Will small businsses stop providing health insurance in 2014?

By Jonathan Kraft

The Affordable Care Act (ACA) prompts much debate, but one thing that most can agree on is that the future effects of the health care reform law are less than clear. In this week’s issue, Bloomberg Business Week discusses whether small businesses will stop providing their employees with health insurance after the bulk of the legislation goes into effect in 2014.

The debate is complicated, with many different factors for employers to consider. Although small businesses (those with under 50 employees) are exempt from the Employer Responsibility Requirement, in which businesses must pay a penalty for not providing a certain standard of coverage, there are other economic and moral concerns for employers. As the article points out, employers now are incentivized to provide their employees with health insurance in order to remain competitive in the job market, to attract high-quality employees. If employees may easily obtain health insurance on the open market, or through state or federally-run exchanges, employers may not feel this same need.

There are two problems with this. First of all, the overriding theme of this legislation, uncertainty, reigns true here. Until employers know what kind of coverage their employers can actually obtain on the open market after the full enactment of the ACA, they may not feel comfortable with making changes to their benefits policies.

Secondly, there are implications for compensation and taxes. Employee benefits are tax-deductible. Presumably, should employers stop providing health insurance to their workers, employees will demand an adjustment to compensation. Since income is not tax-deductible, companies would have to, in effect, pay their employees more in order to give them the cash equivalent of the value of health insurance.

For more information on how the ACA will affect small businesses, see this Department of Health and Human Services fact sheet.

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