Mid-size business owners face choice of offering health insurance or paying a penalty
07.02.12 | The Palm Beach Post
July 01–WEST PALM BEACH — Restaurateur Paul Emmett expects President Obama’s health care law to increase his costs and to force him to raise prices. But he can’t imagine it’ll affect his willingness to hire workers for the Duffy’s Sports Grill chain.
The U.S. Supreme Court on Thursday upheld a sweeping health care overhaul that requires businesses with more than 50 employees to provide medical coverage to workers.
Many business groups revile Obama’s plan as a job-killing, cost-raising layer of bureaucracy. Emmett, though, likes the law, which brings big changes for companies that don’t offer health insurance to workers.
“I’m in the minority,” Emmett said. “The vast majority of business owners are against Obamacare.”
If the health law survives Republican attempts to kill it, Duffy’s would be forced to pay for insurance for as many as 1,600 employees, or to pay a penalty for not offering coverage. Those workers — mostly servers and busboys — get no employer-paid health insurance from Duffy’s, although they can pay the full cost of a limited health plan.
Emmett said he has “no idea” how much he’ll spend to provide coverage. One uncertainty comes because many Duffy’s workers are younger than 26, which means they can be covered by their parents’ insurance and wouldn’t need employer health benefits. But, Emmett said, it’s inevitable that he’ll pass the new expenses on to customers.
“It’s going to cost me more money, it’s going to cost every business I know more money,” Emmett said. “Everybody’s going to have to raise their prices. We’ll be in the same competitive situation as everyone else.”
The health law will raise employers’ cost of keeping formerly uninsured workers on staff. But Emmett said the cost wouldn’t prevent him from adding employees.
“It’s absolutely not going to affect our hiring plans,” Emmett said. “I can’t imagine altering a business model as a result of an additional expense. We are not going to discontinue hiring the people we require to staff our business as a result of this ruling.”
Hiring experts say employers add workers to meet demand for their services, and it’s unlikely that an additional expense would change that supply-and-demand equation.
Employers who choose not to provide health insurance would pay a $2,000-a-year penalty. Jay Starkman, chief executive of staffing firm Engage PEO in Fort Lauderdale, said that amount seems too small to cause an employer not to hire.
“If you’re talking about the cost of a burger, it’s a few pennies, it’s a dime,” Starkman said. “It’s not to the magnitude of saying, ‘I’m not going to hire somebody.’”
Opponents of the law paint a more dire picture. They say the new costs will hamper an already-weak job market that has yet to recover from the Great Recession.
“Small business owners are going to face an onslaught of taxes and mandates, resulting in job loss and closed businesses,” said Dan Danner, president of the National Federation of Independent Businesses.
The Florida Chamber of Commerce said the law puts 4,500 jobs at risk.
“Private-sector jobs, particularly small businesses, will be hit hardest,” said Mark Wilson, chief executive of the Florida Chamber of Commerce. “The federal health care law will be financially devastating for many small businesses.”
It’s easy to imagine an employer with 51 employees considering a couple layoffs to get below the 50-employee level. Or perhaps an employer with 49 workers would try hard not to add people.
“For companies with 49 employees, that next hire means, ‘Uh oh, gotta provide insurance for everybody,’” Starkman said. “But on the whole, I don’t see this dramatically affecting hiring.”
Mark Perlberg, chief executive of West Palm Beach staffing firm Oasis Outsourcing, agreed.
“I just don’t believe that’s driving a lot of business behavior,” Perlberg said. “This is a cost component they’ll have to deal with, but all of their competitors are going to have to deal with it. I just don’t think it’s going to be the driver that a lot of people say it is.”
But, he said, the law looks likely to boost administrative burdens for small employers. Large companies have human resources departments to deal with the complicated details of the new law. Smaller companies, though, will be forced to make sense of the rules themselves or hire someone to do it for them.
“Companies like ours are going to play an important role,” Perlberg said. “Any company with less than a few hundred employees is going to have a hard time dealing with this.”
Restaurateur Dean Lavallee, owner of the Park Avenue BBQ Grille chain, said he has mixed feelings about health overhaul. He’s glad that he finally might be able to offer his workers health coverage.
“I agree that my people should have health insurance,” Lavallee said. “My people need it. What we can afford at our level and size of company is not great insurance.”
But he also worries about headaches from new layers of regulation.
“My experience is that government agencies don’t make things easier,” he said.
Lavallee isn’t getting too concerned yet. Republican presidential candidate Mitt Romney has vowed to kill the health care law if he’s elected in November, and Lavallee said he’ll wait until after the election to really dig into the details of the health law.
“If we are struggling for profitability after the law, than that would affect our decision to hire,” he said. “But the jury is way out on that one.”
Health care law’s impact on small businesses
— Penalties. After 2014, businesses with more than 50 employees must offer health care coverage or face a penalty of $2,000 for each full-time employee without coverage.
– Administrative costs. Small businesses will be required to report the value of each employee’s health plan on their W-2 statement.
– Tax credits. As a business’ size and average wage amount goes up, the tax credit goes down. Once a business reaches 25 full-timers or $50,000 in average salaries, the credit is phased out.
– Communication. Businesses will have to work more closely with health insurance providers and help employees understand the kind of coverage they need.