Last month the Enterprise covered some of the challenges associated with Obamacare and ways that companies can use different loopholes in the law, such as self-insurance to navigate the requirements. This second half of the coverage focuses on the exchanges, tax credits, wellness programs, expanded coverage and other benefits of the Affordable Care Act (ACA).
Like any law, the ACA, commonly called Obamacare, has both winners and losers. And in some cases, those distinctions are moving targets.
SHOP and Save
The ACA provides employers with several resources and advantages. One is the dedicated Internet-based insurance marketplace called The Small Business Health Options Program, or SHOP. It’s available to employers with 50 or fewer full time workers. (To access SHOP, go to healthcare.gov and click on “Small Businesses.”)
“For smaller employers, SHOP is a great resource,” said Kaya Bromley, an Incline Village, Nevada based attorney who counsels employers nationally on the ACA (yourobamacareadvisors.com). “SHOP allows them to get the pricing that only larger employers enjoyed before.”
The SHOP exchanges were originally scheduled to open in late 2013 but were delayed until late 2014 while energies were devoted to fixing the public exchanges for individuals. In many states employers were required to fill out paper applications. The inelegant process led to dismal results: California, for example, signed up 1.4 million people through its public exchange but only 11,500 employees and dependents through its SHOP exchange.
“SHOP certainly has been slow growing,” stated Steven Eastaugh, a Washington, D.C. based health economist and consultant. “The program is barely working in 15 states. Perhaps it will get up and running in 10 more sometime in 2015.”
Even in the 15 states where SHOP is working, it is not picking up much market share. “In those states there is an average of one employee signed up through a SHOP program for every 100 people signed up on the state exchanges,” said Eastaugh.
One reason SHOP has been slow to catch on is because word has not yet gotten around. “Many employers still do not know anything about SHOP,” added Bromley. “Also, they are accustomed to working with brokers, and those brokers will lose their commissions if they encourage employers to go to the exchanges.”
Another problem with the nascent SHOP program is the lack of economies of scale. The small businesses who patronize SHOP do not have enough employees to attract competitive pricing from insurance carriers. Whether that problem will be mitigated in the future as the SHOP participation grows, remains to be seen.
Tax Credits Offer Some Incentives to Small Businesses
Some small employers enjoy another ACA benefit: the tax credit program intended to assist organizations that offer their workers health insurance. These credits are available for employers with fewer than 25 employees and average wages of less than $50,000 a year. The credits are worth up to 50% of employer contributions to employees’ premium costs, and the program is good for two consecutive years. Employers desiring to take advantage of the tax credits must offer coverage through the SHOP marketplace.
Despite the allure of tax credits, employers have not taken advantage of them as much as anticipated. “Again, I think this is due to the learning curve,” commented Bromley. “Employers are confused about how to calculate the tax credit. They do not see a penalty for not providing insurance so it’s hard for them to look further down the road.”
And perhaps the program’s benefits need to be adjusted. “My feeling is that the tax credits were not of sufficient size, and the fact that they expire in two years doesn’t help,” explained Eastaugh. “Maybe the carrot needs to be made bigger: Perhaps the tax credits should be 80% and they should go on for five years.” He added that a more generous tax credit policy might also allow employers to offer plans with lower deductibles. For information on the tax credits, go to healthcare.gov and click on “Small Businesses,” and then on “For Employers.” Then scroll to the bottom of the window.
Private Exchanges
While the SHOP exchanges and its attendant tax credits are potentially valuable resources for smaller employers, businesses large and small can take advantage of an unexpected offshoot of the ACA: Private health insurance exchanges. These are set up by private sector companies such as insurers, brokers or consultants.
Like their SHOP counterparts, the private exchanges offer a variety of plans to employers and opportunities to reduce administrative overhead. Basic human resource functions (such as tracking which employees are signed up with which policies) are done automatically by the organization running the private exchange.
But there are also differences. Private exchanges offer more choice and plan customization than SHOP. They also provide the opportunity for employers to contribute toward premiums in the form of a fixed amount rather than a percentage. That can help reduce costs as premiums rise.
“Private exchanges are growing like wildfire,” suggested Larry Boress, president and CEO of the Midwest Business Group on Health, a Chicago-based consortium of over 120 employers (mbgh.org). “Our surveys show that 40% of our member employers plan to look at private exchanges as possible sources for health insurance.”
More information about private health exchanges can be found through an organization called The Private Exchange Evaluation Collaborative at www.THEPEEC.com.
Public Exchanges
Due to changes made by ACA, employers now can take advantage of a third type of exchange: the state public exchanges. Smaller employers who decide health insurance is too expensive to provide as a benefit might decide to send their employees to these marketplaces to shop for coverage.
