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The Affordable Care Act: Effect on Small Businesses Essay

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Updated: May 5th, 2020

Small businesses are critical to the United States economy because they stimulate innovation and provide numerous employment opportunities. The objective of all business owners is to expand and make more profits while ensuring that their employees remain productive. Business owners use different methods to motivate their employees and increase their productivity. For instance, businesses can increase their employees’ wages and offer better health care.

However, the operational costs of running businesses significantly reduce the profit margins realized by many small companies. Although business owners seek ways to reduce their operational costs, the new Affordable Care Act increases the complications of running businesses. This submission will analyze how the Affordable Care Act affects American small businesses and will provide recommendations on how such businesses can maintain their profitability.

The Affordable Care Act lowers the profit margins of small businesses

The Affordable Care Act makes it almost compulsory for all businesses in the United States to offer health care coverage to all employees. The act offers provisions for businesses with less than fifty employees to offer health insurance exchanges and buy health insurance coverage. The Affordable Care Act demands all firms that hire above fifty workers to provide health care coverage to the workers, and this increases operational costs to small companies.

Businesses that do not offer healthcare coverage to their employees despite having more than fifty employees face stiff penalties that could significantly reduce their profit margins. The Affordable Care Act stipulates two types of penalties against businesses fail to provide the expected healthcare coverage.

Businesses that do not offer affordable health care coverage or fail to offer any healthcare coverage face a penalty of $2,000 per uninsured employee. However, the act exempts fines on the first thirty workers and employees who work on a part-time basis.

The Affordable Care Act prevents small businesses from expanding

The Affordable Care Act insists that all businesses with more than fifty employees offer health care coverage to their workers. Such a provision implies that hiring the fiftieth employee has costly financial repercussions to our business operations despite our interest in hiring more employees and expanding our company.

The financial implications of hiring additional workers complicate the future of our business and our ability to realize our mission of expanding our operations. The Affordable Care Act makes it difficult for our company to compete with our rivals, who have better financial resources.

The Affordable Care Act offers some benefits to small businesses

Although the Affordable Care Act increases the costs of doing business, it offers some advantages to small businesses. For instance, the Affordable Care Act offers a wide variety of healthcare coverage options for small businesses to choose from. The act’s insurance exchange option allows employees in small businesses to access health insurance.

The Affordable Care Act encourages employees in organizations offering health insurance to seek employment in small businesses and reduces the “job lock” phenomenon. Access to affordable health insurance was a significant issue among permanently employed workers in the past, but the Affordable Care Act makes health insurance accessible to most employees.

Recommendations

Although our company should adhere to the requirements of the Affordable Care Act, the company will not meet some of its objectives due to the increased costs of doing business. The company understands the importance of offering healthcare coverage to all our employees. However, the company is not yet well-established in the market despite its interest in expanding business operations across the state by opening multiple outlets. Consequently, the company should:

  • Employ less than fifty employees on a permanent basis and others on a contract
  • Sublet operations to affiliate companies as the business grows
  • Open additional small businesses under different identities as the company’s operations grow
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IvyPanda. 2020. "The Affordable Care Act: Effect on Small Businesses." May 5, 2020. https://ivypanda.com/essays/the-affordable-care-act-effects-on-small-businesses/.

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IvyPanda. (2020) 'The Affordable Care Act: Effect on Small Businesses'. 5 May.

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