Cyber Monday Sale! 50% Off All Access

How Businesses Are Handling the Obamacare Employer Mandate Obamacare has created an incentive for business owners to navigate a different path than that which policymakers had intended.

By Scott Shane Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

Beginning on January 1, 2015, employers with 100 or more full-time workers will need to provide affordable health insurance to 70 percent of their employees or owe a $2,000 per worker penalty, under the long-delayed employer mandate provision of the Affordable Care Act (ACA). By imposing a penalty on medium-sized businesses – the smallest businesses are exempt from the health insurance requirement – that do not offer employee health insurance, policymakers hope to encourage more business owners to provide this benefit to workers.

However, the law has created an incentive for those business owners subject to the mandate to navigate a different path than that which policymakers had intended. Here are a few of the unanticipated ways that business owners are responding to ACA's employer mandate:

Related: 4 Hacks for Lowering Health-Care Costs While Improving Employee Health

Employers are helping their low-wage workers sign up for Medicaid. Employers are not penalized for failing to provide health care coverage to their employees if those workers obtain coverage through the Medicaid system. Therefore, to avoid offering employee health insurance and the penalties for non-provision of insurance, some employers are paying contractors to assist their low-wage workers with Medicaid signups, the Wall Street Journal reports.

Businesses are cutting employment. Another strategy companies are using to avoid both the provision of employee health care coverage and the penalty for failing to provide it is by keeping their workforce below the level that triggers the employer mandate. Because the law only requires employers to offer health insurance to those workers employed 30 or more hours per week, some employers are substituting part-time workers for full-time ones. Others are shifting from employees to contract labor because businesses are not responsible for providing health insurance to contractors, only to employees. Still other companies are substituting capital for labor because workers need health insurance, but machines do not.

Businesses are choosing plans with high deductibles and copays. Under the new law, employers need to provide "affordable" coverage, which is defined by the government to be insurance for which the employee's premium payment for employee-only coverage is "no more than 9.5 percent of the employee's household income." Some companies are adding plans with high deductibles and copays, which allows them to require employees to pay a sizeable portion of the cost of insurance and still keep coverage within the affordability limits proscribed by the government.

Related: What to Expect When You're Expecting...Tax Refunds and Obamacare

Employers are adopting bare-bones health plans. Some companies are offering "skinny" health insurance plans that provide preventive-care benefits, but not hospitalization or other major medical coverage. Because these bare-bones plans do not limit insurance payouts to workers, they meet the letter of the law's requirements that employers provide "affordable" health care coverage to their workers at a far lower cost than more comprehensive plans.

Companies are getting rid of dependent care coverage. Business are offering plans that do not cover spouses and dependents because the ACA does not require dependent coverage for people who are eligible for coverage elsewhere.

In the textbook world of binary choices, companies would face the alternative of either providing comprehensive health insurance to their employees or paying a penalty. But in the real world, employers, health insurers, and brokers and have an incentive to come up with creative solutions that allow business owners to adhere to the requirements of the law, while minimizing their cost in doing so.

Related: 4 Alternatives to Offering Paid Healthcare Benefits

Scott Shane

Professor at Case Western Reserve University

Scott Shane is the A. Malachi Mixon III professor of entrepreneurial studies at Case Western Reserve University. His books include Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors, and Policy Makers Live by (Yale University Press, 2008) and Finding Fertile Ground: Identifying Extraordinary Opportunities for New Businesses (Pearson Prentice Hall, 2005).

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Data & Recovery

Ditch Fees With Lifetime Cloud Storage at Cyber Week's Lowest Price

Would you rather pay monthly or once and be covered for life?

Business News

'I Stand By My Decisions': A CEO Is Going Viral For Firing Almost All of the Company's Employees — Here's Why

The Musicians Club CEO Baldvin Oddsson fired 99 workers at once over Slack for missing a morning meeting. But there's a catch.

Business Ideas

63 Small Business Ideas to Start in 2024

We put together a list of the best, most profitable small business ideas for entrepreneurs to pursue in 2024.

Business News

'Something Previously Impossible': New AI Makes 3D Worlds Out of a Single Image

The new technology allows viewers to explore two-dimensional images in 3D.

Growing a Business

Her Restaurant Business Is Worth $100 Million — Here's Her Unconventional Advice for Aspiring Entrepreneurs

Pinky Cole, founder of Slutty Vegan, talks about going from TV producer to restaurant owner, leaning into failure and the value of good PR.

Fundraising

They Turned Down an Early Pay Day to Maintain Control of Their Business. And Then Went on to Raise $190 Million.

Jason Yeh, co-founder and General Partner of Patron, explains the early-stage venture firm's creation and future outlook.