Implications of the Patient Protection and Affordable Care Act

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