and Jamison Cocklin
Nearly three years after President Barack Obama signed landmark legislation to overhaul the country’s health care laws, comprehending the stipulations and provisions included in its thousands of pages – many still being written – is proving to be a mountainous task for U.S. business owners.
The Patient Protection and Affordable Care Act, more commonly called Obamacare, will require nearly all Americans to buy health insurance or pay a fine beginning in 2014.
The so-called individual mandate aims to provide coverage to more than 30 million uninsured Americans.
Many consumers have little idea how the law will benefit them or what responsibilities they must meet, but thornier problems are shaping up for both large and small businesses.
Earlier this year, John H. Schnatter, chief executive of pizza chain Papa John’s, suggested that many franchisees would reduce employee hours to avoid providing coverage, while an outraged Denny’s owner in Florida threatened to raise menu prices by 5 percent to offset the costs of covering his work force.
As the country continues to emerge from the worst recession in decades, companies are scrambling to meet the law’s regulations and devise new business models to accommodate requirements that many do not understand.
“We don’t even know what’s going on,” said Ray Kashmiry, president of R. Kashmiry and Associates Inc. in Boardman, which designs benefit plans for employees and businesses. “We have to build our website to conform to the government’s guidelines so that individuals know if they qualify for the new subsidies and what’s required of business — we’re having trouble getting this information from the nation’s largest carriers.”
Those carriers, Anthem Blue Cross Blue Shield and United Healthcare, are finding it difficult to answer certain questions primarily because the federal government continues to revise and tinker with the finer points of its overhaul.
For details that are in place, employers must navigate a law that shifts in many directions depending on the size of a company, the health benefits it offers and the variety of wages paid in an increasingly disparate economy.
“There’s an enormous amount of uncertainty,” said Joe Bell, director of corporate communications for Youngstown-based Cafaro Co., which employs 700 nationwide in real estate development.
“To be honest, no decisions have been made in terms of what we have to do with our accounting requirements,” he added. “The broader issue of what we do to handle health care costs is unclear, but at this point, we’re keeping our plan.”
MAKING PLANS FOR NOW
Although the law’s staple provision, the individual mandate extending coverage to millions, will not take effect until 2014, companies already are preparing to meet its obligations.
In Youngstown, that reality hit in November, with a highly visible move by the city’s largest employer, Youngstown State University, circulating a memorandum informing its 813 part-time faculty members that their hours would be capped at 24 to comply with a strict definition included in the Affordable Care Act.
Under the law, those companies planning on providing health care to their workers will be required to extend coverage to all full-time workers, defined as those working 30 hours or more per week.
At the Cafaro Co., which primarily provides real estate for retailers in 11 states, the 30-hour requirement is troublesome, as it “creates an entirely new class of full-time employees.”
For an industry that largely depends on part-time help to staff sales floors, those additional costs could weigh on retail merchants and change the way they run their businesses.
The reforms also will rely heavily on insurance marketplaces, or exchanges, that are intended to drive down costs and provide more affordable health care for individuals and small businesses.
Companies technically are not required to provide coverage to employees or their dependents. Beginning in 2014, though, businesses with 50 or more workers that don’t provide health insurance and have employees purchase subsidized coverage on exchanges will pay a penalty of $2,000 or more per full-time employee. The company’s first 30 workers would be excluded from the fee.
For those with 200 or more employees, however, the government has not yet set a compliance date.
WHO PAYS FOR WHAT?
To avoid paying penalties, employers will need to pay close attention to the health plans they offer. Workers will be eligible for subsidies if an employer fails to provide affordable coverage.
Coverage is considered unaffordable if an employer requires a contribution of more than 9.5 percent of income.
Still, the law applies only to the cost of individual coverage, not family coverage, which on average costs about 14 percent of household income.
“When the president said if you like your health plan you’d be able to keep it, he was being disingenuous,” said Tom Finneran, an employee benefits consultant from the Penn-Ohio Regional Health Care Alliance. “It’s if your employer likes your health plan.”
Under current regulations, if individual coverage costs less than 9.5 percent and an employer offers dependent coverage, then both employees and their family members are ineligible for subsidies regardless of whether family coverage is affordable.
