The Patient Protection and Affordable Care Act (PPACA) comes at a time of rising health insurance costs for small business owners. Will the federal insurance mandate, which will become effective over the next year, help put a cap on rates? The law, also known as “Obamacare,” offers some benefits aimed directly at smaller businesses, but it also poses some burdens and uncertainties that smaller companies will feel strongly. Many pallet and lumber companies have expressed concern over health care insurance coverage mandates as well as taxes and fees.
Key Positives
Some contend the PPACA will offer significant benefits to small businesses. These include competitive state wide insurance exchanges, premium reform and tax credits.
Competitive exchanges: Competition is good. That’s the theory behind the new state wide health insurance exchanges, designed to allow small businesses to shop for plans from competing carriers. These exchanges are scheduled to open for employers with 50 or fewer employees in 2014.
“To understand how the exchanges will work, imagine navigating to a travel website that aggregates airfares,” said Karl Ahlrichs, benefits consultant for Indianapolis-based insurance broker Gregory & Appel. “You type in your parameters and the site sorts your options and you pick what you want. That’s what employees will be doing with the exchange sites.”
Under the best of conditions the new exchanges could also help trim the human resources overhead, by providing administrative services. “Businesses that send employees to the health insurance exchanges will be getting out of the health insurance management business,” said Ahlrichs.
Premium reform: Small businesses have long been the targets of prohibitive premium hikes when one employee is hit with a costly illness. The new law levels the playing field. “Starting in 2014 insurance carriers will not be able to set premiums based on health status, sex or claim history,” said Julie Stich, director of research at the International Foundation of Employee Benefit Plans, a research organization based in Brookfield, Wisc. “That will help small group plans where one catastrophic claim can cause health costs to go up.”
Penalty exemption: If you have fewer than 50 full-time equivalent (FTE) employees you will be exempted from penalties for not providing health insurance (See Sidebar page 26: Calculating FTE Employees). If you have 50 or more FTE employees and your employees purchase insurance from the new state exchanges, you will pay a fine of $2,000 per employee who does so, excluding the first 30 employees from the assessment.
Tax credit: The law provides a tax credit for some businesses with fewer than 25 employees if the company pays at least half of the employee premiums. (See sidebar, “Figuring the Tax Credit.”)
Downward pricing pressure: The law may also encourage more transparency in the area of fees for medical services, according to Ahlrichs. In consumer driven health plans people will be given a set amount of money with which they can shop for services. They will be able to go to a website, enter a service such as an “appendectomy” and get a list of physicians that perform that procedure, a quality rating and a cost. “Comparison shopping should put downward pressure on prices,” said Ahlrichs.
Transparency: Do you know how much your broker is being paid for arranging your insurance? Today such commissions are buried in your premiums. This may change under the new law as pressure mounts to reduce administrative costs. Brokers may start charging fees for their services, which may well dampen overall costs while promoting accountability and performance.
Employee mobility: Another hidden benefit the new law may provide smaller businesses is access to higher quality personnel.
“Today at larger employers there are many high quality mid career professionals who are frustrated because they cannot be very entrepreneurial,” said Ahlrichs. “They would love to join a smaller organization where they can try things out, or they might want to band together and start something.”
However, if such people quit their current positions they are uninsurable in the current system, according to Ahlrichs.
“They may have a daughter or wife who is a diabetic or cancer survivor. Or they themselves may have some chronic condition. As a result, they are handcuffed to their desks because of health care.”
When the exchanges come online the handcuffs come off. “There will be a significant shift in high performing talent out of the larger organizations and into smaller ones,” said Ahlrichs. “This could be a huge benefit to small entrepreneurial organizations which position themselves as places where talented people can exercise some freedom.”
Negative Impacts
Unfortunately, there are also some negative impacts Obamacare will have on small businesses. Dr. Bob Graboyes, senior fellow for health and economics for the National Federation of Independent Businesses (NFIB) Research Foundation, identified the administrative burden as a particularly difficult challenge for small companies.
“It’s going to be a tremendous administrative burden,” said Graboyes. “If you look at what’s in the regulation on determining who in your business is full-time or part-time or temporary or seasonal, it looks to us like it’s going to be an enormous burden. It’s going to be a lot of paperwork. There’s an awful lot of taxes embedded, there’s a lot of fees, a lot of penalties. There’s a lot of questions that you’re going to have to ask your accountant, your attorney and your broker about on a steady basis.”
Graboyes also said that aspects of the PPACA, such as the “Essential Health Benefits” requirement will put small businesses at a disadvantage by putting more regulations on them than on larger companies.
