CRN Intelligence: Obamacare Has Many VARs Seeing Red

Timothy Shea, CEO of Alpha NetSolutions, a $1.7 million Millbury, Mass.-based solution provider with 18 employees, is fed up with government mandates on health care. In fact, Shea is moving jobs overseas where he has found solid talent and does not have to pay health-care costs. ’My last six hires have been overseas,’ he said. ’That’s how I adapted to Obamacare."

Shea is not alone in his disdain for Obamacare. In fact, 57 percent of respondents in a CRN survey of 246 solution providers said they would like Congress to repeal Obamacare.

What’s more, 51 percent of respondents said the federal health-care legislation known as Obamacare has led to higher health-care costs for their company, 40 percent said it had no impact on health-care costs, and just 9 percent surveyed reported that it had led to a reduction in their company's health-care costs.

[Related: 5 Obamacare Website Failures That Could Have Been Avoided ]

Of those CRN survey respondents that have seen higher health-care costs for their companies, 49 percent said their health-care costs were up from 1 percent to 20 percent, 35 percent said their health-care costs were up from 20 percent to 40 percent, and 10 percent said their health-care costs were up from 40 percent to 60 percent.

As for the impact on hiring for 2014, 27 percent said it had led to a decrease in hiring, 68 percent of respondents said it had no impact on hiring, and just 4 percent said it led to an increase in hiring.

Shea said his health-care costs began to soar in 2007 when a Massachusetts health-care reform law went into effect that was championed by former Massachusetts governor and onetime GOP presidential candidate Mitt Romney. "It's the 13th round for us," Shea said of his Massachusetts business colleagues. "We already have had our teeth kicked in by Romneycare."

After grappling with double digit health-care cost increases for five years for the 18 employees covered by his company's Blue Cross insurance plan, Shea said he got a break last year with a 4 percent reduction in health-care costs for his company. What's troubling, according to Shea, is that he has no idea why those costs went down. "I have no idea how they came up with those costs," he said, describing a problem many solution providers say they grapple with every year when it comes time to renew their health-care plans. "That's what makes it so difficult to plan for health-care costs. I certainly am not assuming the dip is going to be permanent."

Of those CRN survey respondents that have seen lower health-care costs for their companies, 67 percent said they had seen a 1 percent to 20 percent reduction in health-care costs, with 14 percent saying their health-care costs were down 20 percent to 40 percent.

Pat Gallagher, owner of Data Logic Systems, a one-person IT consulting shop based in Waukesha, Wis., is one of the 43 percent of solution providers surveyed by CRN who does not favor a repeal of Obamacare. Gallagher, who is still providing small-business IT services, did not have health insurance for himself, his wife or his five children for the past 30 years while running his own business. He said the federal health legislation would have saved him an "awful lot of money" if it was available when his wife passed away from cancer 15 years ago.

"This law is going to prevent an awful lot of bankruptcies," said Gallagher. "This is going to be a good thing for everybody."

Gallagher compared the passage of Obamacare to the controversy that surrounded Medicaid when it was first passed into law as part of the Social Security Amendments of 1965. "If it wasn't for Medicaid you'd have an awful lot more people on welfare," he said. Gallagher expects the legislation to ultimately reduce health-care costs since fewer people will be relying on more expensive emergency room care. He said he has seen a $16 increase in one of his medicines since the law was enacted, but he also has seen a reduction in costs as a result of his annual physical being covered in full.

Gallagher said he objects to what he called incendiary disinformation surrounding Obamacare. "It started with [Sarah] Palin talking about death panels," he said. "A lot of people were making the case that this was going to ruin the country. It hasn't. You just have to give it a chance."

NEXT: The Origins Of Obamacare

What has come to be known as Obamacare is actually the Patient Protection and Affordable Care Act, which was signed into law by President Barack Obama on March 23, 2010. The legislation, which conservative think tank The Heritage Foundation calculated will result in $52 billion in new taxes faced by businesses of all sizes, put forward a series of mandates, subsidies and exchanges that ultimately require all citizens to be insured. Under the act, businesses are broken out based on their company size and pay grade.

