Health Care Law Forces Businesses to Consider Growth’s Costs

When LaRonda Hunter opened a Fantastic Sams hair salon 10 years ago in Saginaw, Tex., a suburb of Fort Worth, she envisioned it as the first of what would eventually be a small regional collection of salons. As her sales grew, so did her business, which now encompasses four locations — but her plans for a fifth salon are frozen, perhaps permanently.

Starting in January, the Affordable Care Act requires businesses with 50 or more full-time-equivalent employees to offer workers health insurance or face penalties that can exceed $2,000 per employee. Ms. Hunter, who has 45 employees, is determined not to cross that threshold. Paying for health insurance would wipe out her company’s profit and the five-figure salary she pays herself from it, she said.

The margins are not big enough within our industry to support it,” she said. “It’s not that I don’t want to — I love my employees, and I want to do everything I can for them — but the numbers just don’t work.”

The health care law’s employer mandate, a provision that business groups fought against fiercely, is intended to make affordable health insurance available to more people by requiring employers to bear some of the cost of providing it.

Without the mandate, the law’s creators feared, companies would be tempted to cancel their insurance benefits and encourage employees to move to the online marketplace exchanges created by the law, where many low- and middle-income workers qualify for government subsidies. Those who are offered insurance through their jobs are ineligible to collect subsidies if they instead choose to buy coverage through the exchanges.

The rule took effect this year for businesses with 100 or more workers, but companies with 50 to 99 employees got an extra year to comply. Those with fewer than 50 workers are exempt.

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Jeffrey R. Ungvary President

Jeffrey R. Ungvary