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Simple math: For some employers, ACA penalty worth the cost

46% of small businesses are unsure whether penalty will cost less than covering workers

Topics: Workforce, Medicaid, Reimbursement, Finance, Medicare

April 08, 2013

Some small businesses are considering paying the penalty for not complying with requirements under the Affordable Care Act (ACA) because it would be less costly than offering their full-time workers health insurance.

Under the ACA's employer mandate, businesses with at least 50 workers beginning in 2014 must pay a penalty of $2,000 per employee if they do not offer affordable coverage to their employees. Employers will not be required to pay for the first 30 workers included in the penalty calculation.

According to a March poll by the Wall Street Journal and Vistage International, 46% of small business owners are unsure about whether providing a work-sponsored health plan will be more or less costly than paying the law's penalties. The Journal reports that some businesses have begun calculating the difference.

For example, small business owner Rick Levi—who owns Consolidated Management in Des Moines, Iowa, which operates cafeterias at schools—currently spends about $140,000 annually on premiums for coverage for 25 managerial staff. Under the ACA's employer mandate, the company would be required to offer affordable coverage to all 102 full-time employees, which Levi estimates would cost more than $500,000 annually. In contrast, he estimates that paying the penalty for not complying with the law would cost $144,000.

The Journal notes that a potential drawback to some employers' plans to pay the penalty is that such fines are not tax-deductible, while health insurance costs are.

There are indications that many small businesses will comply with the mandate. A survey of 400 employers with 50 or more workers conducted in February by the National Small Business Association found that 71% said they plan to continue offering coverage, while just 3% said they plan to pay the penalty. 

However, some small businesses might try to avoid the health reform law's employer mandate by employing fewer than 50 full-time workers. Still others might mitigate the cost of the mandate by increasing employees' share of health premiums, the Journal notes (Maltby/Needleman, Wall Street Journal, 4/7).

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