The Logic Of Obamacare: Small Business, Unintended Consequences

In his Kevin MD post, Stephen C. Schimpff asks, “Is this affordable health care or is it is the law of unintended consequences?”

Schimpff is former CEO, University of Maryland Medical Center; chair, advisory committee, Sanovas, Inc.; and the author of The Future of Medicine – Megatrends in Healthcare and The Future of Healthcare Delivery- Why It Must Change and How It Will Affect You. He’s got plenty of clout behind him. And he says, “The Affordable Care Act is not so affordable if you own or if you are an employee of a small business.” Read his full explanation of what he believes will happen to small businesses in 2014 and 2015 based on the ACA.

In summary he claims that a small service business with 50 – 1,000 employees, an average wage of $10 per hour (or $20,000/year plus tips), and who pays half of their employee insurance premiums will see a domino effect of externalities. Schimpff writes, “Both the company and a single individual are paying about $2,000 per year in premiums… The health care policy is (and has been) consistent with the ACA/Obamacare guidelines for the various essential services that must be covered; it has never been a ‘substandard’ policy.”

Take note:

  • Small service businesses have three healthcare archetypes.

There are currently full-time employees who are enrolled, full-time employees who have coverage through a spouse’s employer, and “young invincibles” who use their income for other things (probably things that are more fun than shopping for healthcare).

  • In 2014 all of the full-time staff must, per the ACA, have insurance or pay a penalty tax.

The young invincibles will have to sign up somewhere and that means there is cash coming out of their paycheck one way or another. And every time an employee enrolls for employee coverage, the business also has to pay half of that premium as well. This can become a substantial expense for the company.

  • Starting in 2015, an employee cannot be required to contribute more than 9 ½% of wages for their insurance.

Schimpff explains, “The full timers tend to earn about $20,000 per year, less for someone working say 32 hours per week, a $2,000 per year share of the premium exceeds the 9 1/2 % limit.” His logic is that in order to avoid a tax penalty, the business will have to lower the employee contribution amount. This is more red tape, and more expense for the company with no additional benefit.

What’s wrong with this? Government interference with competition for starters. Because of a price hike on employee policies, the small business hovering just over 50 employees might have trouble making as much as someone who has less than 50 employees and is not affected by the ACA requirements. The owner of the larger small business might resort to hiring part-timers (remember, there is no obligation to insure part-time employees; the exchanges are supposed to help these people).

Schimpff makes the following conclusion: After 2015, all full-time employees will be insured; some employees forced to buy insurance will have lower take home pay; the person who wants more work will be pushed toward less hours (with lower take home pay); and the customer will pay a higher price for the service.

Want to review the ACA guidelines pertaining to employer insurance? NPR provided an informative summary.