News Column

Some Texas Businesses Plan to Cut Jobs to Avoid Insurance Costs

Nov. 6, 2012

Andrew Kreighbaum

Bruce Leahy, owner of home decor store Quips and Quotes in McAllen, Texas, said probably half of his employees are covered by health insurance -- some receive it through a family member while others go without.

And Leahy said he simply can't afford to offer coverage for the rest of his employees as mandated by the health care reform law passed in 2010. So he plans to cut 10 or more employees to go below the 50-plus worker threshold requiring employer-offered health care coverage.

"I think anybody that's got between 50 and 100 employees is looking at closing down part of their operations or selling it off or something," he said. "The money just isn't there."

Leahy is indicative of the approach taken by many employers who say they may face unbearable costs associated with new healthcare requirements.

That approach may make health care exchanges -- a major components for expansion of coverage along with increasing Medicaid recipients under the federal healthcare reform bill -- an option for those small businesses and their employees.

All businesses with 50 employees or less will have access to the health care exchanges in 2014. States have discretion to raise the cutoff to 100 employees, but the program won't be without costs even to those businesses. Employers with fewer than 100 or more than 50 workers would be required to pay a tax for each worker who qualifies for subsidies to shop on the insurance exchange.

Even with those taxes, Southern Landscapes general manager Jon Klement said offering health insurance to employees is not an option.

"I'm in an industry where I can't remain profitable and pay health insurance for all my employees," he said.

Klement said his business will likely pay the penalty mandated by the law for failing to offer coverage. But he said he is watching the outcome of the November presidential election and the rollout of the state-based insurance exchange with interest.

The Affordable Care Act was designed to increase access to health care by mandating coverage be offered by employers with more than 50 employees. The legislation also called for states to expand Medicaid and set up state-based health insurance exchanges -- or competitive market places akin to travel sites like Orbitz.

Texas state officials opted not to set up an exchange, meaning the federal government will establish an exchange for the state by the January 2014 deadline. Workers who are not offered affordable coverage through their employer could shop for it on the exchange, potentially with federal subsidies.

But Republican presidential candidate Mitt Romney has promised to repeal the Affordable Care Act, should he be elected.

McAllen Chamber of Commerce President Steve Ahlenius said the factor that will determine whether small businesses themselves buy into the exchange is cost.

"A lot of businesses have such a thin margin that... they would love to be able to offer it but it takes too much of a chunk out of their profitability," he said.

Of more than 5,100 registered businesses with a physical address in McAllen, Ahlenius estimated that more than 90 percent have less than 50 employees, exempting them from coverage mandates.

States were given discretion to allow access to exchanges for businesses with up to 100 employees.

Starting in 2017, they will be able to allow even larger businesses access to the programs.

With the federal government managing implementation of the health care exchange, most local businesses will take a wait-and-see approach to the program, Ahlenius said.

"If it's something that fits within the right price range and they can offer it ... they're going to do it," he said.

But Lee's Pharmacy owner Danny Vela said he was already sold on the benefits of offering insurance to all employees. Vela, who has a self-funded plan, has offered insurance to his employees for the last 10 years.

He said it was hard to imagine an employer laying off workers just to avoid the coverage mandate.

"Why would you cut production to save a dollar?" he said.

Vela said the benefits of coverage give workers a reason to stick the company, which averages 10 years of experience between its 94 employees.

"I actually save money by not having to rehire and retrain new employees," he said.

Source: (c)2012 The Monitor (McAllen, Texas) Distributed by MCT Information Services

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