Chapter Corner

Implications of the Patient Protection and Affordable Care Act

Posted in: Features, April 2013

Insights_Prescription.gifA January 2012 Wells Fargo/Gallup Small Business Index report noted that there were a number of reasons small businesses were not in the new employee hiring mode, ranging from "Don't need any additional employees at this time" (76 percent) to "Worried we may no longer be in business in 12 months" (24 percent). Another reason was, "Worried about the potential cost of healthcare (48 percent). The report noted that, "Given this difficult operating environment, it is not surprising that many small business owners also worry about potential new healthcare cost and government regulations. While small businesses are always finding ways to deal with their changing operating environment, including government regulations and healthcare, those added challenges can be seen as exacerbating an already uncertain and difficult situation. In turn, they become additional reasons to hold back on hiring.

An August 8, 2012, Mercer press release, based on a survey of over 1,200 employers on the potential implications of the Patient Protection and Affordable Care Act (PPACA) on their businesses, reported that 60 percent of employers expect some increase in cost, with one third expecting an increase of five percent or more. One reason is the requirement to provide coverage to a larger percentage of employees than many employers had provided before. "Extending coverage to more employees will be a significant new expense for these employers," said Tracy Watts, U.S. health care reform leader for Wyatt, in the press release. "Especially because other provisions regulate how much an employer can require employees to contribute to the cost and how good the coverage must be." Six percent of the respondents said it is likely they will drop their medical plans after the public insurance exchanges come online. This rises to nine percent among retail and hospitality employers.

So what are the implications of PPACA, commonly referred to as “Obamacare,” for IEC members? It depends on the number of employees they have, with the primary demarcation being 50 and more, or under 50.

Fifty Employees or More

The most important consideration for employers with 50 or more employees is the "play or pay" option. This requires large employers, defined as having 50 or more full-time equivalent (FTE) employees, to provide adequate and subsidized group health insurance to all full-time employees and their families beginning in 2014. Failure to do so will subject the employer to a penalty of, in most cases, $2,000 a year per employee. As a result, some employers are considering just eliminating health insurance, because they have determined that the cost of providing health insurance will be greater than the cost of paying the penalty for not providing it.

According to Kristin Kahle, senior vice president and compliance officer for Benefits Exchange Alliance, several employers have said that, to get around this requirement, they plan to drop all of their employees to part-time status. "These employers don't understand that the number is not based on full-time employees, but on a full-time-equivalent calculation," she said.

In 2013, according to Doug Truax, president of Veritas Risk Services, employers will need to conduct a financial and renewal analysis to determine whether they are going to keep their medical plans, as well as whether they will be required to pay a fine in the future for overcharging on their employee contributions. "While employers may wait until the third quarter of 2013 to do this, it is advantageous to begin the process earlier to allow more time to review the options and plan accordingly," he said.

There will be come employers who will decide not to keep group medical, and they will save some money as a result. "That is, we will probably see a number of smaller employers not keep their medical on January 1, 2014," said Truax. "On the next round, January 1, 2015, even more will probably drop."

However, even though it may make financial sense for some employers to drop health insurance, they will have to determine what impact this decision will have on employment issues, such as recruiting and retention. As a result, after a year or two of not maintaining a medical plan and sending employees to the exchanges (If employers do drop their plans, their employees would have access to coverage on the public exchanges), many of these employers may end up restarting their medical plans at some point in the future, due to potentially increased fines for not carrying a medical plan, and/or because they are having difficulty retaining key employees and recruiting new employees.

"Employers that do keep their plans will probably want to take a hard look at self-funding, so they can gain more control over their medical expenses, instead of staying fully insured, where they are simply financing their medical expenses," said Truax. "Then, they will want to begin working on wellness programs and other claims reduction strategies to further reduce their medical costs."

Kevin Kuhlman, manager, legislative affairs, for the National Federation of Independent Business, agreed that pre-planning is important. "While many of the major provisions don't begin until 2014, employers need to make some decisions in 2013, including what they plan to do in 2014," he said.

For employers with 50 or more full-time-equivalent employees, the changes will impact their businesses and their employees more than they will impact their insurance program per se. "With their businesses, they have to provide approved health insurance that may be a little bit more generous than what they offer now, or pay a $2,000 penalty per full-time equivalent employee for not offering coverage," said Kuhlman. This could increase employer costs.

Less than Fifty Employees

For small employers, those with under 50 full-time equivalent employees, there will be less of a focus on what they have to do and report, and more on issues such as: If we do choose to offer insurance, how much will it cost? What will that insurance product look like? Can we continue to offer what we currently offer? "In other words, these employers aren't forced to offer insurance," said Kuhlman. "However, if they do decide to do so, their costs will be increased, because there are new taxes, mandates, and requirements for the kind of insurance that is being offered to the individual and small group market that don't apply to the larger employees."

Health Exchanges

According to a U.S. Department of Health and Human Services (HHS) document, starting in 2014 "Small businesses can shop in an Affordable Insurance Exchange, a new marketplace where individuals and small businesses can buy affordable, qualified health benefit plans. These exchanges are designed to offer more choices of high-quality coverage and lower prices, and the exchanges will offer a choice of plans that meet certain benefits and cost standards."

