Last week, we published a case study about Baked in The Sun, a wholesale bakery and distributor that is trying to decide how best to comply with the Affordable Care Act. Starting in January, the new law requires businesses with 50 or more full-time employees to offer health insurance or pay a penalty. Owned by Rachel Shein and Steve Pilarski, husband and wife, the company employs nearly 100 workers to bake and deliver freshly made pastries to coffee shops, hospitals and hotels in Southern California.
Baked in the Sun has offered health insurance to its employees in the past but many are young and healthy and have preferred to keep more money in their paycheck, rather than contribute to a health plan. Soon, though, almost all workers will have to carry health insurance ? through their employer, a government exchange or other source ? or pay a penalty. And, as the case study discussed, Ms. Shein and Mr. Pilaski are trying to decide whether they will offer health insurance, pay a penalty or outsource enough work that they can reduce their head count below 50 and be exempt from the law.
The article elicited lots of comments and strong opinions, as well as reports in other media outlets, including CNBC, which included Ms. Shein in a panel discussion about her company?s situation. Some readers argued that Baked in the Sun has a moral obligation to offer coverage. Others argued for a single-payer system that would allow owners to stop worrying about health insurance and focus on running their businesses.
Andrew Greenblatt, a senior vice president at Benestream, which helps low wage employees apply for government benefits, pointed out that under the Affordable Care Act, Medicaid has been expanded to cover families earning up to 138 percent of the poverty level, which means that workers who make minimum wage, especially single parents, may qualify.
And Alan Cohen, chief strategy officer for Liazon, a private insurance exchange for companies, suggested in a comment that many employees will be better off if the bakery chooses not to offer insurance and instead pays the government penalty. That?s because the employees would be likely to qualify for a subsidy at a government exchange that would allow them to insure their whole family ? but only if their employer does not offer health insurance.
Of course, because neither the minimum level of coverage, nor the costs to all the insurance options have been finalized, lots of uncertainty remains. We contacted Ms. Shein for a follow-up conversation that has been condensed and edited.
Q.
A number of readers suspect that you are underestimating how much it would actually cost to insure your employees. Have you taken another look?
A.
The insurance plans are still under development. My broker recently found one that was less than what I had found, but I?m not sure anyone knows what the final rules and prices will be.
Q.
Have you thought any further about how many of your employees will actually sign up for insurance if you offer it?
A.
In the short run, when the individual penalty is low, there might not be much participation. We plan to have a meeting with our employees to see what kind of insurance they might want and which of them might be covered elsewhere.
Q.
Did this discussion have any impact on your thinking about whether you will pay the penalty or offer insurance?
A.
The employees will all have access to health insurance whether we provide it, or we pay the penalty and they purchase it using a subsidy on the government exchange. We need to look at all the costs and tax implications and do whichever is least expensive for the business.
Q.
Are there any reader questions you want to answer?
A.
Some readers claimed it was a moral imperative to provide insurance ? but all employees will have insurance under the law.
Q.
Some readers thought your profit margin was too low and questioned how well your business was doing. What was your reaction?
A.
Like many entrepreneurs we have great years where we can take vacations and put money into our kids? college funds. Some years are leaner.
Q.
Do you think your customers would pay a few more cents for your baked goods ? especially if it allows you to offer your employees health insurance?
A.
Our products are unbranded and sold in hundreds of outlets so it would be hard to educate consumers about our employment practices. And the popularity of Wal-Mart shows that most consumers just want the best price.
Q.
You suggested in the article that you might have to raise your prices 4 percent to cover the cost of providing health insurance. But 4 percent of $8 million ? your annual revenue ? is $320,000. That?s a lot more than you estimated the cost of insurance. Couldn?t you just raise your prices 2 percent?
A.
Yes, a 2- to 3-percent increase could cover the costs, but it?s a low margin business and pennies matter so we like to build in some buffer.
Q.
Would you favor a single-payer system?
A.
I am in favor of a system that doesn?t penalize a business for being successful and able to hire more than 50 people and doesn?t deter us from wanting to grow. I am in favor of a system where everyone pays in, and everyone is covered. If that is a single-payer system, I?m for that.
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