April 08, 2014
The Affordable Care Act from the Employer’s Perspective

Much debate occurred in the media over the last nearly four years regarding the Affordable Care Act (ACA), better known as Obamacare, and the impact it will have on people at all levels of society. One of the initial flashpoints of the ACA is its requirement that businesses with 50 or more employees to begin offering those employees a health insurance option or pay a hefty fine.

The Obama Administration has already pushed back the implementation date of the so called employer mandate twice. As of this writing, businesses with 100 or more employees working at least 30 hours a week will need to begin offering those employees a health insurance option in 2015. By 2016, that requirement will be extended to business with 50 or more employees.

ACA and the service industry

Some industry wage rates and price-points simply do not support the costs of employer-provided health insurance, this is especially true in the service industry. Which is precisely where the majority of those businesses most impacted by the employer mandate are operating.

Customers in competitive service industries, like fast food or retail for example, simply will not pay more for something they can get cheaper through a competitor or will simply choose to go without. Margins in these industries are already as thin as they can be, and any large additional costs over time could threaten to collapse entire industries and leave employees without jobs.

Traditionally, service industry employment has never provided workers with health insurance benefits. Health insurance benefits are just that – a benefit – and traditionally these benefits are provided as a way to incentivize long term employment and attract well-qualified applicants. Service industry employment is not generally a long term career decision and does not require hard to find skill sets, so businesses are understandably hesitant to invest significant funds in employees who just as easily could leave after a few months (or weeks).

Retail and service industry sectors already know that employees will eventually move on to other opportunities, so it’s unreasonable to expect these businesses to provide limited investment dollars to employees who, as a rule, will not stay with an employer. Moreover, the additional costs of health insurance will be passed on to customers and clients who will simply be unwilling to pay the higher costs.

The cost of health insurance

Some employers simply cannot access group health coverage at reasonable rates, because insurance providers won’t offer group health plans to businesses that cannot guarantee a certain rate of participation.

For example employers in some medical service industries (such as the medical scribe industry) typically employ younger college-aged individuals in their early twenties who generally work part-time around school schedules. Because employees in this demographic either do not want insurance, choose to spend discretionary income elsewhere, or remain on their parents’ insurance plans, employers cannot guarantee a certain group participation rate and thus cannot obtain reasonably priced group coverage from insurers. This is a typical conundrum for service industry employers.

The other side of the coin is that businesses of 50 to 100+ full time employees are on the hook for tens of thousands of dollars worth of penalty fees if they do not meet the requirements of the ACA. The penalty can start at $40,000 for a business with 50 employees that offers no health insurance option. Then there is another fee imposed if there is a health insurance option offered and it’s not deemed comprehensive enough.

Singling out young people and the service industry?

The Affordable Care Act is based on the premise that younger and healthier Americans will subsidize the higher healthcare costs of older and sicker Americans.  This socialization of health insurance has so far increased the rates for the young and healthy rather than reduce them, thus increasing the financial burden on younger workers and their employers.

Service and retail industry businesses have higher employment costs than other industries where employees stay on a long term basis.  Owners in these industries must keep larger numbers of employees on the books in order to meet commitments to clients. Additionally, part-time workforces and high turnover rates generally incur more costs for payroll processing, credentialing, and administrative tasks in general.

What this all boils down to when it comes to the ACA and forcing businesses to provide a health insurance option is this: It is fundamentally unfair to expect an existing business to revise its longstanding business model to incorporate the health care costs of employees in industries where such costs were never a part of the business equation. It appears, instead, that Congress and the Obama administration would prefer the potential to eliminate entire industries or classes of jobs altogether for the sake of providing health care to those who might not want it or do not expect it.

Rather than forcing businesses who can’t afford it to offer their employees health insurance, the federal government should be focusing its energies to address the real causes of exploding health care costs in the U.S. The trickle down effect of fixing something like that would surely eliminate the need for such a drastic piece of legislation like the ACA.

Jonathan Lamb, Esq