July 15--Three years ago, Hugh Joyce paid a monthly health insurance premium of $221.59 for each of his approximately 140 employees at James River Air Conditioning.

This year, the preliminary cost is $409.63.

"Somebody help me as a small-business man," Joyce exclaimed, throwing his arms wide.

Helping small- and medium-size businesses with health insurance decisions has become a big challenge under the Patient Protection and Affordable Care Act signed into law more than two years ago.

Virginia business owners and their human resource directors are struggling to understand exactly what the law requires of them and what it will cost as they prepare for the momentous decision of whether to provide health coverage for their employees after Jan. 1, 2014.

That's when the biggest provisions of the law take effect -- requiring almost all Americans to have health insurance, whether through an expanded Medicaid program, federal subsidies in new health benefits exchanges, or their employers, many of whom will face financial penalties if they don't provide affordable coverage to their workers.

"I worry about the health care legislation more than anything else," said Joyce, who operates his second-generation business in Richmond. "I can't get my arms around what the costs are going to be and what the penalties are going to be."

For businesses with 50 or more employees, the potential penalties may be less than the cost of providing health insurance to their workers, especially if those employees qualify for subsidies or tax credits in an exchange that will be run either by the state or federal government.

"I could save $300,000 to $400,000 a year if I no longer pay health insurance and tell them to go to the exchange," said Gail W. Johnson, president and CEO of Rainbow Station, the Innsbrook-based owner of three Richmond-area preschools that together employ about 200 people.

It's still a hard choice for an employer who prides herself on taking care of workers who don't draw big paychecks.

"It becomes a moral issue: Do I do this to my employees?" Johnson asked. "I highly suspect the coverage they have now is much richer than what the exchange would provide."

Rainbow Station also has franchise owners for other locations in Virginia, North Carolina and Texas. With about 50 employees each, they'll have to decide whether it makes sense to add jobs and come under the law's requirement to provide health insurance to workers.

"It flies in the face of 'we have to create jobs,'?" Johnson said.

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But the decision to drop care is not likely in many businesses, especially if their employees are highly skilled and compensated.

"Employers talk a good game about dropping coverage, but a lot of them need highly skilled workers to be competitive," said Doug Gray, executive director of the Virginia Association of Health Plans.

For example, Bernard E. Robinson has no intention of giving up health coverage for his 146 employees at Networking Technologies & Support Inc. in Midlothian.

The 16-year-old company is "growing nicely," said Robinson, its founder and president, and it provides a fairly rich benefit package to attract and keep highly skilled employees in a company that rewards tenure.

"If you have been here a certain amount of time, you mean a lot to us and we'll treat you that way," he said. "I don't believe we're the kind of firm the president should be devoting his energies on. We take care of our own."

The Congressional Budget Office and Joint Committee on Taxation estimated in March that 7 percent of employees who get health insurance from their employers now will lose it when the penalties take effect in 2014. Most of those people are employees working in small businesses with mostly lower-wage workers.

Some workers who could keep their employer coverage will choose to get it somewhere else, the study concluded, but they aren't eligible for subsidies in the exchange if they can get affordable coverage at work.

Many employees who don't get employer coverage now will do so under the new law, the report said. They include young people who don't think they need health insurance but will face a penalty under the law's individual mandate if they don't have it.

They also include employees of small businesses -- those with fewer than 50 employees -- who will be able to shop for insurance on the exchange and, in some cases, qualify for tax credits by extending coverage to workers who don't have it now.

Employers get tax credits now for providing health insurance to their employees, who also can pay their shares with pre-tax dollars. If employers drop coverage, they will lose those tax deductions. If they compensate workers with raises, the additional income would be taxable, the budget office and taxation committee point out.

"I see employers stepping back and looking at their contribution strategies," said Susan Maley Rash, vice president at BB&T Benefit Consultants of Virginia, who worries about firms converting full-time employees to part time or declining to add jobs to avoid falling under the employer insurance mandate.

Employees in a firm such as Networking Technologies are less likely to qualify for the cost-sharing subsidies and premium tax credits that will help people afford to buy insurance through the exchange, which is the trigger for penalties.

"If the exchange benefits are greater than ours, we understand," Robinson said. "I don't think that's going to happen, though."

Under the law, a firm employing more than 50 people would pay a penalty if it doesn't provide health coverage and at least one employee receives a subsidy in the exchange. A firm also would be penalized if it provides coverage that's not affordable for employees, who then turn to subsidies in the exchange.

Coverage is considered unaffordable if it costs an employee more than 9.5 percent of household income, or if it has an actuarial value of less than 60 percent, based on the employee's share of premiums and co-payments.

Like many aspects of the new law, what that means hasn't been determined.

"You talk to the employers, and they're really trying," Rash said. "They're trying to understand it. ... It's like Jell-O. You can't get your hands around it."

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Administering the law remains a concern to small businesses. Many businesses are receiving rebates now from insurers who spent too little of premiums on medical care, but distributing those rebates to employees is tricky because of tax consequences, Rash said.

"Everything is so well-intentioned," she said, "but they don't think of the consequences of simple things like administering rebates."

In the end, the biggest concern remains with the bottom line -- the cost of insurance.

"One legitimate question is, 'Tell me what the premiums are going to be when this kicks in?' and nobody can tell them," said Gray, representing health plans that face dramatic changes in the way they underwrite insurance under the law.

Critics of the law, such as the National Federation of Independent Business, say the costs will include a hidden tax that will sharply raise premiums on businesses that don't self-insure, such as small and medium-size firms. The provision is a fee on health insurers that will raise almost $88 billion in 10 years.

"There is no question it will be passed on (to consumers)," Gray said. "That's just part of the deal."

It's a worrisome issue for Joyce, whose business has provided health insurance for employees since the 1970s. The cost of insurance has steadily risen, especially since passage of the law in 2010, he said.

"At the end of the day, my big issue with all of it is the premium," said Joyce, who hopes Congress will repeal the law and start over with health care reform.

His heating and cooling business requires skilled workers, who earn an average annual salary of $45,000 to $49,000. "A lot of my folks would qualify for some level of subsidy," he said.

If he had to drop coverage because of increasing cost, Joyce said, he would pay employees a stipend to help them buy insurance. "I'm not trying to spend less money," he said. "I'm just trying to manage costs to some known factor."

"My goal is to keep my group insurance plan," he said.

mmartz@timesdispatch.com (804) 649-6964

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