In fact, the government’s definition of affordable care and its bearing on who qualifies for subsidies could, in some instances, lead companies to forgo health benefits and instead pay the fees, which the Joint Committee on Taxation estimates will cost employers $52 billion over a decade.
There are a lot of companies near the 50-employee mark, said John Donchess, principal accountant at Packer-Thomas in Canfield.
“As the bill gets close to implementation, I see a number of companies dropping insurance and letting their employees go into the exchanges,” he said.
At the moment, for companies with about 50 employees, it appears that paying the penalties would cost less than offering health care benefits, Donchess said.
“The argument is that companies would be at a competitive disadvantage by not offering benefits. I think that’s probably true today,” he said, adding that could change in the next few years.
BIG CHANGES IN 2013
One of the larger changes for 2013 is that employers have to start including the employer-financed health care benefits on W-2 forms.
Another issue is the increase in the Medicare payroll tax of 0.9 percent for higher wage earners, Finneran said.
“Those who earn $200,000 or more, or $250,000 if married and filing jointly, will have the increase,” Finneran explained. “The employer is responsible for the additional withholding.”
For married couples earning more than $250,000, the 0.9 percent Medicare tax increase means they would owe about $1,350 more each year. The additional tax will help generate $318 billion over 10 years, equal to half of all the new revenue collected for the health care reform law, which is expected to cost $940 billion in its first 10 years, according to the Congressional Budget Office.
Such changes on high-earners likely will impact small business owners and individuals who count business holdings as personal income, said Nick Demetrios of Hill, Barth and King LLC.
The new levy, along with several others on wealthy Americans, is expected to take effect in January, with the Obama administration proposing rules to enforce them this month.
The problem employers claim is they don’t always know what a worker’s spouse earns, and they may not withhold enough taxes to cover a couple’s Medicare tax liability.
Flexible spending accounts, those that allow workers to pay out-of-pocket expenses with pretax money, also will change. Previously, employers had set limits, between $2,000 and $5,000, for how much could go into these tax- exempt accounts, Finneran said. This year, the government is setting a limit of $2,500 for these accounts, which will raise $40 billion over the next decade to help pay for the new law.
Employers also will be required in 2013 to extensively document the hours employees work. They can do this quarterly, biannually or annually to determine how many employees are eligible to receive health insurance under the government’s 30- hour limit.
Whatever documentation method employers choose, they must use the same time period in the future for determining eligibility, meaning more administrative costs in the long run for some.
“This is causing a lot of consternation and sleepless nights for people in management trying to figure out how long we can provide healthcare and exactly what kind of health care we can afford,” Bell said.
WILL WORKERS LOSE HOURS?
Finneran said that though he has heard talk about companies cutting employee hours to keep them from being eligible for benefits, he has not had any of his clients tell him they would do so.
“I do think benefits will have an impact on future hires. I think you’ll see a two-tiered system with employees who work full time and those who work well under 30 hours per week,” he said.
On the other hand, many employers already offer health insurance and the federal law likely will have little impact on what they do in the next year. Likewise, 48 percent of covered workers are in “grandfathered” plans, those mostly exempted from health reform requirements, according to a November survey by the nonprofit Kaiser Family Foundation.
Meanwhile, employers with up to 25 full-time equivalent employees that provide health plans, and pay average annual wages below $50,000, may qualify already for a small business tax credit of up to 35 percent to offset the cost of health insurance.
Among the hardest hit will be low-wage industries such as restaurants and hotels that rarely offer health care to their workers.
According to Kaiser’s survey, lower-wage workers on average pay $1,000 more each year out of their paychecks for family coverage than wealthier employees. In addition, they are also more likely to face higher deductibles than those at higher-wage businesses.
Furthermore, when states were given the option to operate their own marketplaces, 32 — including Ohio — deferred to the federal government. The U.S. now faces the challenge to create a key component of the law that much of its provisions are built around. It also puts pressure on a time line that already appears to be stretching.
“Everything is so up in the air; nothing is set in stone yet,” Kashmiry said. “Nobody knows what exactly these exchanges and premiums will look like. To be honest, I don’t know how the government will start these exchanges for small businesses by 2014.”