TONY MILANO KNOWS NUMBERS -- he's an accountant by training -- but the financial impact of the new federal health-care law on his chain of Indianapolis-area pet supply stores still managed to surprise him.
Initially, Milano thought his five Pet Supplies Plus stores would be exempt from the law's requirement to supply insurance for his employees. That provision applies only to companies with more than 50 full-time employees. His company had 40.
But like many retailers, the company also employs a large number of part-time workers. He employs about 40. And under the Affordable Care Act, the hours of those part-time workers are added up and then divided to crank out a tally called "full-time equivalencies." Turned out, Milano has about 60 full-time equivalencies.
As a result, his company will be required beginning in 2014 to offer insurance to employees who work at least 30 hours a week. The insurance plan also must offer a certain level of benefits and can't require workers to contribute more than 9.5 percent of their household income.
"It's a very costly change for us," he said. "Probably 10 times as expensive as our previous plan."
Although health-care reform is expected to dramatically boost the number of people who have insurance, the impact of the new law is weighing heavily on employers across the state. Those businesses and organizations are now making health-care decisions for next year, when most provisions of the law go into effect, and they expect significant new costs.
Two drivers of those increased costs will be a health insurance tax expected to disproportionately affect small businesses and the employer mandate, which requires employers such as Milano who have more than 50 full-time equivalencies to offer health insurance or face penalties of up to $3,000 per worker.
But beyond the new federal taxes and mandates, there is another less tangible issue: uncertainty. Many small businesses feel paralyzed by the complication of the new law.
"When looking at 2,400 pages in the law and 15,000 pages in regulations, and even really smart attorneys don't have it figured out, what's the company with 65 employees supposed to do with it?" said Matt Thomas, president of WorkSmart Systems, an Indianapolis company that provides human resources services to small businesses, including a pooled health insurance plan.
He expects business at his firm to double from 2012 to 2014 as small businesses look to professional help to manage increasingly complicated health insurance matters.
The Affordable Care Act is intended to expand the number of people who have access to health care and to create minimum coverage standards.
It provides federal funding if states are willing to expand Medicaid and creates new state health insurance exchanges in which those who earn 100 percent to 400 percent of the poverty level ($23,050 to $92,200 for a family of four) can receive federal subsidies to buy coverage.
It also requires insurers to cover people regardless of pre-existing conditions. About 30 million uninsured Americans are expected to eventually gain coverage.
Details about the potential costs to businesses still are emerging.
A study from Jackson Hewitt Tax Services indicates that if Indiana doesn't expand Medicaid -- an expansion expected to cover many part-time workers -- businesses in the state would pay up to $54.8 million a year in penalties because of the employer mandate.
Gov. Mike Pence has opposed a Medicaid expansion in Indiana unless federal officials allow the state to use the Healthy Indiana Plan, the state's alternative that he says would give Indiana more control over health-care options and costs than the normal path prescribed under Medicaid.
The expansion would offer health insurance to about 400,000 more Hoosiers.
In addition to the employer mandate, businesses are bracing for an estimated 2 percent to 3 percent increase in premium costs because of a new health insurance tax on the fully insured market, according to the National Federation of Independent Businesses.
The health insurance tax, which begins in 2014, will be levied on insurance companies, but they are expected to pass it through to businesses. Nationally, the tax is expected to cost businesses $8 billion, said Barbara Quandt, state director for the federation.
She says the tax will disproportionately affect small businesses, which tend to purchase fully insured plans under which the insurance company, rather than the employer, bears the risk of covering workers' medical costs.
"They're frightened," Quandt said. "In many cases, they are paralyzed. They're making no decisions. They're not growing. They are trying to sort out how this law is going to impact their business."
The choices won't be easy. Some employers are cutting workers' hours or have stopped hiring to avoid the mandated insurance coverage provision for companies with more than 50 workers.
