By Bill Price
An important question facing businesses today is uncertainty about how the new Affordable Care Act, better known as Obamacare, affects them as employers. The employer ponders some big questions: Will it apply to my company? Will the changes make it too expensive to insure my employees? Obviously the most important human resource issue facing employers and workers in 2014 is the effect of Obamacare. It’s important because the rules are complicated, because health insurance is usually the most costly benefit offered by employers, and certainly because it is in the media a lot. There are plusses and minuses to the bill and yes it is going to cost most people a little more—such is life. Our purpose here is not to debate whether ACA is good or bad. That’s a question that can be examined in some other forum.
Up until 2013, there were four required employee benefits required by the government. Those benefits were social security, unemployment insurance, FMLA leave, and in some states workers’ compensation (optional in Texas but required in Oklahoma, Louisiana, North Dakota, and New Mexico). Now there is a new federal government requirement for employers to offer health insurance. Actually most employers have offered health insurance for years—particularly energy companies in the Permian Basin. What has changed is that the cost of insurance has greatly increased, which results in greater employee and/or employer cost. Also, because medical care has become so expensive, the burden on health care facilities for uninsured patients has become unbearable. Much of the introduction of the Affordable Care Act (ACA) is driven by these two issues.
When someone without health coverage gets urgent and expensive medical care but doesn’t pay the bill, everyone else ends up paying the price. That’s why the health care law requires all people who can afford it to take responsibility for their own health insurance by getting coverage or paying a fee. People without health coverage who pay the penalty will also have to pay the entire cost of all their medical care. They won’t be protected from the kind of very high medical bills that can sometimes lead to bankruptcy. As noted in the chart below, most Americans obtain their insurance coverage from their employer.
Many of the ACA reforms have already been implemented by businesses and insurance companies. The most significant reforms that become mandatory and take effect on January 1, 2014, include:
Guaranteed issue prohibits insurers from denying coverage to individuals due to pre-existing conditions and generally requires insurers to offer the same premium price to all applicants.
Minimum standards for adequate health insurance policies are established.
Individual mandate requires all individuals not covered by an employer sponsored health plan or public insurance programs to obtain an insurance policy or pay a penalty. Does not apply if they have certain other coverage or have a financial hardship.
Health insurance exchanges serve as an online marketplace where individuals and small businesses can buy insurance (with a government subsidy if eligible).
Low-income individuals and families receive federal subsidies if they purchase insurance via an exchange.
Medicaid eligibility is expanded to include individuals and families with incomes up to 133 percent of the federal poverty level.
Reforms to the Medicare payment system promote greater efficiency in reimbursements from fee-for-service to bundled payments. A single payment is paid to a hospital or physician for care rather than individual payments.
Another key provision is the employer mandate that businesses employing 50 or more but do not offer health insurance will pay a tax penalty if the government has subsidized a full-time employee’s healthcare. This has been delayed until January 2015.
The reality is that most large companies are minimally affected by the employer mandate, as more than 90 percent of companies with 50 or more employees already offer health coverage. Overall healthcare insurance rates are clearly rising, but it is not clear what part of the increase is the result of ACA implementation.
Employers and employees will feel the pain of the new Obamacare mandates, as businesses of all sizes cut the number of full-time employees and cut the hours of part-time help to avoid the costly premiums Obamacare will impose on all Employer Sponsored Insurance plans for businesses with 50 or more employees. While President Obama’s administration agreed to delay the employer mandate until 2015, many companies are moving now to avoid facing punitive actions from the government later. A common practice is for part-time workers to be either offered group plans that the employee pays for or the employer offers lower grade insurance. However, such plans will become illegal next year under the Affordable Care Act, so some companies may decide to lay off these employees now or consolidate them into fewer full-time positions. Also, many companies discovered they can simply pay the $2,000 fine they would be penalized for each employee they fail to cover, as opposed to paying the expected $10,000 to cover each individual and $30,000 per employee family for coverage by 2018. If they provide employees with no health care coverage, they simply pay the government $2,000 for each employee.
