Health Care Reform 101

What businesses need to know about the Affordable Care Act

BY KRIS BEVILL

Just months before the largest health care reform in recent U.S. history begins to be implemented, health care experts in the region say they were still finding themselves telling business owners that the Affordable Care Act was, in fact, the law. While penalties for large businesses have been delayed until 2015 and the roll-out of public marketplaces has been bumpy at best, the law will still go into effect on Jan. 1 as planned, requiring all individuals in the U.S. to carry health insurance. Welcome to the changing world of health insurance policy, where misinformation, delays and short timelines to react have left many impacted parties confused and wondering how they will be affected and what they need to do to comply with new regulations. And while there are some blanket answers for insurance plan reform questions, there are many more single issues that are business specific, which makes the process of disseminating information that much more difficult. The good news, according to experts, is that there are multiple resources available to help businesses identify and devise a strategy to comply and there is still time to put a plan into action. Here, we offer a rundown of the most common questions and concerns, and where to look for advice on how to address health care policy over the coming years.

Size Matters

The size of your business makes a difference as to when and how health care reform will impact you. Businesses with fewer than 50 full-time equivalent employees are classified as small businesses and have requirements separate from large businesses. But what qualifies as “full-time equivalent” and where do part-time employees factor into the equation?

Under the ACA, a full-time equivalent employee is defined as an employee who works 30 hours per week or an average of 130 hours per month over the course of a year. Hours worked by part-time employees throughout the year must be tallied and divided by 120 to determine the number of full-time equivalent workers employed at a business. If the combined total of full-time and part-time employees is fewer than 50 full-time equivalent employees, the business qualifies as a small business. Small businesses are not required to provide health coverage for their employees, however businesses with existing health plans that want to continue providing coverage must either apply to have their plans grandfathered into the new program, choose a new plan from a marketplace or drop group coverage entirely and direct their employees to the marketplace to purchase their own insurance.

Mike Potts, director of employer consulting and wellness services at Blue Cross Blue Shield of North Dakota, says 80 percent of the 5,000 large and small employers currently offering BCBS plans have elected to keep their current policies, although he believes many small businesses are taking a waitand-see approach to the federal marketplace before they make a final decision whether to drop their coverage or maintain a company plan in the coming years.

Small businesses with plans that are not grandfathered or that are considering a change can utilize the federally run insurance marketplace known as SHOP (the Small Business Health Options Program). The marketplace offers access to insurance plans providing a range of coverage options, from 60 percent to 80 percent, in bronze, silver and gold categories. The SHOP website was initially scheduled to launch Oct. 1, but was delayed until Nov. 1. Ruth Krystopolski, president of Sanford Health Plan, says the delayed roll-out still gives small businesses enough time to process their options, however, and that small businesses can use SHOP to better judge the costs of their current plans compared to the marketplace offerings. Additionally, SHOP offers businesses with 25 or fewer employees who earn no more than $50,000 annually the possibility of additional premium tax credits. Krystopolski encourages businesses owners who think they may qualify for those credits to contact a tax adviser for further evaluation.

Large businesses are required to offer affordable health insurance to full-time employees and their dependents beginning in 2015 or be subject to penalties. In order to be deemed “affordable,” the employee’s insurance premium for single coverage must be no more than 9.5 percent than his/her income and the insurance policy must meet the 60 percent actuarial value threshold rule, meaning that the employer plan must cover at least 60 percent of the cost of the employee’s benefits.

“If [the business] makes it past both of those tests, they’re fine,” Krystopolski says. “If they fail on either of those tests then they need to make a decision as to whether they’re going to do something to pass those tests or if they’re going to be willing to pay the penalty in 2015.”

Penalties for large businesses were originally scheduled to kick in on Jan. 1 but now that they have been pushed to 2015, large businesses will likely use the coming year to evaluate their options and determine a course of action for the future. “Large businesses need to look now at where they’re at so that as they’re making changes for 2015, the changes they make help them comply with whatever the regulations are,” Krystopolski says.

For businesses that employ close to 50 employees, a strategy for compliance might mean cutting back on employee hours or new hires in order to fit within the small business category.

Specific to our region, where many agricultural producers employ seasonal workers who work well over 30 hours per week during a short employment period, the coming year offers the opportunity to measure employee hours and determine whether their business falls under the small or large category.

Other large employers may take a variety of measures to reduce their costs of compliance. Ross Manson, principal at Eide Bailly, notes several recent plan changes announced by major corporations that indicate the range of solutions being explored by large employers: IBM announced a plan to move all retirees to a private health plan exchange; Walgreens said it will move its current employees to the private exchange and UPS announced it will no longer provide coverage for spouses of employees. “There are a number of ways businesses are evaluating this from an employer perspective,” he says. “It’s important to determine your strategy and consider how it will impact your competitive advantage when it comes to recruitment and retention of employees."