Businesses with low head counts and lower pay grades are not required to provide insurance but might qualify for tax credits for providing it as part of a benefits package. Businesses with more than 50 full-time employees fall under the "employer mandate" and must provide health-care coverage to their employees by 2015 or face a penalty. Penalties for companies with more than 50 employees who fail to provide coverage will be hefty -- $2,000 to $3,000 per employee missing coverage.

Small businesses, such as five-person IT shops, do not qualify for group plans and often have to seek coverage through the more expensive individual markets.

One problem is the uncertainty that has hovered over technology solution providers, particularly small businesses, regarding the bottom-line financial implications of the new law. The National Small Business Association found "widespread confusion" over the Affordable Care Act among the majority of small firms. In a survey of more than 780 small-business owners, companies reported spending an average 13 hours and $1,274 per month just on the administrative side of understanding the law itself, according to the NSBA.

One expense that many solution providers say they are bearing in order to navigate through the confusing insurance terrain is the cost of hiring health-care consultants to determine what is the best path to take with regard to insurance coverage. Companies also have additional IRS reporting requirements as well, which administratively can be a burden. Those requirements include reporting health-care coverage on employees' W-2 filings as well as figuring out eligibility for tax credits.

Cost is the No. 1 driver of whether or not a small business will offer health insurance, according to the NSBA. One-third of small businesses held off on hiring a new employee and more than half say they held off on salary increases for employees, the NSBA found. Even after all the administrative costs incurred by businesses to educate themselves on the Affordable Care Act, many are still unclear what the ultimate financial impact will be on their business.

"It's going to help some people, no doubt, but it's going to hurt a lot of people as well," said Sean McGuire, principal of E.D. Bellis Healthcare Consultants, which specializes in helping businesses adapt to the changes demanded by the act. He compared the uncertainty regarding the legislation to a person bringing their broken-down car to the mechanic and waiting to find out if they're going to be hit with a bill for $50 -- or for $5,000.

In the case of New York-based solution provider eTribeca, the company dropped insurance coverage for the majority of its employees due to the increase in costs resulting from the Affordable Care Act, said eTribeca COO and CTO Gary Berzack. The company still pays for coverage of some key management employees, but it suggested other employees find their own insurance, he said. For the employees still on the eTribeca benefits package, Berzack said the insurance company had canceled their previous package and sent them a new type of insurance. It was too early to tell exactly what the new policy entails, he said.

Berzack expects other companies have made similar tough choices, given the current market. "We don't have a consistent policy, and I'd be surprised if other people do," he said.

NEXT: Absorbing The Extra Costs

Even with dropping the coverage of eTribeca employees, Berzack said that health-care costs still account for 20 percent to 30 percent of overhead costs for the company. That's not surprising given that the average monthly cost of health insurance premiums per worker for a small business has soared from just $590 per month in 2009 to $1,121, according to an NSBA survey. But the biggest problem with rising health-care costs is that it doesn't coincide with an industry rise in rates for engineers, said Berzack. Customers balk at any mention of increased prices for services and will turn elsewhere, so services rates haven't changed significantly in the past 25 years. "It's unsustainable," he said of the stagnant services prices, with employee costs continuing to rise every year.

Robby Hill, CEO of Florence, S.C.-based solution provider HillSouth, said HillSouth pays 100 percent of the employee coverage for the 21-employee firm. Since the Affordable Care Act rollout, Hill said that his company's insurance rates have skyrocketed 11 percent, well above the company's usual increases of 0 percent to 2 percent. When he asked his insurance agent about the increases, Hill said he was "shocked" when the agent said that 5 percent to 6 percent was directly due to taxes the Affordable Care Act puts on every policy.

Despite all the buzz around tax rebates for small businesses, he said the tax credit doesn't apply to his business if it pays the higher wages to his employees.

"Between 1 [percent] and 3 percent [increase], I can believe that that’s just a cost-of-living increase, but knowing now that there is an Affordable Care Act tax on group policies is just blowing my mind," Hill said. "People are receiving their proposals and it's just in there. They probably don’t even realize that it is," Hill said.

People are used to rate increases, he said, so they probably don't question it. "This year there's no doubt that it is apparently due to tax increases."

