April 9 2013
If you read about what ObamaCare is going to do to small businesses, you’d almost think that the Congress that passed the legislation was ignorant about economics—or even that they hadn’t read the bill. Oh, wait.
The Wall Street Journal has a must-read piece today on how the small businesses are bailing on ObamaCare:
Under the Affordable Care Act, employers with 50 or more full-time workers will be required to provide coverage for employees who work an average of 30 or more hours a week in a given month. An alternative to that mandate is for business owners to pay a $2,000 penalty for each full-time worker over a 30-employee threshold.
[Rick Levi, a business owner in Des Moines, Iowa] currently spends about $140,000 a year on insurance premiums to cover 25 managerial staff at his business, Consolidated Management, which runs cafeterias at schools, offices and jails.
Under the new law, he will have to offer insurance to all of his 102 full-time employees starting in January. Assuming all of them take the coverage, Mr. Levi says the cost of premiums could exceed $500,000.
"I've never made a profit in any year of the company that has surpassed that amount," says Mr. Levi, 62 years old. "I don't make enough money."
He says it makes more sense to drop insurance entirely and pay a penalty of about $144,000.
Even if small businesses resort to this strategy, they still lose money: unlike the cost of health insurance policies, these penalty fees won’t be tax deductable.
Needless to say, the Department of Health and Human Services and the Treasury Department counter that they have “studies” indicating that most employers won’t drop coverage. But it is unrealistic, no matter what these studies say, to assume that small companies will to plow so much money into health insurance that their busineses will cease to make a profit.