For Michael Schneider, co-founder and chief executive of Mobile Roadie in Santa Monica, providing health care insurance for his employees was a no-brainer.
“It’s better to have healthy employees than have sick employees,” he said.
So, it came as a pleasant surprise when Schneider learned that his mobile application development company would likely soon be getting a tax break under the landmark health care reform legislation signed into law last week.
“Obviously, tax breaks are good,” said Schneider, whose company has grown to 12 employees since its founding last year. “We’re just going to get a nice tax credit for doing what we consider to be the right thing.”
The sweeping new law, which narrowly passed the House of Representatives and was quickly signed by President Obama, will extend health care coverage to tens of millions of uninsured Americans. Among the many notable provisions: The legislation will expand Medicare and Medicaid, prohibit insurance companies from dropping sick policy holders or denying coverage for people with pre-existing conditions, and establish government-run health insurance exchanges.
The effects on business vary considerably depending on the size of the company.
Large companies, experts say, which often provide health care coverage, may not see many direct long-term changes. However, they could see a rise in health care costs due to provisions such as new taxes on medical devices.
Smaller companies will be more directly affected. Under the legislation, companies with more than 50 employees will be required to offer affordable coverage by 2014 or face penalties potentially up to $2,000 per employee.
Those with 50 or fewer workers will not be required to offer coverage, but those with 25 or fewer employees will receive tax credits of as much as 35 percent of health care premiums.
Some trade groups have complained that the legislation discourages companies from growing in order to keep their payrolls under the 25- or 50-employee limits.
The bigger concern for many small businesses is that the legislation will not necessarily bring down health insurance costs, which can be a considerable burden, said Gary Toebben, chief executive of the Los Angeles Area Chamber of Commerce, which has not taken an official stance on the legislation.
“There is strong support from the business community for health care reform,” he said. “(But) what was unclear to our members was whether this reform would decrease the cost of health care.”
Many of the changes will not take effect until 2014, but some will begin this year, such as the tax credits for companies with fewer than 25 employees that offer health care benefits.
Though the effects on business could be substantial, many business owners are unsure whether the impact will be for better or worse, which has led to some hand wringing in the business community.
“There’s just a great deal of uncertainty,” Toebben said.
Costs are a major concern for Bernardo Herzer, founder and chief executive of Lehr Inc., a maker of environmentally friendly engines in Culver City.
“With this reform, we will see a significant increase in the cost of the health care,” he said.
Though the company, which has 20 employees, offers health insurance and will likely be eligible for tax credits, Herzer said he does not expect them to offset the rise in premiums as insurers take on high-risk individuals and cover children up to age 26 under their parents’ plans.
“What I’m looking for is direct lower costs, not a tax credit,” he said. “The legislation didn’t go far enough.”
Industry challenges
The issues are even more complex for particular industries.
Madelyn Alfano, owner of Maria’s Italian Kitchen, a restaurant chain with nine locations across Los Angeles, said she supports the legislation’s underlying objectives, but she believes it fails to account for the intricacies of the restaurant industry.
Of the 380 workers at Maria’s, just 80 are full-time and receive health care benefits, while many of the part-timers work at other restaurants as well. Which restaurant, she asked, will be responsible for those part-time employees?
Alfano said she studied a 30-page summary of the bill and as far as she can tell, she will have to begin providing coverage for most, if not all, of the employees. She estimated that will increase the company’s health care insurance costs fourfold to about $120,000 a month.
“That would put us out of business,” she said.
For the time being, Alfano, who is president-elect of the L.A. chapter of the National Association of Women Business Owners and on the board of the California Restaurant Association, said she will “wait and see” in the hope that lawmakers tweak the law before it is implemented.
“I don’t believe anyone truly understands the impact that the bill will have as it’s written,” she said.
Ed Kaplan, national health practice leader for the Segal Co., a national benefits consulting firm, said there is still time to amend the legislation, but he doesn’t expect wholesale changes.
“I’ve been in this business over 25 years and once a piece of legislation gets in,” he said, “it’s very hard to undo it.”
Despite the uncertainty over the legislation, one group – namely entrepreneurs – may make out better than most.
Currently, most young companies do not offer health care benefits because the costs can be prohibitive, said Andy Wilson, managing partner of Momentum Venture Management in Pasadena, which invests in startups.
As a result, some older or less healthy individuals may shy away from working at a startup or starting their own companies. That could change, though, once affordable coverage is available on the free market, Wilson said.
“We have a bias toward younger folks who don’t tend to have significant needs for health insurance,” he said. “It’s a little bit early to tell (but) there’s probably a population who would do something a little more risky if they had enough ability to find at least adequate health care through alternative channels.”