As such, another challenge of PPACA for employers is understanding these health insurance exchanges. Each state will decide whether it will participate in an exchange, and there will be charts to identify the multiple levels in the exchange. "As a result, you need to understand what your state is going to do, and you also need to understand the calculations," said Kahle.

Costs - The Big Question Mark

According to Kuhlman, cost continues to be the biggest question mark. "There have been thousands of pages of requirements and instructions made public, but very little about cost," he said. "In fact, most businesses would rather start hearing the bad news about cost than continue to hear the uncertain news." However, some estimates can be made, by dividing employers into three categories–50 employees or more, under 50 employees, and under 25 employees.

Insights_EKG_Monitor.gifFifty and More Employees: As Kuhlman sees it, there will probably not be a lot of overall plan and policy changes to large group plans, but there may be some cost changes. However, these costs are still unknown, since there is not a lot of transparency in the medical cost pricing system. Costs will be determined to an extent by options such as those related to high-deductible health plans or tiered-level coverage.

Regardless of whether basic plan costs change, there will be new compliance costs for 50 and more employees, which will include the time and effort required to monitor and track employee hours to determine employee size, and similar costs.

Under 50 Employees: "For employers in this category, there is the potential for some 'premium shock,'" said Kuhlman. The reason is that the cost driver for this group is that all of them who offer coverage will be required to cover the required essential health benefits package (EHB), which is a comprehensive list of benefits and services that all individual and small group health policies must cover, including hospitalization and physician office services. "There is very little flexibility in terms of how to make these policies affordable," said Kuhlman. "Insurers are currently translating the requirements of the EHB, so we will find out how much this will begin to drive costs around the next open enrollment season."

There is also a small business health insurance tax, which is a tax only on fully-insured health insurance products. "Small businesses and individuals are the ones who purchase fully-insured policies, because they are not large enough to self-insure and take on the risk themselves," said Kuhlman. "That is, they rely on insurers for risk pool functions and administrative functions, while larger employers that self-insure rely on insurers for third-party administrative functions." According to Kuhlman, the non-partisan Congressional estimating group, called the Joint Committee on Taxation, says this will increase the premiums of family policies by about $400 by 2016. "However, some private health insurers believe that, over the next decade, it could increase individual or family policies by $5,000 to $6,000 over 10 years."

The state exchanges do hold the potential of some cost relief for the under-50 employers, via lower administrative costs. "Countering this, though, is the fact that, to fund these exchanges, there will be premium fees, which will be passed on in the form of higher premiums," he said.

Under 25 Employees: For employers with 25 or fewer employees, there is the potential for PPACA tax credits. Unfortunately, though, these credits are very targeted. For example, the full credit is for businesses with ten employees and under, and average wages of $25,000 or less. The credit phases out as it gets up to 25 employees and average wages of $50,000. In addition, the credit is only available for two years.

Employee Documentation and Education

Between now and 2014, not only will employers need to educate themselves and make decisions for their businesses, they will also be required to provide documentation and education to their employees. "There is a lot of documentation that employers will be required to provide to employees, and there are time limits on when this needs to be delivered, as well as delivery mechanisms behind that documentation," said Benefits Exchange Alliance's Kahle. "There can be fines and other fees attached for not doing so."

"Employers of all sizes, large and small, need to realize that their employees are going to have a lot of questions," said Kuhlman. "They will need to continue to educate their employees, regardless of whether they are going to offer insurance or not." For example, if they decide not to offer insurance, they will need to educate employees about the state-based exchanges. They will also need to educate employees about their individual responsibilities, such as, in 2014, being required to purchase insurance on their own if they are not going to be covered by someone's group plan. "In sum, 2013 will be a big communication year," continued Kuhlman.


As a way to prepare for 2014, Kahle suggests that employers seek a reliable third-party source to conduct a health care reform audit for them, so they can see the entire picture of what they have done in the past, and then create a game plan for the future. "I would recommend a three-year strategic game plan on how you are going to handle healthcare reform," she said.

Where can employers go to get accurate, comprehensive, and up-to-date information on PPACA in 2013 and 2014? "It is important to stay on top of information as it comes out from HHS, the Department of Labor, and the state websites," explained Kahle. "You should gather this information either daily or, at minimum, weekly. Employers should then rely on their legal, HR, and accounting departments, as well as their brokers, for interpretation."

As Truax sees it, there are actually too many sources of "information" available on healthcare reform. The problem is that a large percentage of these sources are not reliable. "You need to boil it down to who you're going to trust to get through all of this," he said. According to Truax, HHS has been slow in getting out the information details. This inevitably leads to a lot of speculation before every HHS release. This speculation ends up populating different websites. "Then, when HHS does make the call, the definitive information is available, but the old speculative information is still floating around out there," he said.

As a result, Truax believes employers need to get their information from their brokers/consultants and carriers. "If they don't feel they can trust their broker/consultant, then they need to get a new one, because this isn't the time to be working with someone they can't trust," he said.

William Atkinson is a freelance writer with experience in the construction and contracting industries.