Businesses seek cure for health care cost surge

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 grow 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 to carry out 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.

The ACA requires companies with 50 or more workers to provide affordable health coverage for their workers. For many companies, that could mean higher insurance costs. And though the government has put off enforcement of the law until 2015, premiums for 2014 are expected to rise sharply because of the law's requirements.

Hartnett was getting enough steady business to consider taking on 60 employees.

"I was particularly excited about offering benefits," she says.

That enthusiasm died when Hartnett met with her accountant to be sure she could afford the expansion. Hartnett was faced with the prospect that, once she had 50 workers, she'd be subject to the ACA. She considered expanding her company 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 business.

Her solution was to stay a very small business, with just a handful of freelancers. She's turning down business.

If health insurance for the 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 of them. He pays between 20 percent and 80 percent of the premiums, depending on how long employees have worked for him.

When there are openings on the waitstaff, Merrin is going to see whether his remaining workers can handle the dinner crowd without any new hires.

In a U.S. Chamber of Commerce survey released last month, nearly a quarter of the owners who responded said they would reduce hiring in response to the requirements imposed by the ACA.

Ending deliveries, which Merrin describes as a marginal part of his business, would save him from buying health insurance for 15 staffers.

Steve Silk is ready to raise the price of Smith Bros. cough drops and health products if insurance for his 65 employees gets too expensive.

Silk isn't worried about turning customers off by charging more. He's part of a group of investors that bought Smith Bros., a once-popular brand that had languished in dollar stores, and redesigned it for sale in more mainstream retailers. Part of the company's strategy is to have a better product that deserves a higher price.

Barbara Morris has 48 employees at her Dallas company, Laser Image. She's hoping to hire more staffers and knows that 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. And we keep talking about that - how do we make up for that?" says Morris.

One answer may be to reduce employees' bonuses.

"Perhaps the bonus won't be 5 percent. Perhaps we'll cut it to 3 percent to put money away for health care," Morris says.