How 3 Small Firms Are Coping With Health Law - WSJ.com
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Updated May 29, 2013, 8:25 p.m. ET
How 3 Small Firms Are Coping With Health Law
By EMILY MALTBY and SARAH E. NEEDLEMAN
Small employers are struggling to make heads or tails of their health-care costs under the Affordable Care
Act. Sarah Needleman joins the News Hub with a look at their back-of-the-envelope calculations. Photo:
Jason Henry for The Wall Street Journal.
Small employers across the U.S. are struggling to get a handle on their health-care costs under the
Affordable Care Act.
Many of them say they expect their operating expenses to
jump in 2014, when the law's employee health-insurance
requirements take effect. But they acknowledge that their
forecasts are back-of-the-envelope calculations based on
only partial information.
Companies with fifty or more full-time employees
will soon have choices to make to comply with the
Affordable Care Act. WSJ’s Jason Bellini breaks
down the options.
Starting next year, the federal government will impose
penalties on any business with 50 or more full-time
equivalent employees that doesn't provide adequate
health-insurance coverage to workers who clock 30 or
more hours a week.
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How 3 Small Firms Are Coping With Health Law - WSJ.com
Live Video Chat
@WSJSMALLBIZ: Have questions about how
the health-care law will impact your small
business? Join a live video chat Thursday at
noon EDT with Linda Sheppard, special
counsel for the Kansas Insurance Department;
Deborah Chollet, a senior fellow at
Mathematical Policy Research in Washington,
D.C.; and Paula Wilson, an insurance agent in
Temecula, Calif. Email questions in advance to
chat moderator Sarah E. Needleman at
sarah.needleman@wsj.com.
If such employers choose not to offer health coverage,
they will face a penalty of $2,000 for each full-time
worker, excluding the first 30.
If they do offer coverage, but the insurance doesn't meet
the law's minimum requirements, they face a penalty of
$3,000 for each worker who gets a federal subsidy
through state insurance exchanges.
Owners with between 50 and 200 full-time employees are
in a particularly tough spot. These businesses are big
enough to meet the government's threshold for penalties, but they lack the purchasing power to
negotiate the best rates with insurers.
The Obama administration says the law will help small
employers. It will let them "pool risk with other small
businesses to get more competitive rates, says Erin
Shields Britt, a spokeswoman for the Department of
Health and Human Services, through new small-business
insurance marketplaces, known as "exchanges," which are
expected to open this fall.
Here's a look at how three small employers are bracing for
the change:
Pickle for a Pizza Chain
Business: Ziegler's NYPD LLC, Phoenix
Rough Calculations: The local pizza chain figures providing health coverage could cost up to
$250,000 next year.
Options Considered: Using automation to boost productivity and buying less expensive
ingredients and supplies.
"We don't want to curtail expansion plans" because of the health-care law, says president Richard
Stark. But the business will need to find a way to absorb the law's costs.
Currently, the pizza chain doesn't offer its 350 workers an employer-sponsored health-insurance
plan. It does offer its 40 salaried managers reimbursements if they obtain health-insurance
coverage elsewhere.
Mr. Stark was a loyal patron of NYPD—short for New York
Pizza Department—for three years before becoming a part
owner in 2000.
The 58-year-old, who has a professional food-service
background, consulted the two brothers who founded
NYPD and helped them open a second location. Mr. Stark
became the majority owner in 2008. NYPD now has 11
locations, and Mr. Stark says he is on track to double the
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How 3 Small Firms Are Coping With Health Law - WSJ.com
Brandon Sullivan for The Wall Street Journal
number of locations within five years.
Richard Stark, right, president of a small pizza
chain in Phoenix, says he doesn't want health
costs to curtail the business's expansion.
Next year, Mr. Stark intends to offer a health-insurance
plan for the first time to comply with the law. "At the end
of the day, if we take care of our team members, they will
take care of the guests," he says. "I philosophically believe people having health care, regardless of
age, is positive."
But it could be expensive. In addition to its 40 managers, NYPD has 90 hourly workers—mostly
kitchen staff—who are considered full-time under the law and who would therefore be eligible for
the benefits.
Mr. Stark isn't sure how many of those workers will opt into the company's new plan, considering
that most are younger, healthier and lower-paid workers who might go on a parent or a spouse's
plan, or who may forgo insurance coverage and pay a minimal penalty.
A Company Decides Health Coverage
Follow the decision-making process of a
small-business CEO as he explores options
for his company under the Patient Protection
and Affordable Care Act.
One way to offset the new expense is to negotiate with
vendors for lower-cost ingredients and packaging, such as
pizza boxes. Mr. Stark also plans to streamline business
operations, perhaps by preparing some items like sauces
and dressings at an off-site location, and by investing in
equipment like dough mixers and vegetable slicers to
automate certain tasks, he says.
