Small-business owners find creative ways to handle Obamacare

Individual consumers have had a year to get used to purchasing health plans on the new federal healthcare marketplace. But for business owners like Ron Holt, the learning curve is only just beginning.

Holt founded Two Maids & A Mop, a residential cleaning service in Pensacola, Fla., in 2003. He has since opened 11 branches in the Southeast and added nearly 150 workers to his payroll.

Holt had planned to expand in other regions. But with the passage of the Affordable Care Act in 2010, he hit a snag. The law includes a requirement that business owners with more than 100 employees offer health coverage to most of their full-time staff by 2015 or possibly pay a hefty fine. “We knew we had a big problem on our hands,” Holt says.

At the time, he didn’t provide insurance for any of his staff, including himself. Offering benefits to all his full-time workers would cost his company nearly $250,000 annually and consume more than half of its annual profit margin. And if he ignored the law and paid the $2,000-per-employee penalty for doing so, it would cost him $200,000.

“For the first six months we were really lost,” Holt says. “We stopped plans for future growth and talked about selling some locations off to private companies. But I was the founder and I didn’t want to part with my baby."

He considered raising the rates of his services, but by industry standards, the $125 basic cleaning fee he charged was already on the high end. He’d have to raise prices by $40 to $50 to make the idea work, and he was sure that doing so would accomplish little more than alienating his customer base, he says.

Holt eventually arrived at a solution: franchising. By establishing branches as franchises, he would accomplish two goals. First and foremost, he could continue expanding. Second, because each franchise would operate as its own business and employ fewer than 50 employees, they would not be subject to the employer mandate for health coverage. He’s spent the last year or so implementing his new franchise model, with much success.

“[The healthcare mandate] turned out to be a true blessing in disguise, because it forced me into thinking about different ways to manage the growth of the brand,” Holt says. “Before, we were opening one to three locations per year, and now we’re looking at adding 100 new locations in the next five years.”

‘Damned if we do, damned if we don’t.’

Not all business owners have had Holt’s luck meeting the demands of the ACA.  

In an early 2014 poll by the National Association for Business Economics, the majority (75%) of U.S. companies said the new law will have no effect on their business or hiring plans. But one in five business owners said they expected the law to hurt their business, compared to just 5% who said it would help grow their business.

One of the potential drawbacks of the employer mandate is that employers will simply skirt the law by reducing hours of their full-time staff. Under the ACA, workers are considered full time if they work 30 or more hours per week. Many traditional employers think of “full-time” workers by their traditional definition — those who work an average of 40 hours per week.

In response to the mandate, some large companies have hinted they might reduce their employees’ hours, including Darden Restaurants, which owns the Olive Garden and Red Lobster. The idea didn’t fly with consumers. In the face of public backlash, Darden backpedaled in 2012, though company leaders stopped short of promising they wouldn’t rely more on part-time workers in the future.

But some business owners can’t afford not to reduce hours. John Monarch runs Direct Outbound, a call center in Greenville, S.C., where he employs about 150 people, the majority of whom typically work more than 30 hours a week.

Complying with the mandate would cost the company roughly $600,000 to $900,000 a year, Monarch says -- a significant portion of his annual profit. “We’re damned if we do and damned if we don’t,” he says.  

Rather than taking the financial hit, Monarch told employees earlier this year that he would be cutting their hours to limit how many could be full time.

The adjustment has already presented its own set of complications. Twenty to 30 employees have quit. And to compensate for lost manpower, Monarch has had to hire and train more part-timers to fill in gaps.  

“It makes hiring very difficult,” Monarch says. “A lot of employees are taking second jobs, which is interfering with scheduling. Now we have to work around their second job’s schedule.

A leg up for small businesses

To be fair, the majority of small businesses in the U.S. don’t have to provide coverage under the ACA. Ninety-six percent of small businesses in the U.S. have fewer than 50 full-time employees, which exempts them from that part of the law, according to the Small Business Association.

But that doesn’t mean they may not have to make changes to their benefits plans. One of the little-known consequences of the law is that if companies’ health plans don’t meet certain standards, business owners will have to get rid of them. This will impact 70% to 80% of small businesses today, according to David Chase, a spokesperson for the Small Business Majority, an advocacy group, 

Kim Murphy, co-owner of a Elmwood Park, N.J., manufacturing plant with 23 employees, told us earlier this year that they are considering dropping coverage for their staff because it would cost them twice as much to offer ACA-compliant plans. But Murphy, along with other business owners who employ fewer than 25 employees, should know that they can qualify for tax credits to help ease the burden of premium costs.

For businesses that are currently offering plans or want to start, the federal exchange has added a special marketplace called SHOP, which is now open to businesses with under 50 employees (it is scheduled to open to to businesses with 50 or more workers in 2016). (A report released Thursday by the Government Accountability Office predicts early enrollment on SHOP marketplaces will fall short of expectations —only 12,000 small businesses have signed up in 18 states, although enrollment from 33 state exchanges have yet to be tallied).

To help businesses of all sizes figure out how to comply with the ACA, the Small Business Association has this useful tool, which provides guidance based on factors like a business’s location, number of employees and current benefit offerings.

“As with any business decision, we encourage small-business owners to consult their trusted advisors when making a decision about what works best for their business,” says Meredith Olafsenarol, an ACA expert with the SBA. “It’s important for business owners to understand that if they have fewer than 50 full-time employees—including full-time equivalent employees— they won’t be affected by those provisions.”

Like consumers who have signed up for a health plan under the new law in 2014, it’s going to be difficult to find two business owners who have the same experience with the complex and varied aspects of the ACA. Some business owners may not even be aware of the changes coming in 2015.  

Further causing confusion is the fact that some parts of the law are still being challenged. Opponents are moving to have certain aspects of  the ACA it repealed, like eliminating the employer mandate altogether, or increasing the number of hours needed to qualify as a full-time employee from 30 to 40 per week.  

Key dates and resources for small-business owners:

50 full-time employees or fewer: As of, Nov. 14, the SHOP Marketplace is open to small businesses with fewer than 50 full-time employees, although there is no requirement to offer coverage. Employers with fewer than 25 full-time employees get a bonus in the form of a tax credit, which they can find out if they qualify for here.

50-99 full-time employees: Starting in 2016, employers with 50-99 full-time employees will have to offer benefits to at least 95% of full-time staff. They can use the SHOP marketplace beginning in 2016.

100 full-time employees or more: These businesses must provide health coverage to at least 70% of full-time employees starting in 2015 and 95% of full-time employees beginning in 2016.

-Healthcare.gov has tools that can help calculate full-time equivalent employees and whether businesses qualify for tax credits.

-The Small Business Administration is hosting several webinars for small-business owners in November and December. Sign up here.

-The IRS keeps a detailed FAQ for small-business owners updated here.

-This health coverage guide from the Small Business Majority has great tips.

-Healthcare.gov has a new section dedicated to small business owners. Find it here.

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