Uncertain Times: West County businesses get ready for Affordable Care Act changes

The election of President Obama to a second term has ensured the full implementation of the Affordable Care Act (ACA) signed into law on March 23, 2010. The law, commonly referred to as “Obamacare,” is designed to increase the number of Americans with private health coverage and, according to its supporters, strengthen the nation’s public health programs by January 2014.

Over the next 13 months, all coverage plans must be updated to include preventative and wellness management services as well as essential benefits to include emergency, hospitalization, maternity and newborn, mental health, pediatric care and prescription drugs to name a few. The law’s supporters say that these essential benefits, along with the mandate requiring every American to have health coverage – or pay a fine, will ease the financial burden on our faltering fiscal ledger in the long run.

Today the common practice for those without insurance is to seek treatment in an emergency room, where they can’t be turned away. Due to the lack of routine and preventative care, the cost of treatment is high. Those costs are passed along to the insured. Currently, the average family coverage plan pays $1,000 extra in health insurance costs to cover care for the uninsured each year. The ACA will eliminate this expense.

Another element of insurance the law seeks to ratify is the equality of affordability. Currently small businesses pay roughly 18 percent more than large firms for the same health insurance policy due to a lack of purchasing power. The health care law provides tax credits and a fair market price for plans purchased on an approved exchange to close this gap.

In addition, the ACA mandates that insurance companies spend 80 cents out of every dollar paid toward premiums on health-associated costs, allowing only 20 cents to go to administrative costs and profits, which is expected to drive down the price for consumers. Insurance companies also must publicly justify raising premiums by 10 percent or more for small businesses.

For reasons like this, Glenn Koenen, a recent Democratic candidate for the 2nd Congressional District and former director of Circle Of Concern in Valley Park, is a strong proponent of the law.

“Yes, consumers will see some price increases in many of the things we buy, especially in the restaurant and retail industries, but by spreading the risk and eliminating premium penalties for pre-existing conditions, employers will be able to get coverage for their people at an affordable rate,” Koenen said.

He said he has studied the 2,400-page law in detail and feels it may be getting some bad press due to its perceived cost increases, which some suspect will affect profits and hinder future hiring, and because of its complexity.

“The ACA bill is complex because the subject is so complicated so it is easy to lock on to one small part and overreact,” Koenen said. “However, my personal feeling is that when the dust settles there will be no new net cost to the economy … but who pays is what will change.”

 

The cost of doing business

So far, Koenen may be one of the few to feel this way. Despite research from organizations such as the Kaiser Family Foundation stating that most small businesses will save money under the new law, many small and mid-sized business owners are not convinced of the benefits.

National chains including Applebee’s, Denny’s and Papa John’s Pizza have spoken out against the ACA and its regulations and it seems business owners on the local front are in agreement.

“We are a little concerned because we just don’t know what it is coming down,” said Ann and Frank Mahler, owners of the Donut Palace in Ellisville. “We currently offer health care to our five full-time employees and we are confused as to whether or not the law will cost us personally.”

The way the law is written, the Mahlers should not have additional costs imposed on them. In fact, they may even be eligible for a tax credit.

However, as with all things political, it gets tricky. Employers with less than 50 full-time employees do not have to change the way they are currently handling the issue of insurance and they are not subject to paying fines for eliminating or denying coverage.

The law is most controversial for those businesses that employ more than 50 full-time (30 plus hours per week) employees or have numerous workers under the 30-hour-per-week threshold.

“In my opinion it is the mid-sized company that will be affected the most,” said Trudy Kaiser, PHR, director of human resources for Supplies Network in St. Charles.

Companies that exceed the minimum allowance have two choices: (1) comply with the law or (2) pay a hefty fine. If an employer elects to not provide medical benefits a $2,000 fine will be issued per employee (minus the first 30 employees). If medical benefits are provided, but the employee’s portion of the cost is above the affordability test (9.5 percent of employee’s wages – anything over qualifies the employee for a government subsidy to help purchase coverage), then the fine is $3,000 per employee. These fines are on a yearly basis and are not business related deductible expenses.

Supplies Network, a division of Distribution Management, Inc. employs 225 full-time workers.

Due to the mandates detailed in the ACA, Kaiser worries how it will affect her employees and the company.

