July 10--WATERLOO, Iowa -- Fewer than half of small businesses in the U.S. insure workers, according to a U.S. House Committee on Small Business.

Now that the U.S. Supreme Court has ruled that President Barack Obama's health care law, the Affordable Care Act, meets constitutional muster, as of Jan. 1, 2014, all businesses that employ 50 or more full-time workers, or the equivalent, will have to provide coverage for their workers or pay a $2,000-per-employee penalty.

Regardless of how individual companies react to the new health care law, they're all going to pay more, said Steve Dust, CEO of the Greater Cedar Valley Alliance & Chamber.

"The court has said it's not a penalty but a tax, and businesses and individuals are going to see increased tax bills associated with complying with this monster law," Dust said after the ruling.

How much the law will harm businesses remains to be seen, Dust noted.

The $2,000-per-employee charge is called a "shared responsibility payment," which the government will slap on businesses with more than 50 workers if they don't provide "affordable" health benefits -- as defined by the government -- to full-time employees.

The fine goes to $3,000 if any worker has to take a tax credit or has to enroll in state health exchanges because his or her boss pays less than 60 percent of the full value of the coverage or the premium the employee pays is more than 9.5 percent of household income.

A potential "safe harbor" for the first year the law takes hold, 2014, might allow small businesses to skirt the penalty if they can show the government their health coverage is affordable. But the business will have to demonstrate to the U.S. Internal Revenue Service by showing the government the wages that it paid to employees, instead of reporting to the government the employee's total household income.

Some businesses worried

Businesses are worried, said John Monaghan, president of Group Benefits Design Corp. in Waterloo, which designs health plans for about 200 companies in Northeast Iowa.

"What I see out there as the primary concern of my employers that I serve is they're extremely concerned with what's going to happen with insurance rates in 2014 and beyond," Monaghan said.

One of the concerns is that premiums will rise, given that insurance companies will have to accept all comers, regardless of pre-existing conditions, Monaghan said.

"Unless we find a way to prevent people from purchasing insurance only when they need it, premiums will increase at a faster pace than in the current market," he said, noting that rates over the past five years have increased between 8 and 12 percent annually.

The law requires every individual to carry health insurance or pay a fine.

Chief Justice John Roberts declared it a tax in casting the deciding vote in the landmark 5-4 decision that came down June 28.

Proponents of the law said it was designed to bring everyone into the insurance system to share the burden of skyrocketing medical care cost -- chiefly young, healthy people who often bypass the expense of carrying health coverage.

Monaghan wonders if the mandate will achieve that goal.

"Although the penalty was deemed a tax, the penalty is so low, some might think they're financially better served by not taking insurance until they need the insurance and paying the penalty tax," Monaghan said.

Jonathan Scales, a human resources consultant based in Joplin, Mo., said some companies might find a financial advantage in dropping insurance coverage for employees and forcing them into federally mandated exchanges.

"It comes down to the financial bottom line," he said, noting some companies might willingly accept the $2,000-per-employee penalty, as compared to $8,000 to $10,000 per worker to provide a health plan.

Perhaps the only barrier to a company taking that step would be the potential stigma associated with it, Scales said.

"They look at it like, 'if I stop covering them and pay this penalty, I could save a lot of money, but if I stop and pay the penalty, I may not be the employer of choice and therefore my competition gets the better employees,' " he said.

Benefits matter

On the other hand, maintaining a "strong, stable benefits package" is important to some employers, Monaghan said.

"They can actually put their company, regardless of their product or service, in a better competitive situation because of health reform than in the past," he said.

However, Monaghan did acknowledge the possibility that some smaller companies exempted from the mandate might opt out of covering employees.

"That could be a very likely scenario for smaller employers less than 50 employees," he said. "They could very well say, 'We're no longer offering insurance and you purchase it on your own.' I think a lot of employers will be attracted to looking at ways in which they can do that."

Those workers would be forced into an exchange system.

"I'm assuming price for insurance on the exchange is going to be significantly higher than paying a part of the premium," Monaghan said.

Owners of small businesses, such as Natalie Brown, owner of Scratch Cupcakery in Cedar Falls, are anxious over what the new law means to them.

"I think as it's all sorted out, my initial response was it's a bad day for small business owners," she said of the court ruling. "We don't know what's going to happen."

How much more businesses will pay in taxes is a concern, Brown said.

"Some of the talk I'm hearing is the taxes are going to go sky-high, and we already pay sky-high taxes, as business owners," she said.

However, she said, entrepreneurs will have to wait to see how things actually work out.

"We really don't know what's going to happen; until we do, I'm not going to get too panicked."

Business groups oppose law

Small business owners will face an "onslaught of taxes and mandates, resulting in job loss and closed businesses," said Dan Danner, president and CEO of the National Federation of Independent Business.

Jay Timmons, president and CEO of the National Association of Manufacturers, noted the law "did nothing to bring down health care costs."

However, the law was not designed to contain costs, said Jim Thompson, a health plan developer with Cedar Valley Health Care in Waterloo, which provides health coverage plans for 3,100 workers.

"The fact that they're covering a whole bunch of people means it has to go up dramatically," Thompson said.

Donald J. Palmisano, former president of the American Medical Association and a vocal opponent of ACA, said the law will hit businesses hard.

"There's lots of taxes in this law, and it's going to cause small businesses to have more grief with the regulations," he said in Des Moines the day after the court's decision. "It may be they may not offer the insurance, and people end up going to these exchanges."

The court's ruling had an air of finality, Palmisano said, but for businesses, the issue is far from settled.

"I expect the public and small business will be unhappy as more of the law goes into effect and the taxes increase," he said.

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(c)2012 Waterloo-Cedar Falls Courier (Waterloo, Iowa)

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