Obamacare will hit bottom line say business owners

by The City Wire staff ([email protected]) 205 views 

While there may still be a lot of unknowns associated with the Affordable Care Act, better known as Obamacare, one thing is for certain – local businesses are going to be feeling a pinch in their bottom line.

The reason? Any company that employs more than 50 full-time employees will have to provide employees the option to buy into an employer-sponsored health care plan or pay a penalty.

To avoid such penalties, at least one Fort Smith non-profit has found a way around the mandates.

Jim Medley, CEO of the Fort Smith Area Agency on Aging and a former Republican state legislator, said his organization has taken the drastic step of reducing employee hours enough to fall under full-time status.

"We currently have 500 employees, home health aids and drivers. Now all of them are working 28 hours a week maximum. The mandate is if they work 30 hours or more, you have to provide insurance," he said.

Ninety-one employees are still considered full-time at the organization, meaning they will still have to foot the bill for some sort of insurance policy, he said, adding that the policy provided to his remaining full-time employees would be "bare bones."

"We expect that to cost us somewhere from $120,000 to $130,000 per year," Medley said.

In order to pay for the mandated coverage, he has demanded that the staff take extra steps to increase efficiency and stretch dollars as far as possible.

Some of the measures he has instituted include changing oil in vehicles after 5,000 miles instead of the previous 3,000 miles, putting more miles vehicles before replacing the vehicle in the organization's fleet and requiring employees to increase their workloads to make up for positions that go unfilled to save money.

"Anyone who's not (picking up the slack), we have to let them go or do something with them," he said. "Usually they leave on their own when they realize they'll have to pick up the pace."

Cost savings were already in the picture for the organization prior to the insurance mandate, Medley explained, adding that a loss of $30,000 was posted last year.

"Our total budget last year was $17 million, so whatever (percentage) that $130,000 is, it's not a large budget, but we lost $30,000 last year, so we're tightening like crazy. …We are doing what we have to do to stay in business."

Prior to the passage of Obamacare, the Area Agency on Aging had been taking part in a program offered by the state of Arkansas called ARHealthNetworks.

Medley said the program provided solid coverage for he and his employees at an affordable price, allowing the organization to save by not fronting a large expense on health benefits.

"It wasn't called health insurance, it was a health benefit. I paid into it until I turned 65 and now I'm under Medicare," he said. "Either you qualify for a lower premium or the higher. It's not a scale type of thing. But some of my lower-paid employees were paying $25 for a health benefit. I thought it was good coverage. It's still in affect, but our company would not pay anything on it. It was available to all companies that were interested if your company qualified."

But due to the size of the area agency, the rules of Obamacare forced the change, Medley said.

While Medley's organization has began to implement major cuts in hours to stay afloat as a result of Obamacare, CEO Roger Collins of Springdale-based Harp's Food Stores said his company has not made any decisions on changes in staffing.

He said part-time employees at the company can work up to 36 hours a week in many cases, well more than what the new law says classifies as a full-time employee.

But he said any changes, such as what Medley has done at the Area Agency on Aging, will be a long ways off for Harp's.

"Our situation is a little different since our plan year starts June 1," Collins said. "Some companies start in January, but that gives us a little more time. It's good for us."

He said while evaluations are taking place now to determine how offering more insurance will impact Harp's bottom line, he had no idea what kind of an impact the law would have.

"It will add to the expense side of things and make operating more expensive. We may not understand all of the details, but we understand enough to know that."

While the company has prided itself on low prices, Collins admits that cost increases would likely result from the Obamacare mandate.

"Common sense tells you if costs continue to go up, at some point in time, prices are going to be impacted by that."

Health care expenses account for 1.35% of the Harp's overall budget, Collins said.

Back in the Fort Smith area, McDonald's franchisee Michael Hadley said his company, which includes McDonald's franchises owned by other family members, would not reduce employee hours to avoid the Obamacare mandate for his company's nearly 800 employees. Instead, he said future hiring would likely result in more part-time employees.

But he said to absorb the costs of the insurance premiums, he will likely have to raise prices at his restaurants, where he said margins are already thin.

"Everything is going up (at all types of fast food restaurants). We have to raise prices as we can to keep up with commodities and now we have this extra cost. It is going to be a huge expense,” Hadley explained.

Part of Hadley's decision to likely raise prices instead of cutting employee hours comes down to employee retention.

"If we don't take care of our employees, someone else will and the last thing we want to do is have someone else steal them."

And while he is in the position to take care of his employees, with full-timers normally outnumbering part-timers at most of his restaurants, Hadley says smaller franchisors may not be able to do the same.

"It's a very tight margin (that we run on) and there's going to be an adjustment. I feel confident that we're in a good situation. But some of the smaller restaurants, I'm not sure how they're going to do it,” he said.

He says the whole situation is frustrating to him, as he has tried to do right by his employees and yet he feels it is not enough for the federal government.

"I think it's going to work out, but to step back and see what's going on with Obamacare – it's not fixing the problem," he said. "I'm just in a frustrating position because there's nothing I can do."

Medley echoed those sentiments, saying he hopes that "Congress will finally figure out this isn't in the best interest of our country."