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Smaller Firms Brace For Obamacare Price Shocks
Publisher's note: The author of this post is Dan Way, who is an associate editor for the Carolina Journal, John Hood Publisher.
RALEIGH — Already socked with rising premium costs due to Obamacare, Southern Elevator has delayed planned growth and job creation as it contemplates up to $800,000 in added annual health insurance costs a year from now, when employer mandates for medium-size businesses kick in.
"Our health care insurance agent is estimating that we will have a 10 percent increase this year that is currently being priced," said Rodney Pitts, owner of Greensboro-based Southern Elevator.
That is on top of increases totaling 44 percent since 2012. The company now pays up to $20,000 annually for each employee with spouse and dependent coverage, which is about $9,000 more than it paid a few years ago.
"If we had to comply with the employer mandate, which would put again more Obamacare plan features in it that do not improve the coverages for our employees at all, we estimate that our increase would be 38 percent," Pitts said.
"We're talking about annual increases on the order of $100,000 to $300,000 a year — and that is a direct hit to the bottom line of a business that operates on very tight margins — just with what we've got now," Pitts said. "If the employer mandate went in, those numbers would be more like $600,000 to $800,000."
Absorbing such high costs would diminish his company's ability to compete with its four large international competitors, Pitts said. Southern Elevator is a repair, refurbishing, and modernization elevator service company with 70 employees in North Carolina, South Carolina, and Virginia.
The employer mandate in the Affordable Care Act, as Obamacare is formally known, requires businesses to provide health coverage for employees, or pay a $2,000 tax per worker. It also requires certain coverage provisions that ratchet up compliance costs.
The mandates have been delayed twice for medium-size businesses employing between 50 and 99 workers. They will take effect in 2016.
Gary Salamido, vice president of government affairs at the North Carolina Chamber, said there has been "a pretty steady ringing of the bell" among North Carolina businesses about the costs, perils, and complexities of compliance with the confusing Obamacare law.
The North Carolina Chamber is working with the U.S. Chamber and the National Association of Manufacturers in trying to understand the landscape of ever-changing and expanding rules and regulations in the law. It also is compiling a study of state businesses to gauge the impact of the law on North Carolina commerce.
"Anecdotally, [companies are] struggling with it, and that's whether you're a big Fortune 500 company, and multiply that by 100 if you're a small business," Salamido said.
Chamber officials are somewhat heartened that the new Republican-controlled Congress may "begin to chip away" at the more onerous pieces of the law and keep those that make sense, Salamido said. "It's going to be hard as long as we have [Barack Obama as] the president, and it's his signature bill."
Meanwhile, the Chamber and its members are imploring the General Assembly not to add more health insurance mandates at the state level. Lawmakers considered 10 bills in the last session layering on more coverage requirements.
"Our businesses out here are still trying to figure out the Affordable Care Act mandates," and don't need requirements increased at the state level, Salamido said.
The added costs and regulations associated with Obamacare have stalled the expansion goals of Pitts' company.
"In our budget for 2015 we are not budgeting for any additional employees, and it would be more normal to budget for an increased number of employees," Pitts said. "We were growing both on a revenue basis and employee count, and pretax profitability, and we had to scale back."
One cost he cites is a mandate to cover lifetime medical expenses without a monetary limit. Southern Elevator has carried a $5 million individual limit on its policies, and payments never exceeded $1 million. That mandate alone accounts for 20-25 percent of new premium increases, Pitts said.
Other coverages mandated by Obamacare include pregnancy and female contraception, which his male employees don't need, Pitts said. Nor do most of his female workers, who are beyond childbearing age.
The cost of moving employees to Obamacare-compliant plans on the exchange is higher than providing company coverage, as he found out in Virginia. The company doesn't have enough employees there to offer group coverage, so workers had individual plans. Those were not Obamacare-compliant.
"That lack of freedom to choose a plan that we and our employees believe is right for us adds tremendous overhead burden to the business," Pitts said.
"In our small company's case we have a plan that we like, that works for us, and we understand that as we look to the future, an ACA-compliant plan is going to be no better than that, and cost us more," said Fred McCoy, CEO and part-owner of NeuroTronik in Chapel Hill.
Seven of 10 employees have company-paid health insurance that the employees selected. It is a high-deductible plan with $5,000 annual deductible and $10,000 maximum out-of-pocket costs, supplemented by a health savings account, and "very good" catastrophic care on the high end.
"We like that plan, and we'd like to keep it. I do remember that promise," said McCoy, whose company is a venture-backed, development-stage medical technology firm working to develop a novel therapy to help heart attack patients when they go to the hospital.
The plan's premium costs went up 4 percent at the Sept. 1 renewal. But when the costs were calculated for compliance with Obamacare mandates, "It turns out that in our case that would have been a 57 percent increase, and for us an increase of over $40,000 in the premium that the company pays on behalf of the employees each year," McCoy said.
"As a development-stage, small company, that's a lot of money. Our choices are we can cut a job, the second is we can scale back our project, or the third is we can have our employees pay some of the premium, which of course lands negatively on each of them," McCoy said. His company will need to make those choices by 2016, when it will fall under the employer mandates.
His company is well funded by investors.
"Other companies, of course, are less well funded, perhaps more exposed to the marketplace, and that to me looks like a straight conversion to jobs or work hours" being cut to meet expenses, McCoy said.
"I think it's poor public policy when companies like ours that are creating jobs, and creating new technologies, and attempting to bring forward life-saving therapy are penalized in this fashion," McCoy said.
"I think it's inefficient to step in front of businesses and workers who are making individual decisions, and to substitute public judgment for private judgment," McCoy said.
