Paying Penalty More Attractive for Small Businesses Than Providing Obamacare

Mandated coverage is much more expensive than the fine

Small-business owners across the U.S. are bracing for the health-care law that kicks in next year, fearing it will increase the cost of providing insurance to employees.

But Rick Levi, a business owner in Des Moines, Iowa, is among those considering the government's escape hatch: paying a penalty to avoid the law's "employer mandate."

Under the Affordable Care Act, employers with 50 or more full-time workers will be required to provide coverage for employees who work an average of 30 or more hours a week in a given month. An alternative to that mandate is for business owners to pay a $2,000 penalty for each full-time worker over a 30-employee threshold.

Mr. Levi currently spends about $140,000 a year on insurance premiums to cover 25 managerial staff at his business, Consolidated Management, which runs cafeterias at schools, offices and jails.

Under the new law, he will have to offer insurance to all of his 102 full-time employees starting in January. Assuming all of them take the coverage, Mr. Levi says the cost of premiums could exceed $500,000.