All too often, when we hear about the expected impact of ObamaCare on business--how the cost of providing benefits will have to be passed on to customers, say--it’s in general terms. It’s a lot more instructive to see how the numbers actually play out in a real business. And in the case of Marilyn Ihloff, owner and founder of a three-store chain of beauty salons in Oklahoma, the math turns out to be simpler, and less frightening, than you might expect.
Ihloff Salon and Day Spa employs about 130 people across two locations in Tulsa and one in Norman, outside Oklahoma City. Most employees work variable hours and are paid on a commission basis. Ihloff’s highest-paid contractor makes about $130,000 a year; interns make minimum wage.
With more than 50 people regularly working enough hours to qualify as full-time-equivalent employees, Ihloff, who started her business 33 years ago, knew she’d have to comply with the Affordable Care Act’s employer mandate and either offer health benefits or pay penalties.
Until this year, Ihloff had offered health insurance subsidies as a benefit only to key management employees. But a few weeks ago, she extended to offer to all employees who worked an average of 30 hours or more per week. About 25 newly eligible employees chose to enroll. Ihloff contributes 60 percent toward their individual monthly premiums for a basic HMO plan, at a cost to the business of about $210 per person. Employees have an option to contribute more of their own money to upgrade to higher-level plans. Several younger workers are covered under their parents’ plans, and a number of Native American employees get free coverage through the government’s American Indian Health Program (AIHP).
Given the traditionally low margins in the industry--“we shoot for a 10 percent operating profit,” Ihloff says--she had no choice but to pass her new healthcare costs on to customers. The model she came up with is ingeniously simple: she's added a small health-care surcharge into each customer bill: $1 on sales under $50, $2 on sales up to $100, and $3 on sales over $100. While the fee doesn’t actually show up as a separate charge on the customer’s receipt, it does get its own line on the company’s financial statements, which allows Ihloff to easily compare against her actual costs of health coverage, and to make adjustments, if necessary.
Employees don’t earn commission on the additional fee. “A lot of people in the industry had assumed employees would yell and scream if you took any of their money,” Ihloff says, but that hasn’t been the case. In fact, the opportunity to qualify for employer-subsidized health insurance has been a great motivator. Several employees have increased their work weeks and now see more clients than before, which is boosting the salon’s top line. Only a couple of customers have said anything about the slight uptick in prices. When they have, Ihloff says, “I am happy to say that we’re providing healthcare for our employees.”
Now that the employer mandate has been delayed for a year, does Ihloff regret acting too soon? “We are going forward either way,” she says. “I am so happy to have a system in place that funds healthcare for our team. It is something I have always known we--and our entire industry--needed to do but just didn't think we could afford. It has genuinely changed the energy in our company and I believe will provide us with a competitive advantage.”