In the Nation's Interest

Health Care Distortions Hurt America’s Businesses and Patients

by Larry Jensen November 09, 2015

The government’s regulatory burden on my small real estate business is a tiresome, sad, and ever-increasing daily truth. If our policymakers expect small businesses to ignite economic growth and create new jobs, this vignette shows why they should look elsewhere.

In my company the employee head count hovers around 50 employees and fluctuates depending on business contracts, which come and go due to various factors, such as building sales and contract renegotiations. In the last year our payroll climbed to as high as 56 employees. For bureaucratic purposes this put us in a business category that’s subject to more oversight and, in this case, more health care insurance scrutiny.

Recently, we received our health care insurance renewal quote for 2016. It was based on 52+\- employees, and the total annual premium skyrocketed from $536K to $788K. Based on our longstanding company philosophy, we are as generous as possible with respect to the benefits that we provide to our workers. However, if this proposed increase were to go into effect, my employees would be paying more and my company’s share would jump by $200,000.

But there is another chapter in the story. Since last year our head count has dropped below 50 to 48.4 (more on that .4 of a person in a moment). Since we are now below 50 employees, we can be moved out of the “large” business rating for health insurance purposes to the “small” tier. Our quote is now based on “community pricing,” which means that our claims history will not be considered in our new premium for next year.

On the upside, we have dodged a $250K annual increase for my employees and business. We will celebrate if and when that is finalized. Moreover, because the Affordable Care Act was expected to expand the employee threshold to 100 in 2016, we then breathed another sigh of relief. However, after having received enormous backlash from small businesses nationwide, the 100-worker threshold was repealed back to 50.

There are very practical implications beyond the cost increases and the constant uncertainty that this has created. The practical implication is that our business will be working to keep our head count below 50 unless we can see an opportunity to grow revenue to justify the very real potential for dramatic health care cost increases. That is difficult terrain to consider. I am certain that I am not alone as a small business owner.

To consider the implications another way, our executive committee is faced with a real dilemma. On the one hand we want to grow our business, which often requires hiring new full-time employees. However, if we add just a few employees, the immediate bottom line business impact from health care costs alone could be $200K and $50K to our employees. So, do we hire two people, resulting in an additional $250Kof costs? Doubtful! Moreover, what amount of additional business revenue do we need to add to justify an annual increase of $200K? It is well over $1.5 million. Let me assure you that adding meaningful top line revenue to cover this massive cost increase in our small business is no easy task. And we will likely not hire above 50 employees soon without a pretty compelling set of circumstances. 

Back to the part-time employees. As a company, we have had a longstanding and successful practice of hiring college interns, who work in the summer and even during the school year. Often they become full-time employees upon graduation. Currently, we have three paid interns and depending on hours, the interns must be included in the calculations of full-time employee head count even though they are part-time and do not receive health care coverage or other benefits. Thus the .4 full-time employee that I mentioned earlier. You can probably guess where I am headed. If I must choose between adding several interns to the head count or a full-time, mission-critical employee, the interns will be the first to go, which personally makes me sad because I enjoy helping to start careers by providing young adults with real world experience.

While the Affordable Care Act intends to increase coverage for workers, regulatory impositions like the one described make that goal difficult to achieve, particularly for small business.

Larry Jensen is a CED Member and the President and CEO of Cushman Wakefield/Commercial Advisors in Memphis. Member blogs are the views of an individual Member and not the official policy of CED.