The Health Care Law: The Effect of the Business Aggregation Rules on Small Employers

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Hearing Description:

The U.S. House Small Business Committee recently convened to examine what impact the Affordable Care Act is having on small businesses as it relates to the employer mandate. The witnesses reported that the ACA was having a negative impact and the aggregation of multiple businesses under one owner is a big problem.

Hearing Date: December 4, 2013

Hearing Summary: Prepared for AAPS by the Market Institute

The Committee on Small Business recently met to examine the effect of regulations on small businesses as it relates to the Affordable Care Act. Presiding Chairman Chris Collins (R-NY) said in his opening statement the central question to the proceedings is how the healthcare law determines how many employees a business has. Specifically, with a business that has multiple ownership interests, what is the process like to determine whether that business is a single or multiple entity. Despite the Administration’s assertions that small businesses would benefit from the healthcare law, each week brings entrepreneurs more uncertainty.

The first witness, Deborah Walker, CPA, National Director, Compensation and Benefits at Cherry Bekaert testified in her opening statement that in order to ascertain what rules a business is subject to, the business must first determine detailed ownership rules and business relationships between entities. In a healthcare context, “bright line tests” to gauge tax obligations are only used on businesses that are close to exceeding the 50 employee mark. Instead, businesses should be able to use a facts and circumstances test to determine if they are subject to the healthcare law mandate.

The second witness, Sibyl Bogardus, Chief Compliance Officer, Western Region Employee Benefits at Hub International Insurance Services testified in her opening statement she agreed with the previous witnesses’ assessment on the need for a controlled test. There are many issues affecting small business owners, but the complexity of the rules is a major one. Uncertainty and fear are driving most of the concerns.

The third witness, Ellis Winstanley, Chief Executive Officer at Tradelogic Corporation testified in his opening statement that in his own personal case, his family is discovering that their business, comprised of many restaurants, would be subject to the employer mandate. The aggregation rules are causing their cost of doing business to go up. The healthcare law is adding significant upward pressure to their costs, including rising premiums. The nature of the restaurant business is such that employees come and go frequently, so the mandate that the employer must provide health coverage is not viable to sustaining the business.

The final witness, Donna Baker, CPA at Donna Baker & Associates testified in her opening statement that the business aggregation rules in the healthcare law will have a negative impact on small businesses. The “common control” regulation, a group of companies to be treated as a single entity, may cause unrelated businesses and/or family members to be unfairly subject to the employer mandate. Also, the level of complexity for the aggregation rules could create inaccurate application of the rules.

In response to questioning, Deborah Walker said:

  • Bright line tests hinder growth
  • Businesses are starting to expand on an part time basis for new employees to avoid having to offer health coverage

In response to questioning, Sibyl Bogardus said:

  • Current provisions are such that they stifle growth
  • The law is having an impact on costs; they are seeing people not sign up for coverage because of how expensive it is

In response to questioning, Ellis Winstanley said:

  • The time spent on the healthcare law has been significant. It has certainly distracted from doing regular business
  • In terms of owners, industries should be separated and not aggregate for the employer mandate

In response to questioning, Donna Baker said:

  • Having to offer healthcare to employees makes a business less competitive

Hearing website: http://smallbusiness.house.gov/calendar/eventsingle.aspx?EventID=350600

Links to testimony:

Deborah Walker, CPA National Director,
Compensation and Benefits, Cherry Bekaert, LLP,
Tysons Corner, VA
http://smallbusiness.house.gov/uploadedfiles/12-4-2013_deborah_walker_final_testimony.pdf

Sibyl Bogardus, Chief Compliance Officer
Western Region Employee Benefits, Hub International Insurance Services, Inc., Salt Lake City, UT
http://smallbusiness.house.gov/uploadedfiles/12-4-2013_bogardus_final_testimony.pdf

Ellis Winstanley, Chief Executive Officer,
Tradelogic Corporation, Austin, TX
http://smallbusiness.house.gov/uploadedfiles/12-4-2013ellis_winstanley.pdf

Donna Baker, CPA
Donna Baker & Associates, Adrian, MI
http://smallbusiness.house.gov/uploadedfiles/12-4-2013_baker_testimony.pdf

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