“Over the next 18 months we will have increased participation, mandatory automatic enrollment, and penalties of $3,000 per employee if an employee opts not to take the company provided health insurance. We already pay 60 percent of our employees’ insurance, but avoiding the penalty for the 9.5 percent is going to be very challenging for us considering about one-third of our total employees includes hourly employees in the $12-$15 per hour range,” she said.

Business owners and corporations must make a determination as to whether they will provide medical benefits to their employees or not.

In many industries, benefits are the differentiator to attracting and maintaining a qualified workforce, so for many business owners, the effects of the ACA go beyond the financial impact. For those organizations that decide to continue providing health insurance coverage for their employees in compliance with the ACA requirements understanding the financial impact of the regulations is essential.

As an example, rather than pay fines or offer insurance coverage, it might make financial sense for a company to reduce an employee’s workload to 29 hours per week, which would categorize the employee as part time and therefore not require a benefits package. Of course, this will financially impact the employee and most likely create a need for additional part-time employees to compensate for the lost man hours. However, it might be beneficial to the company’s bottom line.

 

No room for error

There are many elements to this law and as a result, business owners are frustrated with the learning curve required to ensure sound business decisions.

Beth Grellner, health and group benefits leader for Towers Watson, a national financial and risk management firm with a large St. Louis presence, suggests any company that employs over 50 employees review all the provisions that have been required under the ACA.

According to Grellner if a business owner does not fully understand the law it can be financially detrimental – for businesses both large and small.

For instance, if an employer is out of compliance with certain regulatory changes, such as technological and filing mandates associated with the ACA, they could face fines from the Department of Labor as well as the fines associated with the coverage violations.

In addition, employers must be aware of the multiple phases of the law.

In 2018, for example, employers may face an additional excise tax, often referred to as the “Cadillac tax” if the cost of the coverage they offer employees exceeds certain thresholds. This tax is another non-deductible business related expense to a company.

“This law has the potential to change the way that some companies do business. It adds new taxes to areas that are related to offering medical plans such as a new tax on prescription drugs, medical devices, etc.,” Grellner said. “All of that gets added to the cost of providing medical benefits for employers.”

Despite the touted benefits of the law, many local business owners feel the ACA will prohibit growth and take a big bite out of increasingly shrinking profit margins.

“If our business doesn’t grow at all, and our health care costs increase 8 to 10 percent, we don’t have the margin to absorb these costs. We are already extremely efficient in the way we run our business. There will be many difficult decisions to tackle in next few years,” Kaiser said.

Unfortunately, some small and mid-sized companies may be forced to eliminate insurance coverage altogether and pay the $2,000 per full-time employee fine to the Federal government placing the burden on the cash-strapped American individual. Businesses say this would alleviate the stress and confusion of abiding by the law’s requirements as well as save time and money in terms of the premium cost and administrative requirements.

Both opponents and proponents of the ACA agree that the law is not perfect.

“The ACA is a Band-Aid on a bleeding wound. It isn’t a true answer but it will help many people and buy the system time to work on a permanent solution,” Koenen said.

For more information about the Affordable Care Act visit healthcare.gov or whitehouse.gov.

 

The Affordable Care Act: What small business owners should know:

• Employers with fewer than 50 employees are exempt from new employer responsibility policies. They don’t have to pay an assessment if their employees get tax credits through an exchange.

• If you have up to 25 employees, pay average annual wages below $50,000, and provide health insurance, you may qualify for a small business tax credit of up to 35 percent (up to 25 percent for nonprofits) to offset the cost of your insurance. This will bring down the cost of providing insurance.

• Starting in 2014, the small business tax credit goes up to 50 percent (up to 35 percent  for nonprofits) for qualifying businesses.

• In 2014, small businesses with generally fewer than 100 employees can shop in an Affordable Insurance Exchange, new marketplace where individuals and small businesses can buy affordable health benefit plans, which gives you power similar to what large businesses have to get better choices and lower prices. On Nov. 6, Missourians voted against allowing the state to set up its own Affordable Insurance Exchange; thus, that responsibility is now in the hands of the federal government.

• Under the health care law, employer-based plans that provide health insurance to retirees ages 55-64 can now get financial help through the Early Retiree Reinsurance Program. This program is designed to lower the cost of premiums for all employees and reduce employer health costs.