Small Businesses Must Assess Health Insurance Costs

Small Businesses Must Assess Health Insurance Costs

The mandate in the Affordable Care Act which states that all businesses with 50 or more employees must provide health insurance coverage to their workers has drawn considerable criticism in recent years, and now some companies that fit in with that designation say they would rather pay the fine that comes with not doing so than foot the bill.

The way the ACA is structured, businesses with more than 50 full-time employees are required to offer them health insurance, which many say would become overly burdensome for some companies, which currently extend coverage to only some, or even none, of their current staffs, according to a report from the Wall Street Journal. In one such instance, a company with 102 full-timers currently extends health insurance to 25 employees, and spends about $140,000 per year to do so. Under the new requirements, covering all 102 would cost it about $500,000 annually, but paying the $2,000 annual fine for not doing so would carry a penalty of just $144,000. Combined, the cost for continuing to cover the smaller number of workers while paying the fine for not covering the rest would come to just $284,000, substantially less than the price tag for covering them all.

And while some studies show that many businesses aren’t expected to drop their coverage – for instance, such a mandate under Massachusetts law passed in 2006 didn’t lead to a significant decrease in companies covering employees – others are a little skeptical, and nonetheless, there could still be a drop, the report said. For instance, a February survey from the National Small Business Association found that 71 percent of employers with 50 workers or more plan to continue providing workers the option of coverage, while only 3 percent of those polled said they would pay the penalties instead. The reason for this is typically year-end tax bills, as businesses are allowed to write off health insurance as a means of reducing their liability, while they cannot do the same with the penalties they pay for not offering workers the coverage.

What this means for small business owners
Extending health insurance coverage to tens or even hundreds of employees can seem like a financially daunting task for any company, and as such it is critical that owners take the time to evaluate all their options before taking the plunge on any decision. However, it’s also possible that decisions to not extend coverage could have implications even beyond the financial aspects.

Not being able to deduct the fines paid for opting to continue not extending workers coverage is one thing, but owners might also want to think about how such a decision reflects on their business to those on the outside, the report said. For instance, those looking to hire the best possible candidates for job listings might be in tough to attract them if competitors offer coverage and they do not.

But of course, small business owners have to do what they must to keep their companies afloat, and sometimes that means making difficult decisions that will affect their employees going forward. However, it is also wise to assess options not only related to healthcare insurance, but also when it comes to the premiums being paid for other types of coverage, including general liability or workers’ compensation insurance. Doing so may help them to find the best possible prices for their unique needs, and give them a chance to more wisely assess the other financial decisions facing them.