I was speaking to a nice lady this afternoon about her husband’s business. She fears “Obamacare” will put her husband’s business out of business. Her house was very nice, but modest for the north shore of Long Island. I would guess three or four bedrooms and two baths with property taxes of about $10K. Certainly no great display of wealth.
The husband has 180 employees and has set up a group health insurance plan that he does not contribute to. The employees have the advantage of getting negotiated rates with providers, but at no cost to the business.
At 180 employees, the business doesn’t qualify for small employer status.
My reading here:
Tells me the guy’s cheapest course of action is to pay the $2,000 per year per employee penalty. So 180 - 30 (exemption) Times $2,000 = $300,000.00.
I didn’t ask specifics about his employees’ rates of pay, but the minimum employer contribution to avoid penalties is “at least a 60-percent actuarial value” which is estimated to be about $5,000 for a single employee.
I’m guessing the $300K less, say, a 35% tax benefit, would cost him about $195K, net. I get the feeling his profits are right around that amount right now.
Obviously, he and his accountant will have to work out the details, but I’m guessing he’ll close up shop unless he can find a cheaper alternative.
Could he reduce employee hours to under 30/week? (If he can retain employees that way.)
Is my reference up to date with regard to the current law which will go into effect in 2014?
He makes zero contribution to their health insurance? :dubious:
I’ll spare the diatribe on that one because that’s not this thread.
Sure, he could pay the penalty, or he could reduce hours. Neither is going to go very far toward Employee Retention. I have to doubt that he will simply close up shop over this. Oh to be sure, he will probably threaten to do so. But rather than cutting costs to manage his company and still make a profit of some kind, simply closing shop would be destroying both his investment and his income.
Your analysis is wholly incorrect. The 60% actuarial value has nothing to do with the employer’s share of responsibility, but is a measure of the quality of insurance. The employer’s share is not defined in terms of dollars or percentage, but in terms of affordability – an applicable large employer could be subject to an assessable payment if any full-time employee is certified to receive an applicable premium tax credit or cost-sharing reduction payment. This can occur when the employer offers a plan that is unaffordable relative to an employee’s household income (9.5 percent of income for the employee share of the premium). If the cost of the insurance is less than that, he does not need to contribute. Finally, while household income is usually presumed to equal W-2 wages, the employer can use actual household income, if he can get that information. This would raise the threshold for some employees.
Many employers don’t even bother to go through the effort needed to set up a group plan. At least with a group, the insured are able to get care at some rate that’s far lower than the base rate.
The man is worried about the future of his business. I’m trying to get some help understanding the law and his best approach to complying with it.
At this point I don’t know what his staff looks like economically. I got the feeling that they were making little over minimum wage level, but I could be totally incorrect about that.
I really don’t know specifics, but let’s say all the employees make $25K and have little outside income.
If the estimate at the site is accurate, then the cost of a single person’s insurance is $5/year, or 20% of income. (at least since family coverage would be more)
So are you saying that the employer, in this hypothetical, would have to contribute about $3K per employee to comply? That would be a pre-tax cost of $540K which is higher than the $300K I mentioned in the OP.
Of course the employer could raise wages by more than double to also achieve compliance.
I think it would be safe to assume the employer would not be able to raise his revenues by an equal percentage.
Really large employers who for competitive reasons have been contributing to employee health insurance plans for years won’t have this kind of problem.
Here I thought a big part of the ACA was the health insurance exchanges, which made it so people wouldn’t be beholden to their employer for health care. If health care is still tied to work, what’s the point? How does that help the 40 million (I think?) uninsured people we have now? How does this help the unemployed?
A question in addition that: Is this 9.5% ONLY the employee’s share of the premium? What about his family? Can the employer not offer coverage at all for dependents, or offer it at no limit premiums?
IIRC, children under 26 must be available to be included on their parents plans. Does this mean that the employer in the OP must offer benefits to the children? The spouse?
I know. I just thought that tying health care to employment was a problem this legislation was trying to fix. I guess not. Anyway, I don’t want to hijack the thread any more. Thanks.
Perhaps this is a bit of a Hi-Jack too, but I applaud the OP for looking into this for his friend.
My 83 year old father, just got out of the hospital. He has no health care. No supplemental medicare insurance or anything (my brother and I have tried and tried to get him to do something along that line with no luck).
He had a heart stress test which required a CT scan.
FWIW, if his margins are that thin on a 180-person operation, he’s in deep trouble already, with or without the health insurance issue.
The law does not necessarily require that he pay for health insurance, only that he make affordable insurance available to his employees. With that many participants, it shouldn’t be a back-breaking exercise. Especially in a state like New York that will have an insurance exchange in place.
I think others might have opinions about a company that size not contributing to employee healthcare costs… <GD>those costs ultimately get borne by the rest of us as taxpayers</GD>… but the Bureau of Labor Statistics says that 89% of businesses with over 100 employees do.
I’m going to talk to these folks again this weekend and find out some details.
