Mike Roach, the owner of Paloma Clothing in Portland, Ore., says health care reform has already helped his business’s bottom line — even though the law hasn’t been fully rolled out yet. The Affordable Care Act’s small business tax credit has shaved $5,500 off his company’s health-care premiums and allowed Roach to keep his workers on a good-quality plan even as costs rise.
Now, he looks forward to 2014, when a state-based exchange might allow him to negotiate even better rates.
“The new health care law has already started helping us,” Roach said. “Overturning it would send us back to the dark ages.”
But in Waco, Texas, the owner of an air-conditioning installation company, whose young employees tend to opt not to sign up for health plans, said he fears that the cost of providing adequate coverage under the law will increase his overhead and drive up the end-cost of his products.
“We’ll adjust our business model for that, and that drives whether or not we hire,” said Capstone Mechanical owner Rick Tullis.
This week, the National Federation of Independent Business, along with 26 states, will argue that the health reform law’s provision mandating that everyone obtain health insurance — whether through an employer or a state-based pool — is unconstitutional, and thus the entire law must be overturned.
While the group’s legal argument is against the individual mandate, NFIB senior executive counsel Beth Milito said she also thinks its requirement that businesses with more than 50 employees offer health insurance is fundamentally flawed.
“Our members just want the government to stay out of their business,” she said.
But Tullis and Roach are actually both members of the NFIB. As their organization prepares to dispute the legal aspects of health care reform, their differing opinions illustrate the fact that there’s little consensus among small businesses as to the law’s merits, and business owners’ projections as to whether the law will be a net gain or loss depend almost entirely on their individual circumstances.
One of the main determinants of the health law’s impacts for a business is the number of employees.
Beginning in 2010, small businesses with fewer than 25 employees who make less than $50,000 on average began receiving a tax credit of up to 35 percent of premium expenses, calculated on a sliding scale based on the number of employees.
Companies with between 25 and 50 full-time employees don’t qualify for a tax credit, but they also won’t be required to provide health insurance under the law. According to the U.S. Small Business Administration, 96 percent of all American companies have fewer than 50 employees.
The other four percent — those with more than 50 workers — will be required to provide health insurance or be fined up to $2,000 per employee. (The SBA also estimates that 96 percent of those with more than 50 employees already do provide health insurance.)
And if the law is upheld, all small employers will be impacted in 2014 when businesses with fewer than 100 employees will be eligible to enter so-called “SHOP” insurance exchanges in which they can band together with other small companies and, theoretically, negotiate lower rates for their plans.
The 50-employee figure is one of the main points of confusion among business owners who are unsure about the law, according to some employee benefits lawyers who have worked on the issue.
“One thing that creates some issues for smaller employers is how does the act decide what to look at in order to get the head count,” said Tom Christina of Ogletree Deakins in Greenville S.C., who submitted an amicus brief on behalf of the Competitive Enterprise Institute and nine health care experts in the case.
For example, if a business owner has two separate corporate entities, the government would aggregate the number of employees from both to determine whether the company meets the 50-employee threshold, he explained.
Tullis said he’s one of the larger companies in his field, and he feels the requirement to provide health insurance would put him at a disadvantage compared with competitors with 50 or fewer workers.
“That mandate doesn’t require them to offer health insurance, which puts us in a tough competitive situation,” he said.
Steven Smith is a benefits attorney with Hinkle Law Firm in Wichita, Kan. The majority of his firm’s clients are small businesses, and while they aren’t necessarily down on the law, he describes them as “overwhelmed” by the changes. In his view, there are multiple aspects that may trip up small business owners.
For example, the law defines a “full-time” employee as one who works 30 hours, but the amount may fluctuate from week to week at a seasonal business, like at many retail shops. Smith said that if a business owner fails to calculate the hours correctly, they could be hit with fines for failing to offer the employee coverage. The same goes for calculating the type of plan an employer must offer, which can’t exceed 9.5 percent of the employee’s household income — a number which can fluctuate based on the spouse’s income.
Smith said the regulations might be challenging for small companies that often don’t have full-time human resources managers to mind the p’s and q’s of government paperwork.
“I work as an employee benefit attorney and even I find it hard to keep up with this stuff,” he said. “Business owners just know that they may have to start doing things differently and otherwise might be hit with taxes — and that’s not a recipe for popularity.”
But others argue that overall the health care law helps everyone — small businesses included — in myriad indirect ways.
One example is the law’s prohibition on price discrimination against small businesses with one or more sick workers. Starting in 2014, small companies would be protected from rate increases if one of their employees had a serious medical condition.
“Currently, because businesses are worried that if they hire someone who will get sick, it can jump up their bills, so they may sometimes not hire the best person in order to avoid that happening,” said Joe Onek, former legal counsel to Rep. Nancy Pelosi (D-Calif.), who was one of the law’s proponents.
Another small-business side benefit is that the law’s exchanges for individuals could reduce “job lock” — the reluctance to leave a job that offers health insurance in order to join a small business or to start one’s own.
It remains to be seen which parts of the law would remain in place if the court strikes down the individual mandate. Much depends on the issue of “severability” — whether the court decides the entire law hinges on the mandate, or whether the other elements can exist independently. (Both the NFIB and the Obama administration have argued — for different reasons — that the mandate and the rest of the law are inextricably linked.)
Some parts of the law would likely continue on regardless of the outcome of the case. Several states are setting up exchanges independently of the federal government, and the small-business tax credits will also likely remain in place, some experts say.
On a national scale, however, the entire act could be erased if the court both deems the mandate unconstitutional and says it’s inseverable from the rest of the law. In that case, the federal government would go back to the drawing board — which is what the NFIB would like to see happen.
“We went into this to knock out the entire law,” Milito said. “That was our intention from the start.”
Correction: A previous version of this article said Tom Christina submitted a brief on behalf of the NFIB. It was on behalf of the Competitive Enterprise Institute and nine health care experts.