Hill said that he was able to negotiate the price hikes down to 8 percent with his insurance company, but that HillSouth will be absorbing all of that extra cost. "It really does as a business owner and an employer, it makes you want to sit down and double-check your numbers," he said. "We're not pleased with this increase. It's caused us to re-evaluate our policy on health insurance," he continued.

Going forward, Hill said that he only expects rates to continue to rise for health-care plans. He said that his company is currently grandfathered into a plan with more tiers, but if it is forced to go to the Healthcare Exchange then costs will dramatically increase. Hill said that he got a proposal for how much it would cost to use the Exchange, and premiums would have doubled over the current plan. "Nobody can afford that," Hill said. "The only concern I have is that the plan we have designed for our employees becomes unaffordable or unavailable," said Hill. "At that point we would have to be thrown out on to the [small business] exchange to shop for insurance."

In a survey of all industries by global consultant and research organization Mercer, 46 percent of employers said they expected health-care costs to increase by 3 percent or more in 2014. The average total cost for employer-sponsored plans was $5,884 for single coverage and $16,351 for a family, the study found. Those costs are up an average of 5 percent and 4 percent, respectively, from the year before.

For perspective, that means a company with 20 employees this year would shell out an average of $117,680 per year on health insurance, assuming all of its employees were single and it covered 100 percent of the insurance, according to CRN’s analysis. That's an increase of $6,000 from 2013, and that's assuming the company hasn't grown its head count.

One solution provider CEO, who heads up a 40-person company and asked not to be identified, said his benefits consultant has informed him that his company rates, which expire in August, will increase significantly, probably more than doubling as a result of the Affordable Care Act. "I asked how could that possibly be considered ’affordable health care?" he said. "Our consultants explained our benefits were at the low end of the spectrum and as everyone pays the same average rate, we will experience a significant increase.

"As company owner I have always paid 100 percent of medical and dental benefits for my employees, currently about $3,600 per person per year," he said noting that his company plans to continue to pay about $3,600 per person, per year, but that the cost increases above that will be each employee's responsibility. "Some employees have already approached me to ask for a raise specifically to cover these anticipated health-care cost increases," he said. "Unfortunately, our company can't afford to give out $4,000 raises."

NEXT: Demand Means You Can't Stop

DEMAND MEANS YOU CAN'T STOP

Some technology companies fall into the bracket of companies that don't need to provide insurance, but it doesn't mean it's always an option for them to stop providing insurance coverage for employees.

Kevin Quinn, a partner at Chernoff Diamond, a benefits and risk management advisory firm that specializes in Affordable Care Act implementations, said he doesn't see a lot of his clients with fewer than 50 employees doing that, particularly in the technology industry. The reason, he said, is that, especially for technology companies, there is a lot of competition for highly talented employees. If companies don't offer a competitive benefits package, he said, they might miss out on top talent.

"I would say tech companies are going to potentially be looking at this as a way to distinguish themselves. You can pay where other companies are looking to avoid or reduce benefits," Quinn said.

Solution providers told CRN that, while it is difficult to keep up with rising health-care costs, it is important to continue coverage to remain competitive for industry talent. "From an employer perspective, you want to retain or get the best talent so you have to be competitive, so it just starts costing more to do business in general," one CEO, who did not want to be identified, said of the conundrum. "It's kind of where does it end?"

A Massachusetts-based solution provider executive, who asked not to be named, said health-care costs are continuing to spike for his company, more than 20 percent year over year. The spike will continue on the same pattern now that the Affordable Care Act has taken effect, he predicted. He said that the health-care industry in general over the past few years is having a huge effect on his business and it is "crazy" how much he spends on insurance. "The old system was going off a cliff," he said. "Not clear if the new system is better or worse, but we need change."

WHAT'S NEXT FOR THE CHANNEL?

Going forward, many solution providers said that they are stuck in a wait-and-see pattern until the markets adjust and finalized rules on the insurance mandates emerge. For now, they said, the regulations are too in flux to make a definitive decision on how their businesses will be ultimately affected in the coming months and years.

Berzack, for his part, said he wished the government would provide more education on how companies such as eTribeca are supposed to approach the changes. Solution providers said that they were giving it as much as two years for the full effects of the law to take hold. In the meantime, they said that they were trying to do their best with the situation as it exists today.

"I think that it has to run its course," Berzack said.