“Essential health benefits only apply to small group and individual plans,” Graboyes said. “If you’re self-insured it doesn’t affect you. If you are 100 employees or larger, again, you’re exempt from that requirement. So if the Secretary of HHS decides that some expensive medical treatment must be included in every policy, from that point on it will be required in all policies sold to smaller companies. It will not be required for the larger companies.”
And some of the touted benefits for small businesses are not as beneficial as they first seem. First, the small business tax credit, which can be rather generous, is not a permanent credit; it expires after two years. Not only that, but it is not the easiest credit to receive nor does it always result in a large amount.
“You have to jump through a lot of hoops and meet a lot of mathematical standards to get it,” Graboyes said. “If you are very tiny and pay very low wages it could help for a very short period of time. Otherwise, there’s not much to it.”
Smaller companies, including many that are classified as “large” under the PPACA and therefore subject to the employer mandate, will also bear the brunt of an $87 billion Health Insurance Tax (HIT) included in the law, according to NFIB. The HIT will be levied on insurance companies, which specifically excludes large employers who self-insure, falling completely on the fully-insured market. According to NFIB, 87% of small and family owned businesses purchase fully-insured plans, meaning they will be the ones that the insurance companies pass the cost of the HIT on to through higher premiums.
Questions and Uncertainties
It has been almost three years since PPACA was signed into law, but there are still many questions about the mammoth piece of legislation. The biggest one being what affect it is going to have on the actual cost of health insurance.
“I’m confident it’s going to increase it substantially,” said Graboyes. “But right now it’s anyone’s guess. What we advise people to do is stay in close touch with your accountant, your attorney and your broker.”
Another uncertainty that could impact the pallet industry is how the employer mandate will affect any illegal workers that are unknowingly employed by a company. Because the PPACA explicitly forbids illegal aliens from participating in state exchanges or receiving subsidies and has measures in place to verify the immigration status of all who do participate, some believe that insurance status could be used to expose immigration status. This could cause significant problems for any company that is found to be employing illegal workers, which should provide an incentive to ensure that all employment eligibility paperwork is in order.
The law also has so many aspects to it that need further clarification that companies may have to continue to make changes to meet requirements as they are interpreted.
“Don’t grow complacent because this thing is an ever-evolving extremely complex machine,” Graboyes said. “There will be regulations being written and interpreted for a long time.”
Because of this uncertainty the law has created a sense of confusion for many companies, which is not conducive to making future business plans.
“We don’t know what the essential health benefits packages are going to look like. And once we do know they’re always changeable. The Secretary can increase them at will,” said Graboyes.
Many people have also questioned whether it is even possible to have the insurance exchanges up and running by the end of this year, as required under the law, due to logistical hurdles that must be crossed, chiefly the building and implementation of a vast new information technology infrastructure that could merge all the data needed.
“We don’t know logistically whether this thing will work,” said Graboyes. “I think it’s highly unlikely that the exchanges are actually going to be up and running by 2014. We have many states now that are throwing up their hands, states that might have been favorably inclined, saying ‘the whole exchange process is enough of a mess and we want to stay away from it. If it works we’ll come in later.’”
Decision Time
Many business owners are upset about the minimum level of benefits required by the new law. In some cases those levels are higher than what is currently being offered in the workplace. That means greater expense in the form of higher premiums. Will employers, as a result, drop health insurance coverage completely and opt to pay the fine? Some are already considering it.
“A lot of CEOs may want to tell their employees, ‘I want out of the health care business. Go to the exchange and I’ll pay the $2,000 fine,’” Ahlrichs said
Employers who decide not to offer the insurance should realize there are additional ramifications. The first problem is that the $2,000 fine is not tax deductible. The second problem is that the employees who go to the exchanges find out insurance is not free. “Maybe the premium for a family is $8,000 annually,” said Ahlrichs. “Who pays it? If the employer wants to keep the employees, the employer may want to make them whole and give them the $8,000 needed to pay for their insurance.”
The story doesn’t end there, adds Ahlrichs: The premium payments are now taxable, so paychecks have to be grossed up to around $10,000, in the above example, so the employees can pay premiums out of after-tax dollars. Put it all together and cessation of a health insurance program can backfire, concludes Ahlrichs.
Realistically, the decision to retain or drop health insurance might depend less on the costs of non-compliance than on what other businesses in the same employment market are doing. No one wants to lose top talent to other employers offering better benefits. As a result, many businesses seem to be playing a waiting game. “We keep hearing statements such as ‘We are afraid to be the first one to drop coverage, but we are not afraid of being the second or third,’” said Shawn Nowicki, director of health policy at Northeast Business Group on Health, a coalition of 175 employers, unions and health care providers.
Act Now to Prepare for 2014
What steps should you take today? Start getting up to speed on the opportunities and requirements of the new law. Then take steps toward compliance.