"They are looking at their growth strategy -- should they shrink, should they revise their workforce to get under 30 hours?" said Kimberly Hollis, director of business solutions with Tilson Inc., a human resources outsource firm in Greenwood.
Timothy Slaper, director of economic analysis at Indiana University's Indiana Business Research Center, said he expects the health-care law to have "a detrimental effect" on Indiana businesses. In a study last year, he took data from 2003 to 2008 and modeled what the impact of the Affordable Care Act would have been. He found that about 12,700 new jobs would have been at risk. Given the sluggish economic recovery, the impact today could be even greater, he said.
Some employers already are making cuts. In south-central Indiana, Bartholomew County's Board of Commissioners voted last week to limit part-time government workers to 28 hours.
About 40 employees -- mostly in the jail, courthouse and probation services -- will have their hours cut, but the county will save as much as $550,000 as a result, County Commission Chairman Carl Lienhoop said.
To what degree such moves by employers could affect employees seeking insurance remains to be seen. It depends on whether the state expands Medicaid and on the cost of insurance on the new state health exchanges.
For businesses, however, a new truth about the law is emerging.
"The law itself is not written to lower costs," Thomas said. "It was written to insure people who aren't insured."
Milano, owner of the pet stores, admits the increased costs will impact his business.
"This is the biggest single change to anything in our business equation that we've had to wrestle with," he said. "Will it impact store expansion or an ad campaign or that next piece of equipment we need? Yes, it will."
But he said he has been seeking ways to retain good employees for a while now and already was considering beefing up the mini-medical plan he previously offered employees.
"Every day there are things we can't control," he said. "As a business person, you've got to take them one at a time and get back to what's most important. For us that's the customer service business." ___
There is a sort of simple solution here - spawn new mini-businesses from the pool of part-time people. Small business owners could create a riff on the temp-service model of using 1099 Contractors (the part-timers) who are in-turn managed by someone under the employment of the "parent or master" business. Of course these "parent or master" businesses would assist their 1099 Contractors to ensure Taxes are paid by supplying a para-accountant and para-legal to mange the paperwork. It's sneaky and crafty - but it would bring down the number of employees under 50 and could actually employ 100's of workers without the Healthcare Act (PPACA) fines applied. As long as the 1099 Contracting "mini-companies" don't exceed the 50 Full-time Employee rule, then life/profits are sweet. Such an "business innovation" could revolutionize every HRM system in the US. Revolution is afoot.
Should Foreign IT companies assimilate US business priorities at this time?
USA has been losing competitiveness; productivity is low as well as economic development, most of the population is living on welfare at this time. Productivity is the main issue in the American companies to survive in this economic situation, It companies should compete giving productivity achievements instead of only giving connectivity.
The way US companies can achieve it is doing a reengineering in the ERP worldwide for American companies themselves, train US University graduates with at least one module related to their careers and develop each one of the modules with the latest mathematical models in that particular field, integrate all the modules scientifically and re- start over again the implementation of the ERP in American companies. Keep SOX, American accounting, and internal control models used in Operations Research and Industrial Engineering, all of them using the latest mathematical models for each economic sector and industry; they must be published in Research articles, as always the increase of productivity is the main target.
At the same time, it is necessary to define a new business World Order, to be protected against illegal and unfair business practices by the BRIC countries, considering go to international legal trials if it is necessary.The extension of NAFTA to Europe, Asia and LATAM is only a matter of time while China and India are undecided to be part of it or not, for us it is convenient that these countries should be part of it to have really a legal competition in the Free Trades. Productivity is the main concern at this time to contract a IT integrator or any consultant, we need economic development.
There is a need of new business models that keeps the American Dream alive because of the devastation of medium and small IT American companies by the foreign socialist and communist monopolies located in the States. CEO of most of the companies should be hired American citizens coming from BRIC countries in high top positions or replace them to really compete in the global markets with US interest.
@AdalbertoCervantes This is not the best place to post this idea...you might be better placed to do this in an all-types Business Journal ---or perhaps you have already done that too?