Jerry Schumacher’s Fullerton-based engineering firm seems like the perfect example of what President Obama would like to see from American business when it comes to health care. The company offers coverage to all of its full-time employees, and pays 100 percent of the monthly premium.

But Schumacher still lives in fear of the Affordable Care Act, the federal health insurance reform known widely as “Obamacare.” He thinks it can only make things tougher on him.

With fewer than 50 employees, Schumacher isn’t affected by the law. And even if the company payroll grows and surpasses that threshold, the most the federal law would require of Schumacher is to do what he does now voluntarily: provide affordable coverage for his workers. Still, he’s worried.

“Obamacare is just another way of taxing people,” he says. “It’s another thing that squashes the small guy, and even the medium-size employer.”

Schumacher is not alone. Small business owners across California and around the country are struggling to understand what federal health reform means for them.

“Folks seem to have a lot of misconceptions about the law,” said David Chase,

California director of Small Business Majority, which has supported the law and sponsored training sessions explaining the statute to employers. “They have heard some scare tactics. But what they are really interested in is finding the information in a non-political, pragmatic way. What this law means to me and how can I comply?”

For the vast majority, the answer is simple: it means little or no change in the way they do business. For a few, it could be disruptive.

Start with the basics: the law mandates that businesses provide affordable coverage to their workers, but that requirement applies only to companies that employ 50 or more full-time workers. Only four percent of American companies have that many workers, so 96 percent of firms will be exempt. And of the four percent that are affected, an estimated 96 percent of them already provide coverage. So fewer than one half of one percent of employers will be in the category of those who do not provide coverage now but will be forced to do so by the new law. Others might have to upgrade the coverage they provide in order to comply.

All those firms that already provide coverage for their employees have been doing so with no threat of penalties hanging over their heads. They provide it because they think it is the right thing to do, or for competitive reasons. If health benefits are the standard in their industry, it would be difficult to hire workers without providing coverage.

But all of those relationships were formed in an era when there was little alternative for workers if their employers did not provide insurance. If they were forced to buy coverage on the individual market, workers would have to fend for themselves against the clout of the big insurers. They could be denied coverage if they had been sick, or charged more because of their health status.

Now all of that is changing. A new state agency, Covered California, was established by the federal health reform and has negotiated coverage options for individuals with 13 separate insurance companies, three or four of which are typically available in each region of the state with plans at various price points. Low- and middle-income workers are eligible for tax credits to make coverage more affordable, and no one can be denied insurance or charged more if they have been sick.

Some think the very creation of this viable alternative for workers who don’t get coverage on the job might have unintended consequences: It could actually be an incentive for employers to drop insurance, or to never provide it in the first place. Their workers, after all, won’t be left bare. They will have Obamacare.

Consider the decision facing an employer with 49 full-time workers who does not provide coverage. If that company hires a 50th employee, it will be subject to the health law’s mandate. If the firm does not provide coverage, it will face a fine of $2,000 for every full-time worker in excess of 30, once the law is fully implemented in 2015. That means hiring that 50th employee would cost the company $40,000 in federal fines, in addition to the worker’s own salary, benefits and payroll taxes.

But if the firm does provide coverage for all 50 workers, the cost would be substantially higher. Schumacher, the Orange County engineering executive, says his firm spends about $500 per worker per month. For 50 employees, that would be $25,000 per month, or $300,000 per year. In the end, the company could give each worker a generous stipend toward buying their own coverage and still come out far ahead.

“If we grow to that, if we get to over 50 people, we’d be faced with this,” Schumacher said. “It would be easier for me to just to say, ‘Ok, we are cutting out our plan, just go to Obamacare. We’ll pay the penalty.”

While only a tiny portion of firms will face this dilemma, some will. Chase, of Small Business Majority, believe competition for labor will still rule the day, and companies will simply get used to health care being part of the cost of doing business.

“Obviously employers will have to make that calculation and look at it,” he said, “but if a business has an opportunity to grow their business, they are typically going to do that.”

Another quandary that employers are already facing is how to handle part-time workers. The law defines full-time employment as 30 hours per week or more, and it takes 50 full-time workers to trigger the mandate. Many firms have already announced that they are trimming some workers’ hours to less than 30 per week so the company can remain below the federal threshold.

Chase may be correct that these problems will fade in comparison to the benefits the Affordable Care Act will bring to business, making shopping for insurance easier and making it easier to keep, regardless of the health status of their employees.

But it might also be that a tug-of-war ensues between current practice – most employers of 50 or more providing coverage – and the alternative provided by Obamacare and the health benefit marketplace it creates. If the worst fears of small business owners like Schumacher are realized, more and more employers will shift their workers into the Covered California insurance pool.

That would be an interesting experiment. Many economists believe our health insurance system would have been better all along if employers had not become, almost by accident, middlemen in the transaction. Companies would have been freer to pursue their core mission, whatever that might be, without worrying about managing health benefits. And workers would have had a more direct connection with their health care and its costs, possibly putting more downward pressure on those expenses and forcing insurance companies to be more consumer-oriented.

We may be about to find out just what such a system would look like.

Cross-posted at