The Affordable Care Act is a controversial topic due to the massive amount of people who support and oppose the bill. The ACA has its pros and cons, but let’s narrow down its effects on a certain demographic: small business owners. The law has helped and hurt small businesses around the country; however, you’ll probably hear more complaints and criticisms about the ACA among them.
Before discussing the issues between the ACA and small firms, let’s review the definition of a “small business”. A small business varies depending on the industry the company is in. That being said, an organization is usually considered “small” if it is a private company with fewer than 500 employees or an average annual receipt of less than $7.5 milllion.
Many people believe a small business is a mom-and-pop shop with about 10 or so employees. When in reality, a small business can have around 400 workers or an annual revenue of $7 million!
Anyways, defining a small business is necessary to portray the type of firms affected by the ACA. The health care regulation is harming the efficiency of many small firms, even though the government tweaked the regulation to better assist them.
So what are these common problems between small businesses and the health care regulation?
Let’s start with the most popular issue that entrepreneurs have with the ACA – increased business costs. The health care regulation has increased the cost of health insurance, so employers must cough up more money to provide coverage to their employees. Also, small businesses have to pay a new tax called the Health Insurance Tax (HIT). This new tax is expected to reduce the amount of jobs in the private sector, which disrupts the heart of the country’s economy.
On top of that, an employer can only purchase certain health insurance policies. These policies must cover the essential health benefits, or the employer will receive a penalty. The EHB is a set of services that a health insurance policy must cover for its consumer, like inpatient hospital care or prescription drug coverage. Furthermore, the EHB can change its set of services which means the price of the insurance can increase.
If increased costs didn’t sound bad enough, new employer mandates are causing serious complications for many small companies. The employer mandate requires businesses with 50 or more full time equivalent employees (FTEs) to provide them with medical coverage. Business owners who do not comply with the mandate will have to pay a penalty of $2,000 for every employee who did not receive coverage! That means if you have 50 FTEs, and you decided not to provide them with health insurance, you’ll have to pay $100,000.
Therefore, some business owners have decreased their workforce by terminating employees, outsourcing, and changing their FTEs to part-time workers. Furthermore, the mandate penalty is on a month-to-month basis. Hence, employers need to keep track of their employees every month to avoid any sanctions. That means more paperwork, more surveillance, and less time to focus on the growth of the business.
The ACA has many negative aspects that only affect small firms. For that reason, the health care regulation has disturbed and slowed the growth of various small companies. The health insurance tax and the EHB are perfect examples. These policies only apply to the fully-insured market mostly composed of small businesses. Hence, the reason why so many entrepreneurs and sole proprietors oppose the ACA.
The health care regulation has tried to appeal more towards small business owners, but it is still not doing enough. Small businesses are the backbone of our economy, so the ACA needs to help these businesses as much as possible.