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Small business fears of Obamacare may be overblown

Jewel Samad | AFP | Getty Images

With millions of uninsured Americans soon eligible for employer-sponsored health coverage, many small business owners fear the new law will crush their profits and make it too costly to hire new workers.

Jim Houser, owner of Hawthorne Auto Clinic in Portland, Ore., isn't one of them.

"The biggest factor in hiring is consumer demand," he said. "We recently expanded (our staff) in part because now we know what to expect with our health-care premiums."

Complying with the law's extensive red tape and forms—another major headache cited by small business owners—also hasn't proven onerous, said Houser, an ardent supporter of the law who has testified before Congress in support of it.

"You can turn it all over to your insurance agent or your broker—just like my accountant handles my taxes every year," he said "They're the ones that who are going to have to do it."

Houser, who has been offering his employees health insurance since he and his wife opened their auto repair business 30 years ago, said the new law isn't hurting his bottom line either. In fact, after nearly doubling from 2001 to 2009, his health insurance premiums began falling two years ago. And last year he got a tax credit for $12,900 to help defray those costs.

More than three years after the Affordable Care Act was enacted, employers on Tuesday face the first key deadline under the new law, when they're required to notify employees what kind of coverage, if any, they plan to offer. Companies then have until 2015 to implement those plans or face penalties if they don't offer affordable coverage to all full-time workers. That coverage mandate was supposed to take effect Jan. 1, but the administration delayed it in response to employer complaints.

(Read more: Obamacare: CNBC Explains)

When the law was passed, many small business owners initially feared it spelled financial ruin, said Gary Levy, head of the hospitality industry practice at CohnReznick, an accounting firm.

"When it first came out, everyone said, 'Oh my God it's going to kill our cash flow; it's not going work,'" he said. "The knee jerk was this is very bad thing for our business."

But after taking a closer look, many businesses have found their initial fears were overblown, said Levy, who has been advising clients on how to minimize the impact. For most, the new law "doesn't have to be painful," he said.

For starters, very small businesses—those with fewer than 50 full time workers—are exempt. That means some 96 percent of all U.S. businesses are off the hook.

Those with 50 or more full timers are required to offer insurance, but they're allow to pass along all or part of the cost of the premium—up to 9.5 percent of a covered worker's household income—to their employees. Lower income workers may also qualify for tax credits or subsidies to help offset the cost.

Many employers will also find their financial burden diminished by workers who don't sign up for coverage. Some employees may already be covered by Medicare or Medicaid. Others may balk at paying their share of the premiums.

Employees who decline coverage that costs less than 8 percent of their household income will have pay a penalty of as little as $95, for example. That may seem like a better option than paying several thousand dollars a year in premiums, said Levy.

"The 30-year-old guy who feels he doesn't really need health care is probably going to pay the $95," he said.

That math changes next year, when penalties rise to $325 (or 2 percent of income, whichever is greater) and $695 (or 2.5 percent of income) in 2016.

Business owners who are new to the health insurance market are also fearful of unpredictable, rising insurance premiums. No one knows how fast insurance premiums will rise. But there are recent signs that rapid increases in health-care costs have slowed dramatically—whether or not because of the new law.

"We're actually having some success at controlling health-care costs over the last several years," said Josh Gordon, policy director at the Concord Coalition, a budget watchdog group. "All of that is happening underneath the surface of the policy debate overObamacare."

Some opponents of the law speculate that employers who are close to the 50-worker threshold may hold back on hiring—or even lay off workers, if they're just over the limit—to duck the coverage requirement. But companies with payrolls of between 40 and 75 employees account for just 3 percent of all U.S. businesses and about 5 percent of the labor force, according to the latest Census data.

To be sure, some of the roughly 200,000 small businesses affected by the law are going to feel a serious profit squeeze. Those include restaurants, which typically operate on thin profit margins that can vary widely throughout the year. Many have a little or no cash cushion to fall back on during slow times of year.

(Read more: Americans blame Obamacare already for higher costs)

"I agree with the concept of the law, but I'm a small business that struggles with so many other costs and regulations—especially in New York City," said Michael Glick, owner of Parlor Steakhouse in Manhattan's Upper East Side. "This is a killer for the profits in the restaurant industry, and I do believe it's a jobs killer."

Employers with lower-income workers will have a harder time passing along coverage costs because the law caps a worker's contribution at 9.5 percent of household income. If the employee is asked to pay more, and gets a better deal on one of the new insurance exchange, the employer is on the hook for a penalty.

And there's no doubt the rules make it difficult—if not impossible—for businesses to anticipate their final cost until they know how many workers are going to accept or decline coverage. For example, the process of estimating the impact of a household income cap on a given worker's contribution gets complicated when the employee has a working spouse or another source of income.

(Read more: What's in a name? Lots when it comes to Obamacare/ACA)

That's one reason all companies are required to notify workers of their coverage plans by Tuesday and begin figuring out who wants to opt in or out of coverage.

Restaurants and other seasonal businesses whose workers put in variable hours could also face staffing headaches as employees fall above or below the 30-hour a week definition of "full time." That could prompt some businesses to try to cap hours—or even split fulltime jobs into part-time positions—to get around the law.

But for most businesses, those strategies are likely more trouble than they're worth, said Levy.

"Some people do some pretty crazy things to try to avoid (the law)," he said.

By CNBC's John W. Schoen. Follow him on Twitter @johnwschoen.

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