With only months to go before the major impact of the Affordable Care Act is felt, many family businesses are yet to come to terms with the implications of the new health care issues that are addressed.
While the aim of the health care reform act is to make health insurance more affordable by reducing the cost of health care, there are many concerns that the impact on businesses could be catastrophic. However, many of these fears have been overstated, and it is important to avoid panic and knee jerk responses that could have an adverse effect on the long term prospects of your business.
Here we will summarize the main implications of the act and how the various employer issues for health care apply to different business sizes. We will also consider the potential impacts along with the merits and the weaknesses of various workarounds that some family businesses may consider.
Businesses with 50 or more full-time employees
The Act will require all businesses with 50 or more full time employees to offer group insurance plans with a maximum cost to an employee of 9.5% of their gross income.
These plans must provide essential benefits which include preventative wellness, maternity and infant care, mental health care, rehabilitation and approved medical devices. Dependent children under 26 must covered, and nobody can be refused insurance for any preexisting condition.
The penalty for failing to implement this will leave the business liable to a penalty of $2,000 or $3,000 per employee beginning in January 2015.
Impacts and workarounds
For businesses with large numbers of low paid employees who currently are uninsured, the financial impact of providing health care for employees could be burdensome, and it is not surprising that many employers are looking at ways of minimizing their costs.
For employers with just a little over 50 employees one solution would be to let some of their employees go in order to get the employment count to less than the critical number. Alternatively, a family business might decide to split up into two independent businesses run by different family members.
Although these approaches might seem superficially sensible, if they don’t fit in to the overall business plan then they are almost certainly a bad idea. They will reduce the prospects for future growth, and they are likely to create a demotivated and unstable workforce.
Another approach is to find minimal plans that cost less than the $2,000 or $3,000 per employee penalty. However, such plans are unlikely to achieve the essential benefits described above, again leaving the company liable to penalties and worker dissatisfaction.
Businesses with fewer than 50 full-time employees
For family businesses with fewer than 50 full time employees there are a number of options. They can elect to provide no health care coverage at all, they can provide contributions to the cost of insurance, or they can offer the kind of plans that larger employers are obliged to provide to their employees.
Impacts and workarounds
Providing employees with insurance plans or making a contribution towards them will have significant cost implications, though for businesses with 25 or fewer employees up to 50 percent of the cost of the insurance is reclaimable as tax credits. Again, this creates a cliff edge for employers with a little over 25 employees, but the same applies as above. This is no reason for letting some of your employees go.
Providing no coverage at all obviously is the lowest cost option. For some small businesses there may be no alternative, though at the very least employers should ask their family insurance brokers to help educate employees in their personal options.
For family businesses that can afford to help their employees, opting to do otherwise can have an adverse long term impact. The best employees are likely to seek employment with larger organizations that do provide insurance, and those that remain are likely to be demotivated; not a good thing for the long term prospects of your family business.
Finally…
However you might feel about the Affordable Care Act the important thing is to avoid doing things now that you might regret in the future. Engage with your workforce and explain your intentions as well as their options. It might turn out to be to everybody’s benefit.