Rewarding your best employees with healthcare benefits used to be standard operating procedure, but the Affordable Care Act (ACA), or Obamacare, is challenging this practice.

Employers should be concerned about the regulatory and cost burdens associated with the Affordable Care Act, but these concerns must not distract from the most important element of running a profitable business: recruiting and retaining good employees. The struggle to balance the competing pressures of containing costs, streamlining paperwork and rewarding your best employees has just increased significantly.

Providing equal healthcare coverage to all employees will be costly. Since ACA mandates coverage of preexisting conditions and removes coverage caps, insurance companies must account for this new risk and that can only push prices up. ACA burdens employers with increased regulatory paperwork. The House Ways and Means Committee points out that the Empire State Building could be built 18 times using the hours wasted on ACA regulations. This forces employers to spend resources on regulatory paperwork that have nothing to do with their core business. All this can make employees seem like a secondary factor in running a business.

Many employers may consider no longer offering healthcare and just paying the penalty. This may seem like a reasonable option if you consider the penalty is $2000 per employee, excluding the first thirty employees. But employers offering healthcare benefits and receiving a tax deduction today will discover that the penalty is not tax deductable.

Employers no longer offering Healthcare would also avoid the administrative burden of calculating the number of hours each employee worked a month and adjusting benefits accordingly. In 2013, employers are required to keep a six month record showing the average number of hours an employee worked a week in order to determine how many qualify as full time. With such onerous burdens placed upon them, employers may feel justified in sending their employees out into the wilderness of the health exchanges being made available in October.

Certain employers will keep many workers below the required 30 hours a week to ensure they are not considered full time and, that way, are not required to receive healthcare coverage. These choices, which many companies today are considering, create more hardship for the employee. Employees stand to see their hours and wages reduced while the burden of finding and purchasing healthcare is hoist upon them.

Employees forced into the health exchanges will not be happy.  The healthcare exchanges are most likely going to be confusing and, according to early actuarial estimates, not nearly as affordable as the Affordable Care Act implies. Many employees will feel abandoned by their employers and this can kill their motivation to make their employers profitable.

Employers would be wise to seek out alternatives that help provide healthcare to their workers. Retaining talent in a competitive environment is always challenging. Keeping employees focused on their jobs is easier when they are not distracted by the pressures of providing for their own healthcare. Providing employees with secure benefits also makes it harder for competing companies to lure away good talent.  The employer’s challenge is to find a balance between rising costs, increased paperwork and employee retention.

Jim Kernan is former CEO of Oriska Insurance and the Executive Director of the non-profit employment development agency, Economic Cornerstone, and a director of United Services Administration

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