Everyone must have some type of insurance. Employers must offer employee health insurance under the Affordable Care Act if you have more than 50 employees. If you are a self-employed company (consisting of yourself), you are not considered an employer and must use the marketplace if you have no other coverage. Private health insurers must offer standardized health insurance packages in a highly regulated marketplace.
Generally, employers who offered health care paid $7,225 per enrolled employee in 2012 on average, according to a study by ADP strategic advisory services, which examined data on 300 businesses with 1,000 employees or more. You can expect this cost to go up, partly because of greater required minimum coverage and partly because more of your employees must be covered for full insurance. Health insurance must comply with additional benefit mandates known as the Essential Health Benefits package (such as maternity, pediatric, and mental health).
According to ADP, only 37 percent of workers making between $15,000 and $20,000 annually participate in employer plans, compared to 81 percent of employees earning more than $45,000 annually. If your business has more than 50 employees, your health plan must cost no more than 9.5 percent of the disposable income for single self-insured employees, or you’ll pay a penalty of $3,000 per worker buying coverage from an exchange. Admittedly, it is a puzzle as to how this is verified but I wouldn’t want to test it.
Across ADP’s entire study population, only 8.6 percent of single full-time employees paid the minimum 9.5 percent or more of earnings for coverage. And only 1 percent purchased self-only coverage. The remaining 7.6 percent purchased coverage for dependents as well.
From an employer’s point of view, one must determine how to comply with the act and decide on a strategy for implementation. Specifically, this strategy should determine which employees are covered, what type of insurance to offer, how to avoid penalties, what reporting and recording is required, how to modify the budget, and what to tell your employees.
Small Business Effect
According to Inc. Magazine, the 96 percent of U.S businesses having fewer than 50 employees do not have to offer health insurance to employees. These small businesses account for about half of all employment in the United States. While there was a slight decline in the rate of hiring, this does not indicate a massive layoff trend as is commonly suggested in the media. In other words, small business hiring is continuing to increase but at a slightly decreased rate. It is also reckless to say that insurance cost is the only reason for a slowdown. But yes, it is probably a contributing reason.
Small business optimism has dipped since ‘08, as the chart shows.
It is probably safe to say that small companies with about 49 employees will think twice before crossing the 50-employee threshold. Then again the tail does not wag the dog—in other words, if the business’s potential increase in sales warrants an increase well beyond 50 employees, I am certain the business needs will prevail.
For 2014, the small business health option program or SHOP Marketplace is open to employers with 50 or fewer FTEs (goes to 100 or fewer in 2015). The advantages of using SHOP include:
For a small company, confirming whether or not it will meet the threshold to be subject to the mandate in 2015, particularly if the organization could be considered under common control with other entities that share some common ownership.
You control the coverage you offer and how much you pay toward employee premiums.
You can compare health plans online on an apples-to-apples basis, which helps you make a decision that’s right for your business.
You may qualify for a small business health care tax credit worth up to 50 percent of your premium costs. You can still deduct from your taxes the rest of your premium costs not covered by the tax credit. Beginning 2014, the tax credit is available only for plans purchased through SHOP. If you have fewer than 25 full-time employees making an average of about $50,000 a year or less, you may qualify for a small business health care tax credit. My understanding is that this is a temporary benefit to the employer beginning in January 2014 and will disappear after a couple of years.
The tax credit is worth up to 50 percent of your contribution toward employee premium costs. This will make the cost of providing health coverage lower.
The small business health care tax credit is available only if you get insurance coverage through SHOP.
You should inform employees that if they are eligible for job-based insurance, they can consider switching to a Marketplace plan. But they won’t qualify for lower costs based on their income unless the job-based insurance is unaffordable or doesn’t meet minimum requirements. They also may lose any contribution you make toward premiums. Most are considered covered if they have Medicare, Medicaid, CHIP, any job-based plan, any plan you bought separately, COBRA, retiree coverage, TRICARE, or VA health coverage. If they are on Medicare they are covered and don’t have to make any changes.
