Gather together small business owners from diverse industries and it won't take long for them to determine they share a common malady: the rising cost of health insurance. Businesses face a myriad of challenges when it comes to health care costs, including increasing insurance costs, ever-changing regulations, and a wealth of insurance programs and policies to choose from. Add to that, the increased health care costs attributed to the aging baby boomer population, and it’s no wonder that business executives and owners are shaking their heads in dismay. And with the upcoming changes in the nation’s health care laws, namely through the Affordable Care Act (also known as Obamacare), business owners and operators are trying to understand what the future holds for their health insurance initiatives.
On the Edge
Here’s one thing we know: Employers play an important role in engaging employees in healthy lifestyles, and research shows that employers who invest in the health of their workforce see a return on that investment. As healthy employees can dramatically affect a company’s bottom-line, more and more business owners are paying close attention to the recent changes in health care laws facing our nation. So what will the upcoming changes within the Affordable Care Act (ACA) really mean for petroleum business owners and their employees?
At its core, the Affordable Care Act says that, beginning in January of 2014, companies that have 50 or more full-time equivalent employees must provide adequate health coverage to employees at an affordable cost. What’s more, insurance plans that have not been grandfathered in must meet new provisions to provide certain preventive services without a co-pay or deductible, must cover dependent children until the age of 26, and must remove annual and lifetime limits from coverage.
As Jeffrey Ingalls, president of The Stratford Financial Group located in Wayne, NJ and author of Healthcare Reform Made Easy, explains, those employers with at least 50 employees on an average of business days in 2013 will be deemed a large employer and will be subject to the employer mandate and its relative penalties of $2,000 per employee (minus the first 30 employees) for not providing coverage or $3,000 per employee who purchase subsidized coverage.
“The main concern for these employers will be obtaining a safe harbor for affordability and maintaining the minimum essential coverage at the minimum value,” Ingalls says. “These attributes will, in essence, immunize their company from ACA’s penalties found in the employer mandate.”
Ingalls explains that smaller employers, depending upon their state, also will have the landscape of their coverage changed. “Coverage will be guaranteed issue, guaranteed renewable and will be priced based upon a 3:1 ratio for age and 1.5:1 ratio for tobacco use—gender will not be a pricing variance,” Ingalls says. “Coverage will also include the minimum essential benefits without monetary annual or lifetime maximums and any coverage restriction being governed by the state selected benchmark plan. This could equate to substantial differences in the level of coverage offered, the way it is priced and the manner in which it is delivered.”
According to Jack Edward Urquhart, partner, Beirne, Maynard & Parsons, L.L.P. in Houston, fairly viewed, the ACA is an experiment of immense scope and importance. “Its primary outcomes are either theoretical or completely unknown,” Urquhart says. “A few things are certain: The ACA will increase the number of Americans who have access to health care and it will increase the federal government’s investment in and control over this health care.”
Beyond that little is certain. Urquhart says the most significant uncertainties are Obamacare’s fiscal and political sustainability. “This turns on the answer to two questions. Will the ACA improve the overall quality of American health care? Will the ACA significantly reduce the rate at which health care costs are increasing in this country?” Urquhart says. “If it achieves these goals, the ACA will be heralded as successful social legislation. But the ACA must produce demonstrable progress in meeting both of these goals within a very narrow timeframe—perhaps as few as four years—or it will fail at least in its present form.”
[SUBHEAD] At Its Core
Obamacare states that large employers—those with 50 or more fulltime or full time equivalent employees—must provide “affordable health insurance coverage” for their employees.
“This requirement is met if the large employer provides coverage for all full-time employees; that pays for at least 60 percent of total covered health care costs; and no employee must pay more than 9.5 percent of family income to purchase the coverage,” Urquhart says. “Large employers that do not meet this requirement are liable for penalties.”
Furthermore, if a large employer does provide coverage, but the coverage does not pay at least 60 percent of the total covered health care costs, employees can purchase coverage in an ACA created health insurance exchange and receive a premium tax credit. “If a single full-time employee does this, the employer is liable for penalties of $3,000 annually for each employee who does the same,” Urquhart says. “The penalties increase yearly by the growth in premiums. This penalty is capped at the penalty amount for large employers who provide no health insurance coverage at all.”
Also, if a large employer provides coverage, but any employee will have to pay more than 9.5 percent of family income to purchase the employer coverage, all such employees can choose to purchase health insurance from an ACA exchange and receive a tax credit for so doing. “If any large company employee does so, the employer is liable for penalties in the same amount as employers who provide inadequate coverage,” Urquhart says.
Dr. Keith Kantor, author of What Matters: Leadership Values That Just Might Save America, led a commission for the House of Representatives that proposed recommendations on health care that were approved by the House, but stalled in the Senate. Kantor says the change emerging from Obamacare will be drastic and all encompassing.
“First, we have to realize that Obamacare does not change our health care system; it only changes the insurance aspect and mandates that everyone have insurance. The problem is our health care system is broken,” Kantor says. “We actually do not really have a health care system; we have a disease and accident management system. This system is overburdened and costing the country a fortune ($2 trillion-plus per year). We currently have a shortage of doctors and are not producing enough new ones based on our aging population and population growth. Now, add the fact that Obamacare will take $716 billion from Medicare directly from the fees doctors and hospitals receive and the problem is exasperated.”