Employees may see less take-home pay "because their
total compensation is increasing, from our perspective," if
they take health benefits, Mr. Stark says. Managers'
bonuses are tied to company profits, so if the law erodes
profit, managers may get smaller bonuses, he says.
More photos and interactive graphics
And as a last resort, NYPD would raise prices of some
menu items, Mr. Stark says.
"We will have to work smarter to be more efficient and
more profitable," he says. "We will need to find the pennies and nickels and dimes everywhere."
Consultant Asks a Broker
Business: Future State Inc., Walnut Creek, Calif.
Rough calculations: Health-care costs could rise by $200,000 to about $400,000 a year.
Options considered: Dropping insurance and paying a $2,000-per-employee penalty.
"I could make more money in the short term if I cut benefits," says Steven Laine, president and
chief executive of business consulting firm Future State, but he fears he would lose employees.
His 93-person firm now pays more than 50% of the premiums for 32 employees who currently take
the coverage it offers, spending roughly $200,000 total a year.
If all 77 full-timers were to participate in the company's plan next year, its health-care costs likely
would more than double, he says. But he doesn't know how many will join the company plan, which
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How 3 Small Firms Are Coping With Health Law - WSJ.com
makes it very difficult to estimate and plan for the costs.
"Some of the folks have other sources of insurance, like a
spouse," he says. "But right now I can't predict how many
that might be."
Jason Henry for The Wall Street Journal
Steven Laine, CEO of a consulting firm in
Walnut Creek, Calif., decided against dropping
health coverage, partly for fear of losing
employees.
Mr. Laine, 52, a University of California Los Angeles
graduate with three children, says he spoke to his
insurance broker in December and was told that when he
renews his company's health plan for 2014, his premiums
could go up by anywhere from 15% to 60%—regardless of
whether more employees choose to be covered by his firm.
"The message is, 'We really don't know; we have no way to
predict for you what it will cost in any reasonable way,' "
he says.
On the other hand, his firm could drop insurance, and face $94,000 in penalties. But the decision is
a lot more complicated than which option is cheaper. Insurance benefits are tax-free, and a lot of
firms don't want to risk losing workers to competitors—or getting bad publicity for ditching
coverage.
Mr. Laine is worried that it would be difficult to attract or retain staffers without a health plan.
Moreover, dropping insurance "fundamentally goes against our organization's values," he says.
IT Firm Foresees an Edge
Business: Pro Computer Service LLC, Moorestown, N.J.
Rough calculations: Premiums stabilize, or perhaps even decrease.
Options Considered: No changes because the company hopes it will gain a competitive boost.
Anthony W. Mongeluzo believes the health law will lower and stabilize insurance premiums for his
13-year-old information-technology-services firm. He also thinks it could give his business a leg up
against rivals.
Mr. Mongeluzo, the company's 32-year-old president, has roughly 40 employees today, but since his
firm is growing—he says revenue is on track to reach $7 million in 2013, up from $6 million last
year—he is hiring. He expects his head count to be above 50 by January, when the employer
provisions of the health law go into effect.
The company already offers a health-insurance plan that covers hospitalizations, doctor visits,
maternity care and prescriptions, so the law "isn't going to hit my wallet," he says.
Related
Insurance Bills Could Be Lower for Some
Firms
Bringing Workers Into the Loop Early
Mr. Mongeluzo relies on technology and streamlined
business processes to keep his overhead low, so he can
afford to cover 55% of premiums for employees and their
families.
"My understanding from talking to my broker is that we
will be in compliance" with the law, he adds.
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How 3 Small Firms Are Coping With Health Law - WSJ.com
Under the health law, insurers must justify to regulators any plans to increase premiums more than
10% a year. For this reason, Mr. Mongeluzo, who started Pro Computer Service after graduating
from college in 2000, says he doesn't expect his firm's future premiums to increase as much as they
have in the past, an average of roughly 20% a year.
Mr. Mongeluzo says he has always offered his employees health benefits, in part because he believes
it helps with retention, and he stresses that turnover at his firm is low.
His staff also enjoys regular office videogame competitions. "You'll see squishy balls flying around
the office," he says, adding that he is a pretty eccentric entrepreneur, often working out of a sportutility vehicle retrofitted with a three-foot-long desk, two computer screens, a fax machine and
shredder.
Because many of his competitors currently don't provide health benefits to their employees, he
thinks some will be forced to raise prices, or lay off workers to avoid the law. That, he figures, might
give him the opportunity to offer lower rates than his rivals and land more clients.
—Christopher Weaver contributed to this article.
Write to Emily Maltby at emily.maltby@wsj.com and Sarah E. Needleman at
sarah.needleman@wsj.com
A version of this article appeared May 30, 2013, on page B1 in the U.S. edition of The Wall Street
Journal, with the headline: Sizing Up Health Costs.
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