ObamaCare Could Cost This Bakery Half Its Annual Profits— or Nearly Half Its Full Time Workforce
http://reason.com/blog/2013/03/20/obamacare-could-cost-this-bakery-half-it Peter Suderman| Mar. 20, 2013 3:31 pm Photo credit: kevin dooley / Foter.com / CC BYWhat sort of costs will ObamaCare impose on small business owners? A New York Times story on San Diego bakery Baked in the Sun offers a hint. Under the law, employers with more than 50 employees must either offer qualifying health insurance to all full time employees or pay a fine of $2,000 per worker each year. Currently, Baked in the Sun does not offer health insurance to 90 of its 95 employees, which means that owners Rachel Shein and Steve Pilarski face a difficult choice: They can offer health insurance to their employees and figure out how to finance the additional cost; they can pay a fine for not offering health insurance; or they trim their full time workforce below 50 employees so that they can avoid both the cost of offering insurance and the cost of the penalty. Baked in the Sun’s owners estimate that the cost of offering insurance will run about $200 per employee per month, or about $216,000 per year to cover all 90 currently uninsured employees, of which the employer will pay half and the employee would pay the rest. Their annual revenues are $8 million, but because food service is extremely low margin, only about $200,000 of that is profit, meaning that financing the $108,000 employer half of the additional coverage could cost them half of their yearly profits. Still, it’s clearly a more attractive choice than paying the $2,000 per-worker annual fine, which would actually cost them more than offering the insurance. According to the article, even with an exemption for the first 30 employees, paying the penalty would still cost about $130,000 a year. If they choose to offer the insurance, they have to find a way to pay for it. Instead of dipping into their profits, the Times notes that the owners could also hike their prices by an average of about 4 percent, passing the costs along to their buyers. But not only does that raise prices, it puts them at a competitive disadvantage with other bakers who employee less than 50 people—and who thus do not have to provide coverage or pay the penalty. “It’s ironic that our success meant we could grow,” Shein tells the Times, “and now we will be competing against smaller companies, with 50 employees or fewer, who will be able to charge less per item because they don’t have the financial burden of health insurance.” Which is probably why Shein says she’s contemplating a more drastic possibility: cutting her bakery’s full time workforce back to fewer than 50 employees in order to avoid ObamaCare’s costs entirely. Doing that, she says, would mean outsourcing some jobs and eliminating others entirely, as well as converting some current employees to independent contractors. At the end of the article, Jody Hall, who owns a Seattle cupcake shop with 80 employees, recommends that Shein simply go ahead and offer the coverage and pay the price. Hall does not suggest how to finance the coverage, but she does suggest that it will probably be more affordable than Shein estimates, because not all employees will take the coverage. As evidence, Hall points to her own business, where she says only about half of employees take the coverage offered. But Hall does not account for the fact that starting next year, ObamaCare's individual mandate also goes into effect, meaning that employees who chose not to take coverage offered to them would have to pay a fine. But even if only half of Shein's employees take the coverage, that would cost her more than $50,000 annually, which would still mean either a large reduction in profits or a noticeable hike in prices. In other words, no matter what choice Shein and her co-owner make, it won’t be pleasant. They can cut a large percentage of their profits to pay for coverage, raise prices and potentially lose business, or radically restructure their workforce to avoid the law’s fines and requirements. The White House once promised that the health care law would "reduce the current burdens on small firms and their workers." I suspect Shein, along with other small business owners facing similar choices, would describe its effects differently. -- -- To join RichsRants, send email to: [email protected] For more options, visit this group at http://groups.google.com/group/richsrants?hl=en --- You received this message because you are subscribed to the Google Groups "RichsRants" group. To unsubscribe from this group and stop receiving emails from it, send an email to [email protected]. For more options, visit https://groups.google.com/groups/opt_out.
