Small Business Owners Face Health Insurance Dilemma

Rose Wang looks at her staff of 70 employees and wonders if she’ll have to lay off some of them to comply with the health care law.

The owner of Binary Group Inc., an information technology firm based in Alexandria, Va., is one of many small business owners who will be required to provide health insurance for her staffers under a provision of the law that goes into effect on Jan. 1, 2014. Wang already provides insurance, but she has struggled with premiums that have soared as much as 60 percent annually, so she requires employees to contribute to their coverage. She’s worried because she doesn’t know how much she’ll have to pay under the Affordable Care Act.

Wang’s worry is a gut-wrenching dilemma that many small business owners are concerned that they may face. Now that President Barack Obama has won re-election, the health care overhaul, which presidential candidate Mitt Romney promised to dismantle, is marching forward. Companies must decide before the start of 2014 what they’ll do to comply with the law. Right now, no one knows how much the insurance will cost, and owners aren’t sure if they’d be better off not buying it and paying a government a penalty of $2,000 per worker. Some owners are even threatening to defy the law. The big challenge for most small businesses is that they just don’t have enough information to make concrete plans.

If Wang can’t afford the insurance, she says that some of her staffers may have to go.

“I would have to say, ‘look, guys, you’re family to me in many respects, but this family also depends on having the kind of cash flow available to keep the lights on and keep employing most of you,”‘ Wang says. “It would have to come down to that.”

Not providing insurance and paying the penalty is another alternative. “That’s what we’re going to decide by 2014, if the math is so obvious it’s cheaper for us to do the $2,000 per head,” she says.

The health care law generally requires that companies with 50 or more full-time workers provide health insurance for their staffers. If they don’t provide any insurance, they’ll have to pay the $2,000 penalty for each worker on their payroll. If they buy insurance, but it doesn’t meet the government’s tests for affordable coverage, they’ll have to pay $3,000 for each worker whose coverage isn’t deemed affordable. If that seems confusing, that’s just the beginning. There’s a labyrinth of other details that include plans that can be “grandfathered” in and a maze of other fine points that small business owners are trying to decipher.

In some industries, owners are considering cutting employees’ hours to under 30 a week, which would take those workers out of the jurisdiction of the law. Restaurant owners are looking at that option after Darden Restaurants Inc. said in October it was going to try changing the mix of full-time and part-time workers at its restaurants including Red Lobster and Olive Garden. When full-timers leave, Darden will considering replacing them with part-timers, spokesman Rich Jeffers says.

(Darden has since decided that it not changing any of its full-time staffing plans for 2014 after some testing, Reuters reports. Darden said no current employees, hourly or salaried, would lose their full-time status as a result of healthcare reform.)

Hurricane Grill & Wings, a restaurant franchise with five company-owned restaurants, is also thinking of lowering the number of hours that its servers and other hourly employees work. That would exempt them from having to be covered under the law. President Martin O’Dowd says the company would have to monitor the quality of its service and food to be sure there’s no impact on customers if workers are unhappy with their shorter work-week. But he’s not anticipating any problems.

Hurricane CEO John Metz recently said the company was considering adding a 5 percent surcharge to customers’ bills starting in 2014 to cover the costs of health care for full-time workers. But since the plan was reported in the news media — and generated negative comments on some websites — O’Dowd now says that it was “hypothetical.”

“That is not in our plans,” he says.

Even though some key details of the health care overhaul haven’t been worked out _ like how much insurance offered thought the exchanges will cost — there is already a lot of information to sort through. Figuring out the details is keeping human resources consultants and benefits brokers busy.

“It is like a sleeping giant work up,” says Pamela Ross, owner of New York-based Atlantic Human Resources Advisors. “They are very much paying attention because so many regulations kick in for 2014.”

There are so many unknowns about the law that Campus Cooks is hiring an employee to determine what the company’s options are and how much they’ll cost. The provider of dining services for fraternity and sorority houses in the Midwest, Florida and Texas, has 125 employees.

“I don’t know what’s in the law,” says Bill Reeder, president of the Glenview, Ill.-based company. “I’m really hiring someone whose job, in part, for the next six months is to figure out this thing.”

Reeder says he can’t afford to offer insurance now and that’s something he regrets. And he says he might have to pay the penalty if turns out to be cheaper than providing coverage.

He says he knows this much: “I’m not approaching this by cutting hours or raising prices.”

Whether Reeder pays the penalty or buys coverage, Campus Cooks will have to come up with money to cover the expense. “We have to look at our business and see how to run it more efficiently, We have to renegotiate our food costs, cut office expenses, streamline our technology,” Reeder says.

Some small business owners, who already provide insurance, are looking at the law and weighing paying penalties against continuing to provide insurance that is more expensive. One risk though is that dropping coverage may send a message to employees that the owner doesn’t care about them. That could lead some workers to quit.

“They’re looking at that and saying, ‘well, if I stop providing benefits for my people, am I going to lose good people to my competitors who may not be taking the same approach?” Ross says.

Ken Wisnefski considered paying the penalty, but says he has decided against it. His company, online marketing firm, WebiMax, based in Mount Laurel, N.J., has nearly 100 employees, and already provides health insurance.

“Not offering health care is not necessarily the best way of attracting talent,” he says.

Companies that won’t be bound by the new law, but that do provide insurance will be looking to see if they can save money through the exchanges.

Matt Helbig provides insurance to the 10 fulltime employees at Big River Running Co., his chain of three running and walking shoe stores in the St. Louis area. He’s waiting to see the cost of insurance on the exchanges before deciding what to do.

“If it were cheaper, we’d probably drop insurance through us, and we’d probably give them a raise to cover what we had been covering.”

Some small business owners are thinking about paying the penalty because they genuinely believe they won’t be able to afford to buy insurance, says Allen Nassif, president of Northern Benefits, an insurance brokerage serving small businesses in New England.

Nassif also says he has clients who have more than 40 employees and who are holding back from hiring because, when they reach the 50-employee threshold, they’ll have to start paying for insurance.

But some owners are not worrying about the cost.

“We think it’s important to provide our employees with health care,” says Chap Gage, president of Susan Gage Caterers in the Washington, D.C., area.

The company already provides insurance for its 110 employees, and Gage doesn’t see the law as affecting the business.

“We’ll react and comply with everything we need to do,” he says.

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