Last September, the Internal Revenue Service issued two proposed rules intended to streamline the information-reporting requirements for employers under the Act. In a 2013 survey of SHRM human resource professionals, 20 percent indicated they were not having any trouble understanding the details of the law, which is reassuring.
The shared-responsibility mandate, which was set to take effect in January 2014, has been delayed until January 2015. The ACA requires information reporting under Internal Revenue Code Section 6055 by self-insuring employers and other health coverage providers. And under IRC Section 6056, information reporting is required of employers subject to the employer mandate—meaning those with 50 or more full-time equivalent workers—who must provide coverage for employees working an average of at least 130 hours per month (30 or more hours per week) by looking back at a standard measurement period of not less than three but not more than 12 consecutive months—or pay a $2,000 penalty for each full-time worker above a 30-employee threshold.
If a small business (less than 50 employees) does offer coverage, management must distribute Summary of Benefits and Coverage documents.
Take some time considering whether and how your use of seasonal employees, exclusive contractors, and agency temporaries could affect compliance with the mandate and develop strategies to address those issues.
The ACA has created a need for outsourcing to professional employer organizations (PEO). The sheer volume and complexity of the documentation associated with the Act will keep benefit administration firms, health insurance specialists, and a host of other employer support organizations in business for years to come. This burden of paperwork may not be particularly onerous for large corporations with a dedicated HRM staff, but it can be overwhelming for small and mid-sized companies.
Workers who are not offered company paid health insurance and earn up to 400 percent of the federal poverty level ($45,960 in 2013) may have access to assistance to defray insurance costs in the form of tax credits and cost-sharing subsidies. The amount that an individual will contribute toward health insurance costs will be capped at a percentage of their income. There are about five levels of insurance coverage and matching cost levels.
An excise tax on high-cost health plans, often called a “Cadillac tax,” targets the most generous level of health benefits. These high-end health plans have very low deductibles and little cost sharing for employees. A 40 percent excise tax will be assessed on the cost of coverage for health plans that exceed a certain annual limit ($10,200 for individual coverage). This is down the road a bit and is not expected to go into effect until 2018. These high-cost plans often cover key executives that may be older workers or people in high-risk jobs such as oil field operations, law enforcement, firefighting, or construction. Some of these plans may be protected from any disproportionate impact of the excise tax.
Another tax is the health insurance provider fee of about 2 to 3 percent but it is not paid by employers and does not apply to self-insured companies.
I began the article with the statement that the most important human resource issue in 2014 is the Affordable Care Act. Keep this in perspective as most surveys do not, in fact, show that this issue of healthcare for employees is the most important issue that employers face. They are more concerned about sales growth, industry growth, and government red tape in general. Then again, it would be fair to say that the ACA Act is the most important government action they face in the coming years.
Expect a different variety of insurance packages to be provided by your insurance carrier in order to comply with ACA. High cost plans will probably change. New decisions will be made on whether an employee should be full time or part-time. Companies will re-assess whether they should offer health insurance at all. However, I suspect that since most energy businesses currently offer health insurance now to be competitive, this will continue. Offering great benefits, including a good health care plan, is one way of attracting better employees in the tight Permian Basin job market.
The entire Affordable Care Act is 980 pages long, so it is impossible to provide adequate summary of the act in this short column. Hopefully I have offered some key provisions for employers and suggested other areas for deeper consideration. You should make sure someone in your firm has their arms around this important benefit change and is working with the right people to comply with these provisions. For a more detailed summary, I recommend an excellent PowerPoint slide show (38 slides) created by the accounting firm Ernst & Young for human resource personnel about employer responsibilities. It is located at: http://www.franchise.org/uploadedFiles/Employer_ACA_Reference_Deck-10.02.2012.pdf
Dr. Bill Price is the Associate Dean and a Professor of Management at The University of Texas of the Permian Basin. He has previously held several positions in human resource management and other leadership roles. He has taught various courses in human resources and has published a number of articles in the areas of human resource management and strategy. He can be reached at firstname.lastname@example.org.