I got the feeling that the business is somewhat marginal. Maybe the guy was just hanging on anyway. But if there was a cap on the costs to employees, perhaps, in fairness, there ought to have been some sort of cap on the costs to a marginal business.
180 employees, let’s pretend each employee is about $50,000 with wages and whatever benefits they get. That’s $9M. Rule of thumb that wages are half of costs, so costs (hence reveneue) for this business is about $18M. If he’s only squeezing $300K out of the profits, it is incredibly marginal. If my salary guess is too high, if he’s a $12M business, say - then he expects to pay a typical employee $25,000 and the guy has to shell out $5,000-plus for health care…??? Assuming these are all full-time, above-minimum-wage employees…
<GD> Love our Canadian system - it’s paid out of taxes, this is an irrelevant discussion up north here, the working poor are not squeezed like this, all employers are equal in this regard, no “golden handcuffs”.</GD>
So yeah, need a lot more detailed math to do an analysis. If a $20M business is so marginal that it cannot afford to pay employees about 10% more, then what is he planning to do when the demographic crunch hits, employment goes back up, and there’s nobody to hire? (Recall in Florida a few years ago, where every store seemed to have “now hiring” in the windows.) Of course, there’s plenty of undocumented workers I’m sure.
md2000, we really need more information to make any kind of educated guesses about payroll or revenues. While you’re right on as far as “average” business go, those rules of thumb don’t apply equally to all industries.
A full-time employee for this law will be someone with 30 hours/week, 130 hours/month, and they could be earning a pretty measly minimum wage (7.25 is the national minimum) - call it something like $12,000 annual per employee ($2.16 million total payroll expense). And in some industries - like janitorial services, where low wages are common - payroll can be a bigger percentage of expense than 50%. It could be a big hit for someone in that scenario
Still, this health rule affects everyone in the person’s industry equally, and they’ll all be facing the same pressures, with the same excuses to increase their pricing. Most business owners ride out this kind of thing better than they think they will.
Yes, that was part of the point. If the employees only make $12,000 a year, and are expected to pay $5000 out of that for health care, then something has to give.
Either this business is remarkably inefficient; or that industry business sector is far too competitive, and everyone is in the same boat, and the $5,000 extra per employee will be passed on to the customers by everyone in higher costs.
basically, one way or another, employees get adequate health care.
I think your analysis of 195K profit for a small business with 180 employees is way way way off, I think someone may be making up something to make a point.
And I don’t even know what the business does but look at it this way.
Each one of their “investments” in a worker (salary, benefits , payroll taxes, etc ) is netting them a profit about $1000 a year. That’s not a lot, putting it mildly
You estimated a 25K average salary per employee - roughly $500 a week …on the North shore of LI. I think this is low but I’ll go with it. So with payroll taxes I’m going to figure that this company is laying out $750 per week per employee as their first major expense.
So this company that is making a profit of less than 200K a year is writing 135K in payroll and payroll tax checks. But that’s just the start of of the weekly expenses.
Considering our estimated 25K a year per head salary in a high rent neighborhood, I’m going to assume that this isn’t a brain surgery company…or a law firm, or a consulting firm. In fact I’m going to assuming a blue collar venture like a landscaping or paint contracting business.
So, in addtion to payroll, this company has to write checks for the mortgage or rent for office and shop space for 180 employees. They also have to keep probably a large number of vehicles insured, maintained and gassed up. They will also need all sorts of expense insurance (specifics would depend on the type of compay but if it’s a contracting company that could be a huge number ). And lots of specialized equipment probably
Plus tons of other stuff.
Sorry, I just don’t believe that a company that only recognizes a profit of 195K a year could stay afloat for long. Yes ( if this is the true financial situation of the company ), the healthcare laws could take them under. But so could a small increase in their insurance premiums or higher than average gas prices one year. The could even be wiped out by a year with 53 paydays. The list of events that could wipe out a company this size running on these margins is so long I have trouble believing they could stay around and maintain cash-flow to meet payroll each week…and a place with 180 employees is not really a small business no matter what the business is.
Overhead is one thing most people not educated in financial matters have zero clue about.
Someone was bitching about the prices at our local grocery store and the markup, then said something about how all they have to do is pay a bunch of people really poor and pocket the rest. I pointed out that the property taxes on the place ran to $160,000 a year alone*, then perhaps you should consider their electric bill with all those lights and freezers and stuff, which is probably at least that much more, then you know, there’s a shit load of other expenses beyond that, and just who do you think is paying that?
Easy to look these things up, really. I’m looking at the county tax map right now in another window and I see that my apartment complex pays $140,000 a year in taxes.
The point being that this business owner is paying AT LEAST that much in property taxes or rent alone if he has that many people (probably more), not to mention his utilities, equipment costs, daily supplies and all the little stuff. This is beyond the costs of his employees.
If he has 180 employees and only realizes $195,000 in profit from the entire operation, either he’s running very very thin (unlikely), or he only TAKES this much money out of the business per year, or he’s working the books to minimize his on-book profits.