Labor Pool Limits Options

With historically low unemployment throughout the entire northern Plains, most health insurance experts believe companies will continue to provide health plans for their employees in order to attract and retain workers. “Maybe that doesn’t matter in some businesses, but in a tight employment market I think you need to factor in the cost and retention of employees if you’re a company that doesn’t offer health insurance,” Krystopolski says. Potts agrees that the area’s employers feel the tight workforce means they need to offer a competitive compensation package and will likely offer insurance plans to their employees. Manson, however, foresees the possibility of some companies opting to pay employees a higher wage and send them to the public marketplace to purchase their own insurance, where there is a chance they will qualify for individual tax credits and pay less for insurance in the long run. “I’m guessing that lower-wage industries will take that approach whereas higher-wage businesses will continue to offer insurance because that’s what their talent pool wants,” he says.

How Much Will It Cost?

The full financial implications of the ACA on businesses will be as varied as the types of businesses and their employees, but there are a few built-in fees that will apply to every policy:

• The PCORI (Patient Centered Outcomes Research Institute) fee will be $2 per person covered under the plan beginning in 2014. So, if your employee insures a family of four under their policy, the fee will total $8.

• The transitional reinsurance fee, which is a fee collected to issue payments to insurers that cover high-risk individuals on the public marketplace, will total $63 per person in 2014.

Fully insured plans will be assessed an additional health insurance industry fee, which can be expected to increase the cost of insurance premiums by about 2 percent, according to Manson. He adds that while the ACA does contain some set increases, it would be difficult for businesses to fully attribute increased health plan costs to the new law. “I think that would be inaccurate because a lot of it comes back to their particular utilization,” he says.

For large businesses that choose to pay rather than play in 2015, they can expect to receive a $2,000 fine per employee after the first 30 employees for each month that they do not offer health insurance. Large businesses that offer insurance that is not considered affordable or doesn’t meet the minimum coverage threshold will be assessed a $3,000 fine per employee. While some businesses may believe it is less expensive to take the penalty hit as opposed to offering health plans, Krystopolski points out that businesses receive tax incentives for paying a portion of insurance premiums whereas if they choose to send employees to the public exchange they will receive nothing. “You need to add all of those things together before you know where you would land as a business,” she says.

Insurance premium changes under the ACA will vary greatly depending on the age and health of a business’ workers. A business with older, sicker workers may see its premiums go down in 2014, whereas younger companies with employees who rarely use their insurance will likely be subject to an increase. Manson says he has a client expecting a 1 percent premium increase; another client will incur a 30 percent increase.

What Happens Next?

Businesses that haven’t yet devised a strategy to comply with the ACA aren’t out of time, but experts encourage them to begin evaluating their situation now in order to make necessary changes. “Step back, look at your specific situation and then make an informed decision,” Manson says. “We’ve helped many clients establish a starting point.” Eide Bailly has developed an analytic tool for this purpose. The tool can be used to evaluate a number of criteria, including identifying the number of full-time equivalent employees and how much that number has changed over the course of a year. Manson says he also helps clients evaluate their potential for premium increases, waived employees and other items of interest. Businesses may consider adding items such as wellness programs that encourage employees to take part in activities that could reduce their utilization of health insurance, he says.

Organizations such as BCBS and Sanford Health have well-versed experts on the new regulation who are ready and willing to provide information to businesses. “If we can’t find the answers we’ll go to whoever it is who needs to find the answers for them,” Krystopolski says. “We are here to help businesses of all sizes navigate through this change.”

Potts and other BCBS representatives have hosted 16 events throughout North Dakota over the past year to inform people of the changes and will continue to provide information as needed and requested. He says he sympathizes with business owners because the numerous details of the new law make it difficult to fully understand. “It’s almost hard to know if you’re violating some rules,” he says.

Looking ahead to the first few years of the ACA, small businesses and individuals are expected to feel the effects early in 2014. Large businesses may also begin to make changes as they prepare for 2015, but the full impacts of the new law are not expected to be realized until 2016 and beyond. “I think employers are going to sit back and watch this first year and not make too many changes,” Manson says. “You’ll obviously have your bleeding-edge employers, but I think the majority of business owners will take a tempered approach and see how the public marketplace develops, how the private marketplace develops, what other new solutions will be out there and available and how individuals will react to the marketplace. That will be a big determiner for employers too.”

“Prepare for the road to be bumpy, probably for the next 24 to 36 months,” Krystopolski says. “These are not things you can react to. You really have to think about what you are going to do next.” PB

Kris Bevill Editor, Prairie Business 701-306-8561, kbevill@prairiebizmag.com