The Affordable Care Act (ACA) has not only changed the way we think about healthcare in this country, it has also created a multitude of changes for businesses. From new fees and regulations to reporting requirements for compliance, the ACA influences many aspects of business, particularly for small business. Let’s face it – the ACA massively overhauled the healthcare system in one swoop, making it a given that there will be unintended consequences. Frankly, it would be like any organization changing every single process in their company, and then being surprised when unexpected results bubbled up.
There are positives and negatives to the ACA, but the most startling for many companies are the unintended consequences of trying to maintain compliance. For example, we know of several cases where a company wanting to do the right thing for their employees now creates a challenge for those same people. Let’s takes the case of Joe’s Diner (made up for example purposes):
Joe is a good guy so he wanted to pay for a portion of the insurance for his full time employees. He feels he can give them a benefit without breaking the bank. However, Joe also has several part-time employees who desire to work part-time, but are consistently working around 31 or 32 hours a week. With ACA, these people are now “full-time equivalents” and put his company in a “Large Employer” compliance category; therefore, Joe must cut back their hours since his small business simply cannot afford to provide them with employer subsidized insurance without dramatically increasing menu prices to their customers. Unfortunately, if he does not take action and continues to let them work unintentionally “full time,” the part-timers will eventually become eligible for his “Affordable” “ACA Compliant” Employer plan or he will face a potential penalty. The sad thing is that the “Affordable” “ACA Compliant” plan will still be unaffordable to someone in a part time position and make it practically impossible for them (or their families) to receive a subsidy. Wanting to do the right thing would hurt his part-timers' chances of getting insurance via the exchange – an unintended consequence.
Many small businesses simply cannot afford to provide insurance to full-time employees (FTEs) so they are forced to cut hours for their part-time people, meaning everyone takes a hit. Not only do the part-timers have fewer hours, but the businesses may have to add additional part-time people to cover the few hours now cut by their existing team. Adding people may seem like a good thing on the surface, but we are all aware that it is an expense to recruit, hire and train a new employee, even if they are part-time.
This is one of the scenarios highlighted in the most recent Congressional Budget Office (CBO) report which has created a bit of media buzz regarding the actual intended results of ACA.
The CBO Highlights Consequences
The most recent report from the nonpartisan CBO outlines how the ACA will bring a drop in work hours equal to the loss of 2.5 million full-time workers over the next decade. The report reflects that the majority of these workers are in the blue collar and low income sectors, the very group that the ACA is ideally structured to assist.
According to Democratic spokespersons such as Nancy Pelosi, the numbers are overstated and the idea from the beginning was to get people out of “job lock” so they do not have to stay in no-where jobs for insurance. But is that really what will happen?
The industries that will be hardest hit are those with lower margins, such as retail, construction and manufacturing. These industries are already operating with slim margins and for those small businesses, it is typically not feasible to raise rates in order to absorb a major expense. Typically they are looking for ways to minimize cost and streamline in order to remain competitive, or even to remain in business.
What we actually are seeing is those companies least impacted are already doing well in their competitive but growing markets. This includes industries like healthcare and technology. Most are already in compliance and providing good benefits primarily because they have to compete for talent. In this scenario, attracting the best talent requires higher end benefits packages, meaning ACA has no impact other than more compliance hurdles.
Consequences for Small Business
For all businesses, it’s really about margins, and ACA gives a bigger hit to companies that can afford it the least. Companies in higher margin businesses are prepared for ACA because they have other industry drivers that compel them to provide good benefits. Those in lower margin businesses use part-time talent as a way to remain competitive and are the hardest hit. The unintended consequence is having legitimate honest business owners feeling slighted in the equation. Or having small businesses pass on the charge to consumers in order to stay competitive as in the case of many Florida restaurants that are passing on a 1% ACA surcharge to their patrons.
Frankly, the way the ACA has panned out for many small businesses in blue collar industries is that it has been more of a disincentive to grow. These businesses are practically penalized for attempting to become more organized, more professional, all due to growing concerns that the cost of providing employee benefits will become cost prohibitive.
Of course, there are more unintended consequences, such as the latest trend of large healthcare conglomerations gobbling up smaller clinics (which we will cover in a future post), and we are certain we have just scratched the surface on the challenges that will bubble up from the implementation of ACA. Fortunately, you do not have to figure these out on your own. Our group health benefits specialists are well-versed in the nuances of ACA and are happy to answer your questions and address your concerns. Don’t let unintended consequences sideline your business. Ensure you are up to speed on ACA as it impacts your business by giving us a call today.