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Help for Businesses Navigating the Affordable Care Act
Love it or hate it, the Patient Protection and Affordable Care Act (ACA) is here. Individuals and businesses are now required by law to carry health insurance for either themselves or their employees — within certain parameters — or face penalties. Some of these penalties can mean a significant financial hit come tax time.
The ACA intended to fix two issues in the U.S. healthcare industry. The first goal was to make it so that more people could be insured by forbidding insurance companies from asking potential insureds questions that would have previously disqualified them from coverage, such as whether they had pre-existing conditions. The ACA also attempted to rein in the skyrocketing costs of healthcare and encourage competitive pricing for health plans.
While the media seems to focus on individuals’ attempts to get insurance, businesses — small, medium and large — have to address a number of new regulations as well. Some of these changes have been frustrating, and even harmful, to employers.
From fundamental definition changes for employees to a federally mandated type and value of coverage, businesses have met the 900-plus pages of the ACA with confusion. Part of the reason is because ACA compliance varies widely from business to business, and among states, so no one-size-fits-all solution exists.
Small or Large? It’s Complicated
What is considered a small business has changed with the ACA. At its most basic measure, a small business is one with fewer than 50 full-time employees. But the definition of a full-time employee has changed. For instance, it is now someone who works 30 hours per week, not 40.
To further complicate matters, part-time employees, combined together, can now equal a full-time employee. To comply with ACA regulations, an employer must count the number of hours all part-time employees worked each month and divide that number by 30 hours — the amount of hours it takes to be considered a full-time employee. If nine part-time employees each work 20 hours per week, that’s 180 work hours. The business would then take the 180 hours, divide it by 30 hours and come up with an equivalent of 6 full-time employees. The business must then include those “employees” in its number of employees that determine whether or not it is deemed a small or large business. This can have major implications for small businesses, particularly those who have only slightly fewer than the 50-employee threshold.
“Research recently said that over 40 percent of the people just walking around out there didn’t know the act had passed, didn’t know what it was, and didn’t know they’d be fined if they weren’t insured.”
-Mike Bertaut, healthcare economist for Blue Cross/Blue Shield of Louisiana
Photo Thinkstock and courtesy of Blue Cross/Blue Shield of Louisiana
Penalties Add up Fast
Included in the list of ACA regulations are Section A and Section B. To comply with Section A, aka Section 4980H(a), businesses with 100 or more full-time employees must offer coverage to a certain percentage of their full-time employees: 70 percent for 2015 and 95 percent for 2016. Businesses may offer coverage to part-time employees, but they are not required to do so under Section A. Next year, this requirement extends to businesses with 50 or more employees.
If a business offers coverage to fewer employees than the required percentage, it is vulnerable to a fine. If any one of that business’ employees signs up for a plan and draws subsidies from HealthCare.gov, the business will be fined $2,000 for each full-time employee on its payroll — even if only one person draws subsidies from the marketplace.
Large businesses, those defined as 50 or more full-time employees (under the ACA guidelines), must also abide by Section B regulations, aka Section 4980H(b), or face a penalty. Section B says that if a business offers coverage to its employees, that coverage must pass two tests: actuarial value and affordability. First, coverage must meet minimum requirements set by the ACA federal standard, also known as having the right actuarial value. Here, insurance carriers make things easier by certifying a plan with the actuarial value needed for compliance.
Affordability, however, is more complicated, as businesses can measure affordability in different ways.
Coverage can be deemed affordable if an employee is not asked to pay more than 9.5 percent of his/her wages for their share of the premium. If the premium is too high, the employee is free to reject the coverage offer and buy health insurance elsewhere, and if the employee goes to HealthCare.gov and draws subsidies from the program, the employer is now marked for noncompliance. Unlike with noncompliance for Section A, in this case, the business would be fined $3,000 for each individual employee who draws subsidies.
Businesses are required to self-report coverage information by filing a 1095-C form with their tax return. This form details the plans offered, to whom they were offered and how much they cost. The federal government collects and analyzes these forms to determine who is out of compliance and has earned fines.
Educating the Masses
Confusion and misinformation abound with the ACA.
“I saw research recently that said over 40 percent of the people just walking around out there didn’t know the act had passed, didn’t know what it was, and didn’t know they’d be fined if they weren’t insured,” says Mike Bertaut, healthcare economist at Blue Cross/Blue Shield of Louisiana. “That was five years ago, and half of them still have no idea. So clearly outreach is the key. We have to let people know what they’re up against.”
“Change depends on who you speak to, says Tony Cimino, director of sales and marketing for the LAHC. Formed as a result of the ACA, the Louisiana Health Cooperative (LAHC) is a nonprofit, member-owned organization that receives low-interest loans from the government and provides health insurance to local communities. “Healthcare insurance carriers can no longer increase rates for adverse risk. Before, health plans could require information about illnesses and could deny certain individuals coverage altogether if they had a severe illness the carrier didn’t want to cover. All that’s gone away now — no more health questions. For a lot of people this has been a godsend. Many couldn’t get insurance at any price at one point. If they could, a lot of people could not afford it. This has really leveled the playing field for everyone.”
To get the word out, insurance companies in New Orleans and Louisiana have begun various initiatives to explain the ACA and what it means for businesses and individuals.
Companies like Gilsbar and Blue Cross/Blue Shield of Louisiana have dedicated time for speaking at conferences and hosting presentations and other informational events across the city and state.
According to Derrek Barfield, senior sales executive at health and benefits management organization Gilsbar, one thing businesses absolutely should not do regarding the ACA is to sit and wait. The act is in effect, and if a business isn’t already compliant, the owner or employee in charge of benefits should determine what needs to happen as soon as possible or risk facing enormous penalties.
“Consultants have tools that project into the future based on claims trends and other factors to see what an employer’s total healthcare costs will look like in the future,” Barfield said. “If an employer is missing or is over a certain target, then they need to be making incremental changes now.”
“Waiting until the year in which the problem needs to be addressed can lead to a very disruptive and significant correction to their health plan,” Barfield continues. “It’s disruptive for employees and the business in general. Employers can make corrective actions with the advice of consultants to make small changes each year, and the strategy in place will be fine.”
Is Your Business Small or Large?
When it comes to calculating the number of full-time employees a business has, part-time labor counts. For example:
Let’s say a businesss has:
40 employees working 30 hours per week or less
30 employees working 10 hours per week
Total number of full-time employees = 0; Category: Small business
Under ACA guidelines:
40 employees working 30 hours per week or less =
40 full-time employees (full-time defined now as 30 hours or more)
30 employees working 10 hours per week:
Take the total number of hours worked (300) and divide that number by 30 (hours required to be full-time). Those 30 part-time employees now equal 10 full-time employees.
New total number of full-time employees = 50; Category: Large business
Other Effects of the ACA
• Employers are becoming better at managing their part-time employees and hours to avoid some of the ramifications of healthcare reform.
• Healthcare reform is also impacting employers’ hiring processes.
• Employers must include dependents in healthcare coverage but do not have to subsidize those dependents, only the employee.
• Employers have cut back on coverage so as not to exceed a certain limit and have to pay a “Cadillac tax” on top of usual coverage payments.
• Employers are choosing to take the risk of penalties rather than paying the additional costs of healthcare plans.