NEW YORK — A year ago, Teresa Hartnett was on the verge of expanding her small business. The company had hit $1 million in sales, and requests from clients were flowing in. She planned to transition from nearly 30 freelancers to a full-time staff of 60 by 2014.
Then the reality of the Affordable Health Care Act hit. Hartnett realized she might not be able to afford her plan.
“At the end of that marathon of effort and sweat and stress, I’d face the impact of the ACA. I decided against it,” says Hartnett, whose company, Hartnett Inc., transforms printed documents into digital content.
The expected surge in health insurance costs under the ACA has many small business owners changing the way they operate. For many, hiring and expanding is going on the back burner. Others expect to cut back on services, raise prices or reduce hours and bonuses.
The ACA requires companies with 50 or more workers to provide affordable health coverage for workers. For many companies, that could mean higher insurance costs. And while the government has put off enforcement until 2015, premiums for 2014 are expected to rise sharply.
A survey of owners last month by the advocacy group National Small Business Association found that 20 percent have held off on implementing a growth strategy because of rising health care costs. Thirty-six percent said they had refrained from raising salaries and 26 percent have held back on hiring.
Staying small: Hartnett was getting enough business that she was ready to hire 60 employees.
That enthusiasm died when she met with her accountant. Hartnett was faced with the prospect that, once she had 50 workers, she’d be subject to the ACA. She considered expanding with part-timers who wouldn’t be covered under the law, or keeping her staff below 50. But none of those options would help her meet the goals she set for her Alexandria, Va., business. Her solution: stay a very small business, with just a handful of freelancers. She’s turning down business.
Cutting back: If insurance for employees at Havana Central’s four restaurants becomes too expensive, owner Jeremy Merrin may have to limit the number of people waiting tables and stop delivery service.
He has about 500 workers, and provides insurance for more than 100. He pays 20 percent to 80 percent of the premiums, depending on how long employees have worked for him.
When there are openings on the wait staff, Merrin is going to see if his remaining workers can handle the dinner crowd.
“We’re going to work as hard as we can to hire as few people as possible,” says Merrin.
That’s a strategy others are considering. In a U.S. Chamber of Commerce poll released last month, nearly a quarter of the owners surveyed said they would reduce hiring in response to ACA requirements.
Merrin is also considering cutting hours. Ending deliveries would save him from buying health insurance for 15 staffers.
Raising prices: Steve Silk is ready to raise the price of Smith Brothers cough drops and health products if insurance for his 65 employees costs too much. He’s part of a group of investors that bought Smith Brothers and redesigned it for sale.
Trimming bonuses: Barbara Morris has 48 employees at her company, Laser Image. She hopes to hire more staffers, and knows if she does, that will force her to comply with the ACA.
“We know it’s going to be a large item to add to our bottom line.” One answer may be to reduce employee bonuses.