Obamacare Will Crush Small Businesses -- Opinion

NEW YORK (TheStreet) -- Many small business owners must feel like they have a target on their head or bank account.

Unless the small business you own or work for is in the health care industry, the Patient Protection and Affordable Care Act is the biggest tax and headwind facing your business or job.
The Affordable Care Act could make hiring a 50th employee a very pricey proposition.

Buried within 2,700 pages of the ACA is a requirement that businesses provide all employees with "acceptable" health insurance coverage. The ACA also exempts businesses with 49 or fewer full time employees. Part-time staff hours are added to determine full-time equivalent employees.

Businesses with 50 or more people will face a $2,000 non-tax-deductible penalty for every employee over 30 if employers don't offer approved insurance. Even with a health insurance offering, if any employee receives a government subsidy for their insurance, the employer will receive a $3,000 penalty for each employee. About 100,000 employers and 4 million employees will be impacted.

For job seekers and small business owners, the most damaging aspect of this is the discouragement for businesses with less than 50 employees not to grow beyond 49 employees. Companies currently encounter increasing accounting and government compliance on reaching 50 employees, and I am familiar with this situation on a personal level.

I once faced a choice of adding employees to my business of just under 50 people. My accountant recommended I either hire temps or not hire a 50th person as a result of the costs and additional regulations faced by companies with 50 or more.

The additional burdens I faced on my business are nothing compared to the costs ACA will impose. Although the ACA doesn't directly make it illegal to hire the 50th person, if something looks like a duck, walks like a duck, and quacks like a duck . . . it may not be a duck, but it might as well be a duck, because the net result is the same.

Not everyone is a loser from ACA. Some companies are expected to gain new customers, but in the long run I believe they will end wishing they didn't make a deal with the devil (Washington).

From an employee and business point of view, there is no difference between a law making it illegal to hire a 50th employee and the ACA. Some will say "as long as a business offers health insurance there's no penalty." This is only partially correct. It's not enough to offer health insurance; businesses are required to offer "the right insurance for every single employee" because penalties can occur if even one employee's insurance coverage isn't "perfect" in the eyes of the government.

How much will the fine be for an employer beyond all the other costs of hiring? A company with 49 employees wanting to hire the 50th employee will get sucker punched with a $40,000 penalty for hiring a 50th person. Reason: The first 30 people are exempted from the fine, but the employer is fined $2,000 each for remaining 20: 20 times $2,000 equals $40,000. Part-time hours are added to the mix too, so even hiring college students for a few hours a week will become a major cause of concern.

It's just a matter of time before some poor business owner gets hit with a $40,000 penalty from the IRS because they committed the "crime" of offering employment to someone. The first hour is going to be the most expensive hour of labor ever paid by a small business. For many small businesses in this economy, it may make the difference of an entire year's labor lost to the government.

No business will knowingly risk going over if given a choice. Businesses that are close will spend time, money and resources managing this regulation. As a result, the exemption for businesses under 50 employees doesn't mean the ACA won't increase the costs of doing business. Plus, like anything, managers will have to build in a cushion, resulting in even less work performed.

Financially, the best course of action for some businesses is to fire people. If you're a business with 50 to 60 people that faces penalties, you undoubtedly will evaluate if automation, a change in logistics, a cut in hours or service, and or other changes in business practices will result in a greater net profit.

It's sad for both job seekers and business owners that many hours of management resources will soon focus on shrinking a business rather than growing it. The impact on the deficit, unemployment and standard of living is clear for both owners and workers alike.

For job seekers with few marketable skills, the prospects of an entry level job will diminish. Businesses that employ a lot of unskilled labor will have their hand forced into declining to hire people they would otherwise hired. Some people will lose their jobs, and these are generally the people who need a job the most.

For many, the ACA will mean "Congratulations! Your employer will be required to carry health insurance or face a penalty. Unfortunately, your employer is forced to lay you off because of the added penalties make your position cost prohibitive."

With smaller growth and more of the economy directed at health care, non-health care businesses can expect a pinch in their growth. For businesses that are just making ends meet while hoping for an economic upturn soon, this may be the straw that breaks the camel's back.

For some people, losing their job may also mean a reduction in the quality of health care service, even though they are guaranteed coverage. Unfortunately, Medicaid doesn't pay particularly well, and consumers may not find a doctor who will take Medicaid as payment. Out of a job, and provided with health care coverage that is difficult to impossible to use is the situation some will find themselves in.

To add insult to injury, Washington will pat itself on the back at the victory of adding you to the list of newly insured people.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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