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In parts one through four of our series on the Affordable Care Act, we have examined a few of the benefits that are seen as the most desirable provisions of the law, things like no pre-existing condition, no-cost birth control, and the ability for children to remain on their parents’ plans. There are other benefits, like cash subsidies to assist in the purchase of the ACA health care plans that will be examined later in the series. For part five, we will skip ahead and discuss the law as it relates to small business and corporate America.
Who Must Comply with Obamacare?
Under the ACA law, any business with more than 50 full-time employees must offer health insurance to its employees. This health insurance plan must be compliant, meaning the benefits of the plan must meet or exceed the minimum benefit thresholds in the ACA law. If a company does not offer a plan or has a plan that does not meet the minimum standards, then the employer will be assessed a tax fine of $2,000 per employee. This provision is not quite as straightforward, however, because technically the company is only supposed to pay the fine for employees who are eligible to receive subsidized health care costs.
Since everyone is mandated to have coverage, that means the fine would apply to all employees, not just the ones receiving government subsidies. In addition, the first 30 employees are exempted from the fine. For example, a company of 51 workers would pay a $2,000 fine on 21 workers (51-30=21) or $42,000. A good guide for explaining different scenarios can be found at the National Federation of Independent Business website.
If you have fewer than 50 employees, you are not required to provide health insurance. However, if you have up to 25 employees, the government will provide a tax credit if you have employees earning at least $50,000 per year and offer health insurance. In 2013, the tax credit amount is 35% of your annual cost for health insurance premiums and goes up to 50% after 2014.
However, that is only if your average employee salary is $20,000 or less. If the average salary is higher than $20,000, then the tax credit will be reduced by a factor determined by how much the average salary is above $20,000. In addition, if the company has more than 10 employees, regardless of salary average, the tax credit will be reduced. Lastly, there are no tax credits allowed for employees considered “highly compensated.”
For the ACA law, highly compensated is considered anyone making over $80,000 a year. If you noticed how the first sentence in this paragraph contradicts with the numbers in the third sentence, that is not a typo. It is contradictory, but that is what is written in the ACA law. You can find this information at the healthcare.gov and on page 319 of the ACA law.
The number one implication of the small business and employer provision is the flooding of potential ACA recipients into the system, resulting from employers dropping coverage. Most proponents of the ACA law have dismissed this idea as conservative scaremongering at best and corporate greed at worst. That, however, is because they are not the ones writing the checks. This is a simple math equation. The increase in required ACA benefits increases the costs of the health insurance premiums, because more items are covered.
At current levels, the Kaiser Family Foundation puts the average cost of employee health insurance at $15,073. Only $4,129 of that is paid by the employee, meaning close to 11,000 of the costs is paid by the employer. The ACA coverage mandates will increase those premiums, but even at current levels, paying a $2,000 per person fine is better than $11,000. This is simple math, and as you move into companies that have 5,000 or more employees, you are now talking about saving hundreds of millions of annual costs. Make no mistake, many companies will take this option.
For the companies that bite the bullet and provide health insurance, their costs will increase. This will be because of higher premiums charged by the insurance companies for having to cover more health care benefits and for costs related to keeping up with the regulations that come with the law. There is no definitive way to determine the costs accurately ahead of time, but the Congressional Budget Office projects the costs of ACA to be double what they originally projected.
To be fair, the CBO estimates were for the first 10 years. New projections that go out 11 years have the cost down 0.64%. Why the CBO would go out just one year on their projections is a little strange, especially given the paltry reduction in costs it would show. More telling is that the projection is based on additional revenue provisions that would pay for the law. This is always the problem with the CBO; it only answers questions based on the paper and assumptions put in front of them.
If any of those figures are wrong, if something is left out (like payments to doctors left out by Democrats when the bill was originally submitted), or the revenue gathered is less then projected, then the whole analysis is thrown off. Garbage in, garbage out is the old saying. The primary common sense question to this is simple: When has any government program ever cost less than promised? The answer is never.
The other implication is that the country may see an increase in temporary agency usage. Companies on the cusp of going past 50 employees and either wish to expand or have no choice to can avoid that employee threshold by going through temp agencies. This will alleviate some added costs to them, but only marginally as the temp agencies will also be charging a higher fee per employee supplied.
Lastly, small businesses will not get near the benefit from the tax credit. As discussed above, employers cannot have more than a $20,000 in average salary to receive the full tax credit. If you have higher salaries, the tax credit percentage goes down. Any company that can only afford to pay an average salary of $20,000 or less, in all likelihood, cannot afford to pay for health insurance regardless. Look at the numbers: With an average employer cost of $11,000, an employer could get a $5,500 tax credit, and they pay the other half.
However, $5,500 dollars is a quarter of a $20,000 salaried employee’s pay. A business that small cannot afford to pay that. They cannot afford to risk going under just to satisfy some politician’s belief that paying for health insurance is the right thing to do–no matter the cost. Also, this tax credit does nothing for large employers because they are not eligible. If you have 51 or more employees, you cannot get a tax credit at all. Because of this, there is no incentive.
The primary problem is political and social philosophy intruding on policy and business. Things like health care, time off, vacations, etc., used to be called fringe benefits. They were there to create greater employee loyalty and a way to compete for better employees. They were, in short, extra benefits. Today, they are seen as items that are owed to employees.
The President and the Democrats have determined that health insurance is a right, and if the government cannot get a bill through for single payer, then employers are responsible for paying for that right. Whether this is true (health insurance as a right) is an argument for a different day. The point here is when you approach policy that way, then you end up with bills that have consequences far beyond what is written or intended. Businesses exist to provide a product or service, and make a profit. That is all. They are not smaller surrogates for government to be enlisted in the care and feeding of the population.