Small Business Owners Worry About Reform Law Effects

Published May 31, 2016


American small business owners are concerned they may be adversely affected by the requirements within President Obama’s health care overhaul. Some business owners are planning ahead to avoid having to close their doors, while others are preparing for a climate where government health care policy could dramatically discourage their growth.

‘We’ll Probably Sell All the Stores’

Scott Miller owns Daddy’s Pizza Company, Inc., a small business with several franchises in Illinois and Indiana. With the signing into law of the Patient Protection and Affordable Care Act earlier this year, Miller sees 2014, when new regulations kick in, as a daunting date.

“The insurance I can get now costs too much money, and it wouldn’t be worth it. The problem is that we don’t have many people in our pool,” Miller said. “I’ve found that if you have 100 people in your pool and they’re full-time, you can get a pretty good deal. They consider full-time to be 35 hours per week. But for my company, there are maybe 15 people who fall into that category. It’s not enough to get a good group rate.”

Miller has offered insurance to his employees but has not seen much interest. He is very concerned about the changes coming in 2014, especially aggregation rules used in calculating penalties under the employer mandate, which count multiple part-time employees as a full time equivalent (FTE).

“If they do that, we’ll probably sell all the stores and be done,” Miller said.

Hopefully, It Will Be Repealed

Edmund Haislmaier, a senior research fellow in health policy studies at the Heritage Foundation, says Miller may not have anything to worry about in 2014.

“Employers with 50 or fewer employees, under the current version, will not be subject to penalties for the employer mandate for providing coverage,” Haislmaier said.

The trouble for Miller, Haislmaier says, is that requirements such as the FTE levels are still vague, and enforcement is largely left up to unelected regulators.

“The rules are very complex, and it would take careful study of the tax code and his corporate structure to know his situation,” Haislmaier said. “In any case this doesn’t kick in until 2014, and hopefully it will be repealed by then.”

Even More Complex Penalties

Robert Graboyes, a senior health care advisor at the National Federation of Independent Businesses, says some businesses could be better off just paying the penalties for their fulltime employees.

“If an employer hires 40 hours of labor, that is one FTE; 80 hours is two FTEs. If he has huge numbers of these, regulators will aggregate them and say, ‘Yes, he’s a large business’ and subject to the penalties,” Graboyes said. “However, once that step is passed, then you sort of forget about all of the part-timers. The penalties would be applied only to fulltime employees.”

The effect on the employer would then depend on whether these FTEs were insured.

“Let’s say he’s supplying insurance for his full-timers. That’s a pretty common practice, though not universal. If one of those guys goes out and gets a subsidy, the employer will be hit with a $3,000 penalty,” Graboyes said. “Now, it could be that $3,000 is less than he’d be paying to insure that employee. But it could also be that the employee had been covered under his wife’s policy, so his employer was paying nothing.”

‘Huge Disincentive to Grow

Graboyes says the dilemma will kick in for thousands of small businesses who are on the cusp of the penalties.

“This creates a big problem for small businesses. First, because quite a few of them will be on that cusp, they will be surprised to find they have enough part-timers that they’ll get slammed with the penalties,” Graboyes said. “But let’s say you’ve got 35 or 40 employees and you’re thinking of growing and expanding and adding jobs. You’re going to know, ‘If I hit 51 employees, I’m slammed.’ So you do have people saying that they just won’t create any new jobs. It’s a huge disincentive to grow.”

Despite all these concerns, Miller remains optimistic the law might be changed to allow him to stay in business.

“Organizations like the National Restaurant Association are fighting and fighting. It’s crazy to think that if there’s someone working for me that doesn’t have insurance, I’m going to be fined for it,” Miller said. “In the long run it’s really going to hurt us unless they make changes.”

Loren Heal ([email protected]) writes from Neoga, Illinois.