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New Health Care Law Places Burden on Backs of Small Business

For immediate release
Contact: Alisa Harrison, 202-628-8000     

WASHINGTON, May 27, 2010—New healthcare regulations will slow or stall growth of small and mid-sized businesses as they struggle to absorb the new costs, the International Franchise Association warned Congress today.

Speaking before the House Republican Health Care Solutions Group forum on the true cost of the new health care law to families and employers, IFA member Gail Johnson, president & CEO of Rainbow Station, Inc., told lawmakers that the new law contains a framework that will encourage further shifting of health costs onto the backs of small franchise businesses.

“As an entrepreneur and a nurse, when I review the new health care law I see a structure designed to discourage economic growth among small and mid-sized companies,” Johnson said.  “At a time when our government should be doing everything in its power to encourage job growth and recovery, I see a federal requirement that creates disincentives for higher wages, new hiring and robust employee benefits.  This law will force me to devote more of our capital investment resources toward operating costs rather than growth.” 

Johnson said the new law will add costs and regulatory burdens for small business owners, noting the employer mandates will require her company to offer insurance, but much of the flexibility for the plan design will be regulated from Washington. 

“This inflexible, one-size-fits-all approach betrays a bias toward mandating coverage rather than curbing costs,” Johnson said, observing that the law creates a strong disincentive to hire new employees, especially as firms reach the threshold level of 50 full-time workers. “This represents a significant government intrusion into the benefits decisions of employers. In order to comply, small employers will be faced with decisions such as cutting back wages, forgoing new hiring and raising prices for services. These measures will further stunt any economic recovery and curtail future job growth.”

“At Rainbow Station, we currently pay 75 percent of health insurance coverage to full-time employees but do not offer coverage to spouses or family members.  The new provision will drive health insurance costs higher than we are able to provide today,” she added.

The company would also have to be mindful that employee’s share of the plan does not exceed 9.5 percent of their household income.  Otherwise, they would be eligible for subsidies and would trigger penalties of up to $3,000 per employee who receives a subsidy.  “How are employers supposed to determine the household income of each employee?” she asked.  This is private information that employees would certainly not expect their employers to ascertain in most cases.    

“The federal government has now forced the hands of small and mid-sized businesses and made health insurance an obligation, rather than a benefit of employment that I could use to supplement salary and wages in order to attract and retain quality staff,” Johnson said.  “Essentially, the decision to offer health insurance coverage will strictly be about cost—insurance premiums versus penalties.  Health insurance coverage will cease being a benefit of employment or part of a competitive compensation package.” 

“For a growing company like ours, which provides an important service to the community, the thresholds for the tax credit are entirely too small to be of any assistance,” Johnson said.  “In order to qualify for the tax credit, we would have to cut hours for our full-time staff to ensure we were under the 25 full-time equivalent employee threshold.  Staffing in the childcare industry requires mandated ratios of staff to children.  We simply could not take advantage of any tax credits to offset insurance costs.  Encouraging companies to cut back hours or eliminate staff is the wrong message our government should be sending small businesses - particularly during a recession.”

Franchised businesses play an important role in the economic health of the U.S. economy, and they are poised to help lead the economy on the path to recovery.   IFA Educational Foundation reports show that the franchise businesses provide over 20 million jobs and contribute $2.3 trillion to the U.S. economy. 

Rainbow Station, Inc. is a nationally accredited preschool and school age recreation franchise that offer backup childcare for mildly ill children on site, which provides developmentally appropriate early education and school-age recreation to 325 children.  There are six corporately owned Rainbow Station programs in Richmond and franchises in Virginia, North Carolina and Texas.  All Rainbow Station schools are accredited by the National Academy of Early Childhood Programs and/or the National Afterschool Association’s Council on Accreditation as soon as they become eligible for accreditation.  Some schools are accredited by the Southern Association of Colleges & Schools.  The Rainbow Station system employs 225 employees – at least 50 per location.  Currently, there are nine schools open, with a capacity for 3,131 children.  Fully enrolled, each campus will generate $2.5 – $3.5 million in revenue annually, depending on geographic location.  Within Rainbow Station facilities, there is the capacity to provide backup care for mildly ill children.  This care is overseen by a pediatric nurse and results in approximately 1,000 productive workdays returned to parents who have the option to leave their child with a nurse and go to work.  Rainbow Station provides real flexibility and options to working parents who would normally be forced to miss work in order to stay home with a mildly ill child.  

To read a copy of Gail Johnson’s statement, click here


About the International Franchise Association
The International Franchise Association is the world’s oldest and largest organization representing franchising worldwide. Celebrating 50 years of excellence, education and advocacy, IFA protects, enhances and promotes franchising through government relations, public relations and educational programs.  Through its awareness campaign highlighting the theme, Franchising: Building Local Businesses, One Opportunity at a Time, IFA promotes the 21 million jobs and $2.3 trillion of economic activity generated by franchising. IFA members include franchise companies in over 90 different business format categories, individual franchisees and companies that support the industry in marketing, law and business development