In the post-aPPACAlytic world, the 50 employee firm will be hard to find, increasingly so each year so that by 2020, or perhaps sooner, it will be extinct.
The truth is, there will be no reason to officially have 50 employees, or a little more than that. Even employers with 60, perhaps 70 or even 100 will be hard to find and increasingly rare. Let’s call this group of employers the small large-employers.
The quantity of 49 person firms, however, will explode, and here’ why:
PPACA dictates that those employers with at least 50 employees must comply with its regulations including the employer mandate and its penalties. Those with fewer than 50 employees need not worry.
So let’s break down the two types of small large-employers: Those that offer group health insurance to their employees today, and those that don’t.
For those that don’t offer insurance, the incentives are quite large and obvious to “get below 50” in order to avoid penalties and the administrative burden. How they do that is the subject of another post, Pay Play or Avoid.
For those that offer insurance today, the incentive is not so obvious, but let’s peel the onion back. The knee jerk reaction is that “they already provide health insurance today, so post PPACA will not change anything”. But keep in mind , the 50 person firm has to compete with the 49 person firm down the street offering the same products and services.
The 50 person firm is forced to offer group health insurance and comply with PPACA. Alternatively, the 49 person firm can offer a defined contribution plan while allowing its employees to choose their own customized insurance plan on the exchanges. Using vehicles like FSA’s, HRA’s and HSA’s, both the employer and its employees get tax savings, the employer is free from the administrative burden of providing health insurance and also avoids the new burden to be imposed by PPACA. Meanwhile, the employee gets the coverage he or she wants, not what is being force-fed by its employer.
Now, don’t expect a wholesale shift in 2014 from this second group, but I do believe they will eventually find a way to not be a small large-employer anymore – in fact, their very survival probably depends upon it.
And as time goes by, expect to see a lot of consolidation, divesting, and outright downsizing within the small large-employer group. These companies will either get bigger or get smaller, but they won’t stay the same.