Go Back
Employer mandate adding thousands per worker to health costs
RALEIGH — Already socked with rising premium costs due to Obamacare, Southern Elevator has delayed planned growth and job creation as it contemplates up to $800,000 in added annual health insurance costs a year from now, when employer mandates for medium-size businesses kick in.
"Our health care insurance agent is estimating that we will have a 10 percent increase this year that is currently being priced," said Rodney Pitts, owner of Greensboro-based Southern Elevator.
That is on top of increases totaling 44 percent since 2012. The company now pays up to $20,000 annually for each employee with spouse and dependent coverage, which is about $9,000 more than it paid a few years ago.
"If we had to comply with the employer mandate, which would put again more Obamacare plan features in it that do not improve the coverages for our employees at all, we estimate that our increase would be 38 percent," Pitts said.
"We're talking about annual increases on the order of $100,000 to $300,000 a year — and that is a direct hit to the bottom line of a business that operates on very tight margins — just with what we've got now," Pitts said. "If the employer mandate went in, those numbers would be more like $600,000 to $800,000."
Absorbing such high costs would diminish his company's ability to compete with its four large international competitors, Pitts said. Southern Elevator is a repair, refurbishing, and modernization elevator service company with 70 employees in North Carolina, South Carolina, and Virginia.
The employer mandate in the Affordable Care Act, as Obamacare is formally known, requires businesses to provide health coverage for employees, or pay a $2,000 tax per worker. It also requires certain coverage provisions that ratchet up compliance costs.
The mandates have been delayed twice for medium-size businesses employing between 50 and 99 workers. They will take effect in 2016.
Gary Salamido, vice president of government affairs at the North Carolina Chamber, said there has been "a pretty steady ringing of the bell" among North Carolina businesses about the costs, perils, and complexities of compliance with the confusing Obamacare law.
The North Carolina Chamber is working with the U.S. Chamber and the National Association of Manufacturers in trying to understand the landscape of ever-changing and expanding rules and regulations in the law. It also is compiling a study of state businesses to gauge the impact of the law on North Carolina commerce.
"Anecdotally, [companies are] struggling with it, and that's whether you're a big Fortune 500 company, and multiply that by 100 if you're a small business," Salamido said.
Chamber officials are somewhat heartened that the new Republican-controlled Congress may "begin to chip away" at the more onerous pieces of the law and keep those that make sense, Salamido said. "It's going to be hard as long as we have [Barack Obama as] the president, and it's his signature bill."
Meanwhile, the Chamber and its members are imploring the General Assembly not to add more health insurance mandates at the state level. Lawmakers considered 10 bills in the last session layering on more coverage requirements.
"Our businesses out here are still trying to figure out the Affordable Care Act mandates," and don't need requirements increased at the state level, Salamido said.
The added costs and regulations associated with Obamacare have stalled the expansion goals of Pitts' company.
"In our budget for 2015 we are not budgeting for any additional employees, and it would be more normal to budget for an increased number of employees," Pitts said. "We were growing both on a revenue basis and employee count, and pretax profitability, and we had to scale back."
One cost he cites is a mandate to cover lifetime medical expenses without a monetary limit. Southern Elevator has carried a $5 million individual limit on its policies, and payments never exceeded $1 million. That mandate alone accounts for 20-25 percent of new premium increases, Pitts said.
Other coverages mandated by Obamacare include pregnancy and female contraception, which his male employees don't need, Pitts said. Nor do most of his female workers, who are beyond childbearing age.
The cost of moving employees to Obamacare-compliant plans on the exchange is higher than providing company coverage, as he found out in Virginia. The company doesn't have enough employees there to offer group coverage, so workers had individual plans. Those were not Obamacare-compliant.
"That lack of freedom to choose a plan that we and our employees believe is right for us adds tremendous overhead burden to the business," Pitts said.
"In our small company's case we have a plan that we like, that works for us, and we understand that as we look to the future, an ACA-compliant plan is going to be no better than that, and cost us more," said Fred McCoy, CEO and part-owner of NeuroTronik in Chapel Hill.
Seven of 10 employees have company-paid health insurance that the employees selected. It is a high-deductible plan with $5,000 annual deductible and $10,000 maximum out-of-pocket costs, supplemented by a health savings account, and "very good" catastrophic care on the high end.
"We like that plan, and we'd like to keep it. I do remember that promise," said McCoy, whose company is a venture-backed, development-stage medical technology firm working to develop a novel therapy to help heart attack patients when they go to the hospital.
The plan's premium costs went up 4 percent at the Sept. 1 renewal. But when the costs were calculated for compliance with Obamacare mandates, "It turns out that in our case that would have been a 57 percent increase, and for us an increase of over $40,000 in the premium that the company pays on behalf of the employees each year," McCoy said.
"As a development-stage, small company, that's a lot of money. Our choices are we can cut a job, the second is we can scale back our project, or the third is we can have our employees pay some of the premium, which of course lands negatively on each of them," McCoy said. His company will need to make those choices by 2016, when it will fall under the employer mandates.
His company is well funded by investors.
"Other companies, of course, are less well funded, perhaps more exposed to the marketplace, and that to me looks like a straight conversion to jobs or work hours" being cut to meet expenses, McCoy said.
"I think it's poor public policy when companies like ours that are creating jobs, and creating new technologies, and attempting to bring forward life-saving therapy are penalized in this fashion," McCoy said.
"I think it's inefficient to step in front of businesses and workers who are making individual decisions, and to substitute public judgment for private judgment," McCoy said.
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