As the grumbling about Obamacare continues, the world of small business is about to make a dramatic shift. Increased costs and reporting requirements of the Patient Protection and Affordable Care Act (PPACA) are throwing a stick through the spokes of small businesses with more than 50 employees. Companies that never offered health insurance because of cost are now faced with the prospect of paying premiums or paying fines. Meanwhile, micro-employers (those with 25 or fewer employees), who are not required to provide coverage but will receive a subsidy if the do, will soon become realistic alternatives for employees who once shunned them.
According to a review of 31 studies conducted by the General Accounting Office, men with employer coverage were about 23 percent less likely to leave a job compared to those who also had access to coverage through a spouse. Historically, this has left the world of micro-businesses and start-ups to the young invincibles who were willing forge ahead without the security of health insurance. The changes coming with the PPACA will soon level the playing field.
While businesses with fewer than 25 full-time employees and average annual wages of less than $50,000 are currently eligible for temporary tax credits, next year the amount will increase to a maximum 50 percent of the employer’s contribution to premiums for insurance purchased through the Small Business Health Options Program (SHOP) . If they choose not to offer health insurance, they will face no penalty and their employees with incomes less than 400 percent of the poverty line will be eligible for tax subsidies to purchase insurance through State exchanges. If an employee’s income falls under 138 percent of the poverty line, they may be able to obtain coverage through Medicaid.
Taken alone, healthcare reform would probably not provide enough of a catalyst to change small business. Combined with the recent developments of crowdfunding , the explosion of web-based freelancing opportunities, and massive new opportunities to enter global markets via the internet, the world is unlikely to remain the same.
Look at the opportunity to start a company from an individual’s point of view. Imagine you have 10 years of experience working for a machine shop that creates replacement parts for classic cars. Let’s say the business employs 100 full-time employees including production, management, and sales. Given the opportunity cost of refitting equipment to produce many different parts, there would be areas of the market not pursued by the company. Enter an individual with a 3D printer. Working out of their garage, an experienced machinist with a facility for 3D drafting would now be able to set out on their own. They could survey potential clients using an online survey tool like Qualtrics , create marketing material by contracting with freelancers through Odesk , and create prototypes using a shared 3D printer at one of the many maker communities across the country.
Meanwhile, businesses with over 50 employees will be struggling to pay for unsubsidized health insurance coverage for employees who lack the motivation or skills to head out on their own. Being less nimble than their new competitors, they will have to increase wages to keep the most talented individuals from jumping ship and joining their former colleagues who have set up their own shop down the street.
On a macro level, these changes point to a dynamic world of ever increasing specialization where products move from idea to creation in ever shorter time frames. Eventually, work will become project based as individuals become more and more specialized. In many fields, specialization has already become endemic with companies like Boeing contracting with 379 companies to produce the 787 Dreamliner . While these complex new arrangement are sure to create some fragility in supply chains, the overall result should be rapid technological advances with effective cost controls as companies and individuals compete for contracts.
Whether these changes bode well for you as an individual depends on where you fit into the present system. If you are a small to midsized employer in a legacy business, your days are numbered. Your only hope is repealing healthcare reform. If you are a very large business, you will probably benefit in the change if you can tap into new innovations. You may also have a tremendous role to play in the integration of innovation. For individuals and micro-employers, the PPACA may provide you with an opportunity to strike out on your own while hedging some of the risks inherent in starting a business.
As for the economy as a whole, fasten your seat belts, this could get bumpy.
