Small businesses fume, now seeing ‘Obamacare’ as unavoidable

Election 2012 ended hopes among small businesses that Obama's health-care law would be upended. Papa John's and others are threatening layoffs and higher consumer prices, citing added costs of doing business under 'Obamacare.'

By MARK GUARINO | The Christian Science Monitor

posted November 16, 2012 at 4:15 pm EST

With the 2012 election ending their hopes for a reprieve from President Obama's sweeping health-care reform law, a number of business owners across the US are threatening to lay off workers, slash employee hours, or add surcharges to their services, citing higher costs of doing business once all the provisions of "Obamacare" kick in.

The Affordable Care Act (ACA) of 2010 requires companies with more than 50 workers to provide health insurance to employees who work at least 30 hours a week, starting in January 2014. If they don't, they must pay the government $2,000 a year for each full-time employee minus the first 30 workers.

Among the businesses that have gone public with their concerns are the following:

Papa John's International CEO John Schnatter says he is likely to reduce worker hours at the pizza chain to avoid having to pay for their health care. Obamacare will cost his company $5 million to $8 million each year, or 11 to 14 cents a pizza, he told the Naples Daily News in Florida over the summer. 

• John Metz, a Florida franchise owner of several restaurant chains, including 48 Hurricane Grill & Wings, 40 Denny’s and several Dairy Queen, says he plans to cut employee hours and add a 5 percent surcharge to customer bills as of January 2014. “Everyone’s looking for a way to not have to provide insurance for their employees," Mr. Metz told Fox News on Thursday. "It’s essentially a huge tax on all us business people.”

• Zane Tankel, CEO of Apple-Metro, which operates 40 Applebee’s franchises in the New York City area, says expected health-care costs will prevent him from expanding or making new hires. “In this environment you can’t raise prices … so then it’s cut back on overhead,” he told Fox Business Network last week.

The reform law puts companies with already-slim profit margins in a bind, especially if they pay minimum wage, says Adam Powell, president of Payer+Provider Syndicate, a health services consulting firm in Boston.

“Given that many restaurant employees were earning the minimum wage before [Obamacare], it is often not possible for employers to decrease wages to cover the cost of providing insurance,” Mr. Powell says. Employers "must either pay the penalty or increase the value of their total benefit package by adding [health] insurance. In either scenario, the law increases the cost of maintaining a minimum-wage full-time employee.”

Revenues from companies that elect to pay the $2,000-per-worker penalty are to be used to offset government costs of operating state-based "exchanges" where uninsured workers can shop for affordable health insurance. As of Friday, 22 states plus the District of Columbia have agreed to operate the exchanges, while 14 have refused, deferring to the federal government. Fourteen have not decided.

Companies can avoid penalties for not providing healthcare coverage if they cut worker hours from 30 to 29, says Christine Eibner, a senior economist at RAND Corp. in Arlington, Va. They also can opt to provide coverage, which workers might prefer in place of over steady wage increases over time.

Which option businesses choose “varies a lot depending on the firm, what workers look like depending on what their incomes are and their ages and health- care status. It ultimately will get down to what workers will benefit from more, Ms. Eibner says. Some, for example, will be eligible for health-care coverage on the state-run exchanges and won’t want the employer to offer coverage.

Although some say slashing hours will hurt productivity, the opposite might occur if companies decide to avoid penalties by keeping their hours intact and providing coverage, says David Weissman, head of the Employment Law and Managed Health Care Law Practice at Rose Law Group in Scottsdale, Ariz.

“If coverage is extended to those employees who did not previously have health insurance, the company may have healthier, happier employees who are more likely to stay with the company," Mr. Weissman says. "This may lead to greater productivity by those employees, which could then result in increased profits for the company as a whole.”

The drumbeat against Obamacare is sounding particularly loud this year because of the election season – and that has created misconceptions about the law, says Rhett Buttle, national outreach and governmental affairs director for the Small Business Majority, a trade group in Washington.

“We just came out of campaign season and there was tons of political rhetoric, and the health-care law was fueling it, unfortunately. Our position is that it is time for folks to understand the law and how it affects them,” Mr. Buttle says.

A July poll by Buttle’s organization, of 800 small businesses in eight states, found that half of them want to see minor changes in the new health-care law, while 34 percent want it overturned. When respondents learned more about Obamacare's specifics, those that wanted the law to remain intact widened to 56 percent, while those wanting its repeal dropped to 28 percent.

Meanwhile, the National Restaurant Association released a statement to Thursday saying it's “premature to make a specific assessment of exactly how the law will affect any individual business because there are so many details that are unknown.”

A study last month by the Urban Institute, a public policy think tank in Washington, found that if the ACA were implemented in 2012, the number of people covered by employer-sponsored insurance would increase only 2.7 percent, from 151.5 to 155.6 million. Employer spending per person insured would decline 7.3 percent for small businesses (those with 100 or fewer employees) and remain unchanged for large companies (more than 1,000 employees). For midsize companies (those with between 101 and 1,000 employees), costs would increase 4.6 percent, mainly because companies of this size traditionally are less likely to provide coverage.

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