“Now is the time to get some education,” says Nowicki. “Meet with your broker or health insurance adviser and learn what is coming down the pike from the perspectives of benefits and taxes.”
Employers need to take a look at their current health insurance plans and make the changes required to be in compliance. Then communicate these changes to employees and revise the plan descriptions and handbooks. As for the decision whether to continue or drop coverage altogether, you will need to tackle that one before the end of this year. The so-called “play or pay” provision will activate in 2014. That means employers with over 50 FTE employees must either offer health insurance with minimum requirements or pay a fine.
As you tackle the vagaries of the PPACA, keep in mind that the entire law is very much a work in progress. The federal government will continue to issue regulations that interpret the law for real world operations. State governments will jockey to set up exchanges of various kinds, or opt to let the federal government do the job.
Perhaps the only thing that’s certain is that change is on the way. Now’s the time to get a handle on how the marketplace is changing. Then design a health insurance program that maximizes employee satisfaction while minimizing cost.
Figuring the Tax Credit
Answer the following questions:
• Do you have fewer than 25 full-time employees?
• Are their average annual wages less than $50,000?
• Do you contribute more than 50% of your employee’s total premium costs?
If you answered “yes” to all these questions, you may well receive some assistance with your health insurance premiums under the PPACA. You may be entitled to a tax credit of up to 35 percent of your contribution toward your employee’s health insurance for this tax year. The maximum credit will increase to up to 50% for tax years 2014 and 2015. For 2013, the full tax credit is available to employers with 10 or fewer employees whose average annual wages are $25,000 or less. The tax credit gradually scales down as workforce sizes and average wages increase. For example, if your business employs 10 full-time workers, the average wages are $25,000, and your annual employer health care costs are $70,000, you are entitled to a $24,500 credit in 2013. Starting in 2014 the credit will be $35,000. Keep in mind that the credit has a number of extra complexities; for example, the business cannot get credits for employees who are relatives or in-laws of the business owners.
For some help on calculating your own credit, see the guidance recently posted on the web site of the Internal Revenue Service. Go to www.irs.gov and click on “Affordable Care Act Tax Provisions” then see “Small Business Health Care Tax Credit.” Or, visit the tax credit calculator developed by the National Federation of Independent Business at http://www.nfib.com/advocacy/healthcare/credit-calculator
Get Some Help
Knowledge pays. That goes double for a vast piece of legislation such as the Patient Protection and Affordable Care Act . Want to learn more? Check these resources:
• The U.S. Department of Health and Human Services has launched a website (www.healthcare.gov) to provide information about the health care reform legislation.
• The National Federation of Independent Business has a number of resources designed to help small businesses navigate the new health care laws, including a detailed guide to the health care law, available at www.nfib.com/business-resources/healthcare or http://www.nfib.com/drbob
• The Kaiser Family Foundation (http://healthreform.kff.org/) has created an outstanding compendium of documents summarizing the health reform legislation.
• The Small Business Administration (www.sba.gov/content/health-care-health-care-reform) has posted information on how health care reform will affect small businesses.
• Mercer, a major consulting firm, has developed a useful website
(www.mercer.com/us-health-care-reform) with documents and guidance about health care reform, geared primarily toward larger employers.
NWPCA Health Care Session
The National Wooden Pallet & Container Association will hold a session on health care reforms at its upcoming Annual Leadership Conference (ALC) and Expo. This session will feature insights by Dr. Bob Graboyes of the National Federation of Independent Business. The ALC will take place February 16-19 in Orlando, Fla.
Calculating FTE Employees
Under the Patient Protection and Affordable Care Act (PPACA), a business is considered large, and therefore subject to the employer mandate to provide health insurance, if it has 50 or more full-time equivalent (FTE) employees. The number of FTE employees a company has is calculated using the number of full-time workers and the number and hours of part-time workers. PPACA considers anyone who works an average of 30 hours or more per week to be a full-time employee. To convert part-time workers’ hours into FTE employees, add all hours worked by part-time workers in a month and divide the total by 120. For example, if three part time employees each work 10 hours per week, they would be counted as one FTE employee (3 employees x 10 hours/week x 4 weeks ÷ 120 hours = 1FTE employee).
Seasonal employees are not included in the calculations, but once a company meets the 50 FTE employee threshold, it does have to provide benefits to them, according to Dr. Bob Graboyes. However, he cautioned that this is one area of the law that is still not clearly outlined and could be subjected to regulatory interpretation.
It is important to note that the penalty is assessed based on the number of full-time and seasonal employees, not FTE employees. Therefore, if a company is considered to have 50 FTE employees based on 75 employees who work 20 hours per week, it would not be fined for not providing health care coverage to its employees. This is why many companies are considering reducing all or many of their workers to part-time status.
