What is The Affordable Care Act Costing Small Businesses?

During the five years since the Affordable Care Act (ACA) passed, we have seen more political posturing and calculation charts to either support or discredit it than just about any other act in history. In the years to come, individuals, businesses, and society could certainly benefit from the ACA; however, at least in the first five years, we find that this law negatively impacts the bottom line of small businesses. Below, we outline some of these impacts and what they mean for small businesses.

1) Higher Insurance Premium Costs

According to a National Small Business Association survey in 2014, “91% of small businesses reported increases in their health plan at their most recent renewal while 96% reported increased health insurance costs over the past five years. The majority expect to continue seeing cost increases in the coming year."

Health insurance costs for small businesses have increased 23% since the ACA became law in 2009. “Premiums are higher and choices are fewer,” said Dan Danner, CEO and President of the National Federation of Independent Business (NFIB). “The cost of insurance has been the top concern for small business owners for two decades." NFIB has spent the last two years researching how the ACA affects small businesses. Results of this research shows that in 2014, 62% of owners reported that their premiums increased and only 8% said their costs dropped.

2) Administration and Compliance Costs Associated with the ACA

On average, complying with the law costs small businesses more than $15,000 a year, according to a survey released a year ago by the National Small Business Association.

The increase of administration and compliance costs is also a result of the tracking businesses are now required to do. Companies are required to track:

  • work hours for each employee
  • absences for each employee
  • the amount spent on health insurance

Many small businesses don’t have the Human Resources departments or computer systems that large companies have, making it harder to handle the increased load of paperwork. Companies that have separate software for payroll, attendance, and benefits management have no easy way to combine data from all of them. Next year, employers must also complete IRS forms using information from those different sources. The process is more complex for businesses with operations in different states.

3) Employees Satisfaction

Some costs are harder to quantify, but can significantly affect the company, like employee satisfaction. Initially, employees of small companies were hopeful that the new program would give them better coverage at a lower rate. Instead, the rates have gone up for the vast majority of employees.

Even when they understand the cause of the increase, it does not overcome the dissatisfaction of decreased take-home pay. The cost impact on employees of small businesses may actually be greater than the impact on employees of large companies. This creates greater dissatisfaction and causes employees to leave.

4) Government Programs, Credits, Changes, and Opportunity Costs

The available plans in the Marketplace (SHOP) for small businesses do not present affordable options for many businesses. Programs such as HRAs, that were previously affordable options, do not meet the requirements under the ACA. The ACA developed certain tax credits to offset some of the expenses for small businesses; however, the Government Accountability Office noted last year, “the credit may be too small and administratively complex to motivate many employers to enroll.”

In addition to the cost and record-keeping requirements, the changes to the Act and delays in implementation have added to the confusion for many small businesses. Keeping up with the ever-changing requirements distracts from running the business and the core profitability of a company. No matter what else we may think about the ACA, we know one thing for sure: it's not simple.

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