But which employers can send their workers to the public exchanges without incurring fines? This is a good point to cover one of the more confusing parts of the ACA legislation: the employer mandate. This term refers to the requirement that employers of a certain size must either offer health insurance to their workers or pay financial penalties.
The threshold for the employer mandate is defined by the number of full time equivalent employees (FTEs) at the business. As of January 1, 2015, businesses with 100 or more FTEs must provide health benefits to at least 70% of their full-time employees (95% by 2016) or pay a $2,000 annual penalty for each employee, excluding the first 30.
The deadline is later (January 1, 2016) for businesses with 51 to 99 FTEs. Employers with 50 or fewer FTEs are not required to offer any coverage at all. These are the employers who are most likely to either utilize the SHOP exchange described earlier in this article, or send their workers to the public exchanges, since doing so will not result in an ACA fine. (One final thing about FTEs: Only organizations with fewer than 25 of them can take advantage of the tax credit discussed earlier in this article).
Unfortunately, calculating the FTE number for an employer is easier said than done. “The employer mandate has been the hardest part of the law for businesses to understand,” said Adam Solander, an associate at the law firm of Epstein Becker Green, Washington, D.C. (ebglaw.com).
Solander added. “Determining who is a full time employee, for example, by reviewing the hours they have worked has been a challenge.” For help in calculating your own FTE, go to healthcare.gov/shop-calculators-fte. You may also want to consult with your accountant.
Solander cautioned against instituting a program that gives employees after-tax payments that they are told to use to purchase insurance on the open market, including the state individual exchanges. Such arrangements, sometimes called Employer Payment Plans, or Premium Reimbursement Arrangements, are deemed group health plans and are considered insufficient to satisfy the ACA’s minimum requirements for coverage. Because they violate the ACA they can trigger fines of $100 per day (or $36,000 per year) per employee.
Note that even businesses which have 50 or fewer FTEs, and which are therefore not subject to the employer mandate, should not engage in this kind of reimbursement program. Doing so may subject them to fines, because any health insurance program offered by any employer must satisfy ACA minimum requirements.
An alternative and legitimate arrangement is to increase the salary of employees with the idea that they can—but are not required—to use their additional income to buy their own insurance. Such an increase, though, would be subject to payroll taxes. (Additionally, businesses with 100 or more FTEs, and for that reason are subject to the employer mandate, would incur penalties because the increased salary on its own does not constitute health insurance coverage).
Prime Benefit
If the costs and complexities of an employer-provided health insurance program seem more than the benefit is worth, opting out is a possibility. “Some employers are attempting to stay below the 50 FTE threshold so they are not mandated to offer coverage,” commented Julie Stich, director of research at the IFEBP (ifebp.org). IFEBP recently conducted a survey of U.S. workers.
In the IFEBP survey, one in 10 respondents said they had reduced hiring to stay below the threshold. Still others said they were reducing work hours so more employees fall into the part time worker category for which health insurance need not be offered.
Despite those reports, the fact remains that most employers seem determined to continue offering what they deem a benefit which is valued by employees and thus vital to business success. In the IFEBP survey, some 93% of employers with 50 or fewer workers stated they “will likely” (or “definitely will”) continue to offer coverage. They cited three key reasons: “to retain current employees, to attract future talent, and to maintain or increase employee satisfaction and loyalty.” In contrast, fewer than 1% of survey respondents stated that they will definitely discontinue health insurance coverage.
“None of our employer members is planning to drop health insurance coverage,” explained, Boress of the Midwest Business Group on Health. “They all feel it is necessary to recruit and retain talent. When you compete for talent you will miss out if you don’t offer insurance equivalent to that of other employers. And you will not be able to keep the people you have.”
A good benefits program also enhances profitability by keeping people productive, added Boress. The impact is especially acute at smaller businesses. “If you have a business with six people and the delivery person comes down sick you do not make the money you would otherwise. Any break in your systems interferes with the bottom line.”
For all these reasons, the annual search for affordable quality health insurance is not likely to end any time soon. Pallet companies need to have an answer so that they can provide the best program to maximize employee value and minimize any tax or penalties associated with the ACA.
Keeping Employees Well
Under the Affordable Care Act (ACA), employer-sponsored health insurance plans may reward employees who participate in wellness programs with premium reductions of up to 30%. Such programs benefit employers in the form of healthier workers, and employees in the form of lower premiums.
“I think one of the best parts of the ACA is its wellness initiative,” stated Adam Solander, an associate at the law firm of Epstein Becker Green, Washington, D.C. (ebglaw.com). “Wellness programs help keep minor conditions, such as high blood pressure, from escalating into expensive problems.”
As valuable as wellness programs are, said Solander, the ACA’s mandate that all insurance policies include prevention benefits such as regular physicals with no cost sharing. “Again, people will be able to deal with minor health issues before they become worse. Employers are starting to see that this can save a lot of money.”
