to purchase insurance from the health exchanges. (The first 30 employees who buy insurance in an exchange are exempt, Kaiser notes.)

"What the Affordable Care Act does is create more opportunities for small employers to provide health insurance coverage for their employees by either allowing them to continue offering small group coverage or to send their employees to a public or private health insurance exchange where they can shop for health insurance plans," says Sam Gibbs, President of eHealth Exchange’s technology group, a division of eHealth.

The government’s intentions may have been to push more small businesses to provide coverage, but given the high costs typically associated with small-group plans, it may be more beneficial for a small firm to take the tax penalty than to provide health insurance coverage.

Employers with 50 to 199 employees can either provide health insurance for employees, or pay a tax penalty of $2,000 per employee (provided that the employee gets subsidized insurance from the government), Gibbs says.

"By way of comparison, the average employer contributes $4,508 per year per individual employee’s health insurance," Gibbs says, citing Kaiser data.

So small employers will now be in a bind. They must either provide "affordable" coverage or risk losing talent, since offering health insurance coverage to employees is a critical component to recruit and retain talent.

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And business owners that have fewer than 50 employees will be less likely now to hire and expand because of the costs associated with providing healthcare coverage, some say.

But for most small businesses, it will just be another cost they will have to endure.

Scott Spector, principal at Spector Group, a New York-based architecture and design firm, was already incorporating more expensive health coverage into his budget, but says higher health care costs will cut into his profit.

"In my world you can’t pass on [costs] with fees to clients, which the insurance providers will do to us. It’s just a piece of the puzzle we’re going to have to absorb. It’s really important for my people to have health care," Spector says.

The company has 71 employees and offices in New York City, Woodbury, N.Y., Abu Dhabi, the United Arab Emirates and Mumbai as well as affiliate locations in New Jersey, Miami, London, and Jeddah, Saudi Arabia.

Kristen Smith, CFO of Abbadabba’s, a shoe retailer based out of Tucker, Ga., says she’s thankful the Supreme Court did not strike down only the individual mandate.

"Striking that portion only would have only added to the misery of high costs," she says.

The 39-employee company with five locations across the Atlanta area says only 13% of its employees have chosen not to enroll in its coverage plan, mainly because those workers are young enough to still be under their parents’ plans.

"We always have and always plan on offering health insurance as a benefit to our workers as it pays to have healthy workers. While the skyrocketing healthcare costs over the last decade haven’t always made this the easiest expense to deal with, it’s still not something we would forego," Smith says. "And for what it’s worth, we actually saw a slight decrease in our health care premiums at this year’s annual renewal."

Still, the Small Business & Entrepreneurship Council, a nonprofit advocacy and research organization dedicated to protecting small business and promoting entrepreneurship, says the ruling is a "major blow" to entrepreneurship overall.

The SBE Council has a broad-based membership of 100,000 members comprised of self-employed and small to mid-size businesses across industries.

"Today’s ruling by the Supreme Court undercuts freedom, which is essential to economic growth and entrepreneurship. Entrepreneurship is on the decline in the U.S., and we need policies that will encourage risk-taking and start-up activity. Intrusive government policies and punishing taxes, like the Affordable Care Act with its individual mandate, work against a vibrant entrepreneurial ecosystem, " SBE Council President and CEO Karen Kerrigan says in a statement.

According to a May 2011 poll by the SBE Council, 69% of those polled said the health care law would not make providing health coverage any more affordable.

"Most self-employed Americans and small business owners would purchase health insurance for themselves and their employees if they could afford it. The costly, tax-laden health care law with its individual mandate and intrusive regulations missed this entire point," Kerrigan says.

The reaction to the Supreme Court decision was no more positive from the franchise industry’s trade association.

International Franchise Association President and CEO Steve Caldeira says in a statement that the law places "undue burdens on the franchise small business community," as it is "unworkable, unaffordable and wrong for our country’s small business owners."

"By upholding the law, 3.2 million jobs at franchise businesses continue to be put at risk due to the employer mandate provision, which forces franchise employers with more than 50 full-time equivalent employees to pay penalties, thereby discouraging and disincentivizing the creation of new jobs," Caldeira says.

However, Gary Kneller, founder of CareMinders Home Care, a 51-unit franchise based out of Atlanta, says it’s relieving that the uncertainty has now been taken out.

"I’m hoping that small business owners, which is our franchisees, will be able to stay in the same premium area that the Fortune 500 companies are in," which typically get greater buying power simply because of their size, he says.

CareMinders already offers its franchisees the ability to get group rates on medical insurance plans for their employees, a perk that is not commonly seen in the franchise industry, Kneller says.

Still, Kneller says the dust needs to settle with the new law.

"We really do not know yet what levels of premium dollars are going to be [available] for medical insurance," Kneller explains. "We don’t know how medical insurance companies are going to react. We don’t know what type of buying power will be available on the exchanges. We do hope the market will put pressure on the insurance companies to make insurance affordable and effective."

This article was republished with permission from TheStreet.


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