In 2010, the Patient Protection and Affordable Care Act (as amended, the “Affordable Care Act”) was signed into law by the President.  Though one of the purposes of the Affordable Care Act is to make healthcare more affordable for Americans, in the short-run healthcare is expected to be less affordable for certain members of the U.S. workforce.  This article discusses (i) the Affordable Care Act’s imposition of a new tax on health insurers and how the new tax will affect healthcare costs; (ii) how small and mid-size businesses may strategically structure operations to avoid the increased costs associated with the Affordable Care Act; and (iii) how consumers’ buying power will be affected by the new law. 

New Tax on Health Insurers

This year, health insurers increased premiums given that they are now required under the Affordable Care Act to provide more comprehensive plans to consumers. 

Further, section 9010 of the Affordable Care Act imposes a new annual tax (the “Premium Tax”) on health insurers.  The Premium Tax is calculated by the IRS using a formula that takes into consideration the net premiums written by each health insurer for U.S. health risks during the applicable calendar year.  Health insurers are required to make the first round of Premium Tax payments in September.  The government expects to collect approximately $8 billion in revenue from the Premium Tax in 2014. 

Health insurers will pass on their increased cost of doing business to insurance customers, i.e., individuals and employers.  Small and mid-size employers and individual consumers, therefore, will bear the brunt of the new tax in the form of increased insurance premiums.[1] 

Increased Costs of Affordable Care Act Drive Business Decisions

The Affordable Care Act requires that employers with an average of 50 or more full-time workers (“Full-Time Employees”)[2] during the calendar year provide health insurance for Full-Time Employees or pay, at a minimum, a $2000  penalty for every Full-Time Employee in excess of the first 30 Full-Time Employees.

Some businesses will intentionally remain small and not expand their workforce, i.e., have less than 50 Full-Time Employees in order to avoid mandatory compliance with the Affordable Care Act.  Such action will stunt not only the individual company’s growth, on a macro-level, it will stunt U.S. economic growth. 

Other businesses, particularly those with low profit margins that cannot bear the strain of increased operating expenses, may choose to employ a larger workforce, for example, 65 employees, but strategically employ fewer than 50 Full-Time Employees.  For example, an employer with 65 employees may have 30 employees that work 30 hours or more per week and schedule the remaining 35 employees to work a part-time schedule of less than 30 hours per week. 

For those employers that choose to provide insurance to their employees, they may (i) require employees to contribute more; (ii) raise deductibles; and/or (iii) reduce employee wages to re-shift the increased insurance premiums expense. 

Impact on Consumers’ Buying Power

As a result of increased insurance costs and underemployment, consumers will have less buying power. 

Small and mid-size businesses create a large number of new jobs in the economy and employ a large percentage of the country’s workforce.  Considering that many employers will slot more employees as part-time workers, the U.S. workforce will experience an overall decline in full-time employment.  In light of the fact that there will be less full-time jobs and a reduction in employees’ hours, many employees will have less income, thus, less buying power.  These consumers, therefore, will be forced to cut back on spending. 

Additionally, health insurers will pass off their increased tax costs in the form of higher premiums to higher income consumers that are not eligible for subsidies and tax credits under the Affordable Care Act.  Individuals and households with higher income, therefore, will also have less buying power.

If all other things remain constant, consumers’ discretionary income will fall.  When discretionary income falls, consumers purchase less luxury goods and services.  These luxuries include, but are not limited to, restaurant dining, retail items such as clothing and accessories, and spa services.  The Affordable Care Act’s adverse effect on discretionary income therefore stands to negatively impact small and mid-size businesses offering these luxuries to consumers. 


At least in the short-run, pockets of the U.S. economy  likely will experience a slow-down in growth due to increased costs and business decisions driven by the new mandates under the Affordable Care Act.  Restaurants, retail businesses and other luxury providers may experience the greatest degree of financial distress.   

In the long-run universal healthcare should lead to a healthier workforce in light of the fact that everyone in the U.S. workforce will now have access to preventative healthcare services.  Therefore, though the new law may slow down growth in the short-run, in the long-run the U.S. economy should experience growth as a result of the increased production of a healthier workforce. 

Disclaimer:  This article represents the views of the author and such views should not necessarily be imputed to Norton Rose Fulbright, Fulbright & Jaworski LLP, or their respective affiliates and clients.  This publication should not be considered legal advice and receipt of this publication does not establish an attorney-client relationship.

About the Author:  Ms. Simmons focuses her practice on the representation of debtors, creditors and other parties in complex restructuring, finance, bankruptcy and litigation matters.  She can be reached at

[1]  The majority of large companies, those companies with more than 200 workers, are self-insured.   

[2]  Full-Time Employees are employees that work on average 30 hours or more per week.  The total number of Full-Time Employees also includes “full-time equivalent” workers.  The aggregate hours worked by part-time workers for each month is divided by 120 to calculate how many “full-time equivalent” workers the company had during the applicable month.