Hands Tied: Businesses Look for Ways Around Health Care Law

Dec 21, 2012

With the reality of the new health care law slowly setting in across the country, small businesses are making plans to protect themselves from the most onerous provisions.

Some small businesses are making plans to cut workers hours to 30 hours a week. Or, pass the costs on to customers through a surcharge. Still others say they won’t grow their business at all.  

Now the Wall Street Journal reports that some companies are looking at splitting their companies into separate entities to stay below the magical 50 employees threshold. Under the Affordable Care Act, businesses with 50 or more full-time equivalent employees will be required to offer workers health insurance or potentially pay a penalty starting in 2014.

WSJ looks at Automation Systems LLC, a parts-assembly factory in the Chicago suburbs owned by Carl Schanstra.

“Mr. Schanstra is contemplating various strategies he can take next year in order to sidestep what he believes are significant burdens of complying with the law. In fact, he's considering whether he should split his manufacturing firm in two.

That is because his plant, with sales of about $1.6 million for 2012, currently employs 40 full-time workers, mostly low-paid employees who monitor the factory equipment. If sales were to continue to rise, the plant could, conceivably, employ 50 full-time workers in 2014.”

It’s not clear whether this would help Schanstra avoid the health care law obligation, so he’s looking at other options.

“His backup plan, if he can't split his firm, is to keep his head count low or to invest in machinery that would replace workers. He also plans to raise prices as much as 20% starting in January to buffer any health-care related costs he may incur in 2014.”

U.S. Chamber member, small business owner, and Inc. contributor Drew Greenblatt says the uncertainty surrounding implementation of the health care law and the fallout from the fiscal cliff has kept him from purchasing much-needed technology.

All of the uncertainty makes us squeamish about whether to proceed with the purchase of two robots, at a cost of about $1 million, for our sheet metal and wire products plant. Those machines will improve my factory’s precision, its ability to win more jobs, and its capacity to hire more workers. (Remember how the candidates stressed jobs during the campaign?) But that sizable purchase is inextricably linked to how many more orders we can win, which is intrinsically tied to overall confidence in the economy.

Even Catholic nuns say the $2 million in fines they could face under the health care law threatens their existence.

With all of these stories on the negative effects of the law, it’s no wonder that lawmakers in South Carolina have introduced a bill to criminalize implementation of the health care law.

The last thing we want to do is discourage businesses from hiring full-time workers, expanding their businesses, or undertaking complicated maneuvers to avoid fines. But as things stand, it’s looking more and more likely that the health care law would do just that.  

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