[SUBHEAD] Large Versus Small Employers
For purposes of determining whether a particular company is a “large employer,” as described by ACA, Urguhart says a full-time employee is a person who averages 30 or more hours a week. And an “equivalent full time employee” is determined totaling the monthly hours of all part time employees and dividing by 120.
For purposes of calculating the penalties discussed above, part-time employees are not included in the employee count.
“So, part-time employees are included in calculating the size of the employer, but penalties for unqualified employer coverage are not accessed for part-time employees,” Urquhart says.
Small employers (those with fewer than 25 full-time equivalent employees) should investigate the availability of the small employer tax credit for providing health insurance coverage to their employees. Between now and 2014, small employers need to begin the process of evaluating whether or not to continue providing health insurance coverage to their employees, once those employees become eligible to purchase coverage in the exchanges in 2014.
While there are a number of new provisions that apply to health plans—for example, requiring coverage of dependents up to age 26, elimination of life time and annual limits, etc.—most small employers provide health coverage to their employees through the purchase of insurance. Insurance carriers have already been required—or some cases, will be required—to add these provisions to their group insurance policies. Therefore, these are not things that should directly concern small employers. Because many of these new requirements increase the cost of coverage, small employers have seen and should expect to see increases in insurance premiums. Small employers who have ‘grandfathered’ health insurance policies also need to continue to be cognizant of the effect that changes in benefit structures or cost-sharing requirements with employees could have on their insurance policy's grandfathered status.
As mentioned above, a number of the changes to group insurance policies required by the Affordable Care Act will have increased and/or will continue to increase the cost of coverage. For example, in 2014, pre-existing condition exclusions will be prohibited, which can be expected to further increase the cost of coverage.
Kantor says Obamacare becomes a monetary issue for companies. “Companies will have to decide which is more expensive, providing insurance to every employee and pay at least 60 percent of the premiums, or paying the $2,000 penalty. In most small businesses I spoke with that have over 50 employees, most appear likely to drop the insurance and pay the penalty. This can change if insurance rates go down significantly, but so far, rates have just gone up and appear likely to continue that trend. Another thing employers will concentrate on to help offset the costs is getting as many employees to part-time status as possible before the January 1, 2014 date.”
However, Ingalls points out that employers need to remember that employer contributions are tax-deductible and tax penalties are not. “A $2,000 contribution and a $2,000 penalty have very different financial implications,” Ingalls says. “Employees can also not enroll in individual Exchange coverage just when they become ill or need coverage. They will have to abide by similar open enrollment and special enrollment periods similar to those currently in place for Medicare beneficiaries.”
The ACA expands Medicaid eligibility to all American citizens at or below 138 percent of the federal poverty level. The July 2012 United State Supreme Court decision that upheld the ACA ruled that states could not be compelled to participate in the ACA Medicaid expansion.
As Urquhart explains, unlike Medicare, Medicaid is not funded by the federal government alone. States must share in the cost of Medicaid.
Each state had until December 14, 2012 to advise the federal government if they intended to establish and run their state-based health insurance exchange. If a state indicated that it was unwilling or unable to establish a state-based health insurance exchange in their state, the federal government will step in, establish and run the exchange. “However, the ACA provides that 100 percent of the ACA Medicaid expansion program will be funded by the federal government from 2014-2017. After 2017, the states begin to contribute, but their participation reaches a cap of 10 percent in 2020,” Urquhart says. “Most states have not formally decided whether or not to participate. Many states hoped that the administration would permit ‘partial expansion,’ meaning increasing eligibility to something less than the 138 percent level provided by the ACA. However, in December 2012, the Department of Health and Human Services squelched that notion by announcing that states must fully participate in the expansion or forfeit their portion of federal funds that would have paid for the expansion. The ACA Medicaid expansion kicks in 2014. A state deciding not to participate will forfeit millions of dollars in federal funds.”
Currently, 18 states and the District of Columbia are generally assumed as opting for participation in Medicaid expansion and seven states have committed to a state/federal partnership to establish and run the exchanges in their states. The governments of each state will make the formal determination about participation.
The ACA also provides states with the option of setting up their own insurance exchanges to provide health care insurance for those who do not qualify for Medicare or Medicaid and are not covered by an appropriate employers plan.
“Specifically state-based health insurance exchanges are to be established in each state,” explains Tanya Reed, a labor and employment attorney at Gunster in West Palm Beach, Fla. “A health insurance exchange is an online marketplace where people can shop for private health insurance and secure federal subsidies to assist with the cost of the insurance.”
“For states presenting the federal government with a qualifying exchange, those states would have latitude in the structure of the exchange and its operation,” Urquhart says. “The federal government will establish and operate health insurance exchanges in those states that do not present the federal government with a qualifying exchange of their own.”
Reed says that in 2013, the federal government and its agencies will continue to issue regulations that interpret and implement the ACA. “Employers, insurers and the states will have to carefully watch the regulations to ensure that they are prepared to be in compliance with the fully-enacted law in January 2014,” Reed says.
Insurance agents and legal counsel are generally good resources for questions employers may have about the Affordable Care Act. In addition, the federal government maintains a website (www.healthcare.gov/law/index.html) that provides a number of consumer-oriented and employer-oriented resources regarding the Affordable Care Act.