Just how affordable is the Affordable Care Act?
It could end up being a solution that’s more painful than the problem it's attempting to solve
And so it begins. Shortly after the Affordable Care Act — aka Obamacare — was passed, I warned that there would be nothing affordable about it. I also warned that unlike Washington — which is numerically challenged — businesses would figure out the math.
Washington must think small business owners are living large because for many, the cost of adhering to the law's "employer mandate" will amount to an incremental six-figure expense. I don't know many businesses that have an extra hundred grand lying around, particularly these days.
Under the law, employers with 50 or more full-time workers will be required to provide coverage for employees who average of 30 or more hours a week in a given month. Businesses that opt not to offer health care coverage, will be subject to a $2,000 penalty for each full-time worker starting at employee No. 31.
Take for example Consolidated Management, a 102-person company that runs cafeteria services for schools, offices, and jails. Currently it only provides health care to its managerial staff of 25 at a cost of $140,000. The company estimates the cost of insuring every employee will be over $500,000. The penalty, on the other hand, amounts to $144,000.
This is the dilemma that many businesses will soon face. Option one: bite the bullet, insure every employee and take a major financial hit. Option two: Insure everyone but offset some of the expense by increasing the employee contribution. That should do wonders for morale. Option three: opt not to provide coverage for anyone, risk alienating employees currently receiving health care, but take a smaller yet still substantial financial hit.
Once again, Washington demonstrates how committed it is to fostering a positive environment for the backbone of our economy.
Premiums for single-person coverage averaged $5,615 in 2012. Family coverage ran about $15,745. And don't expect those premiums to go down as a result of the law because there is nary a provision in it that will actually lower the cost of health care.
On the positive side, premiums are tax-deductible, so part of the expense is "subsidized." And offering health care does make a company more competitive in the marketplace — that is, assuming it can remain in business. Penalties are not deductible.
The key question is whether a company like Consolidated Management is the exception or the rule. The Department of Health and Human Services and the Treasury Department both cite studies that suggest the number of employers that will drop health coverage will be minimal. The Center for American Progress, a liberal think tank, examined the aftermath of the 2006 Massachusetts health-reform law and found no decline in employee coverage.
And more evidence that the disruption will be small came from a recent survey by the National Small Business Association. The nonpartisan advocacy group found that 71 percent of employers plan to continue to offer coverage while only 3 percent plan to pay the penalty.
But until businesses fully understand the financial impact, there is no telling how this will play out.
A recent survey of 889 small business owners by The Wall Street Journal found that 46 percent of those surveyed still don't know which option will be more costly.
This is the last thing the business community needs to be grappling with as we attempt to gain economic momentum. I understand the benefit of insuring everyone, but as with most of the things Washington does, its solution may be more painful than the problem it's attempting to solve.
Tony Paradiso of Wilton is an author, professor, entrepreneur, radio and TV commentator. His website is tonyparadiso.com.