What employers need to do now to prepare for healthcare reform
Employers should already be planning and preparing for the Patient Protection and Affordable Care Act (PPACA) before it takes effect in 2014, according to local consultants who advise businesses on various aspects of healthcare coverage.
PPACA, commonly called “Obamacare,” represents the most significant regulatory overhaul of the country’s healthcare system since the passage of Medicare and Medicaid programs in 1965. Furthermore, many of PPACA’s provisions impact employers and affect the level of healthcare coverage they are required provide their employees without facing penalties.
To better prepare area organizations, the Meadowlands Regional Chamber’s (MRC) Healthcare Committee recently presented a Healthcare Symposium called “What Employers Need to Do Now to Prepare for Healthcare Reform.” The event featured presentations from Florio Perrucci Steinhardt & Fader LLC on the legal ramifications, Sax Macy Fromm & Co. on accounting provisions, and Employee Benefits Advisors Group on benefit planning for employers.
“For most businesses, health insurance is the second highest expense after payroll. Healthcare reform has brought with it a tremendous amount of new rules and regulations that businesses must comply with,” said Patti Goldfarb, chair of the MRC’s Healthcare Committee and president of Employee Benefits Advisors Group. “There are new fines and penalties for not following these rules.”
Impact on “large” employers
The regulations of PPACA apply to different size organizations, depending on the number of people employed. The first step to determining how the legislation will affect an employer is determining the size of the organization. Most simply, PPACA defines “large” organization as 50 or more full-time employees.
However there are other provisions to the law and situations where an employer may still fall in the “large” category, such as when part-time workers cumulatively count as “full-time equivalent employees.”
Full-time employees are defined as working more than 30 hours a week. Part-time employees are counted as full-time equivalent employees according to the following formula: the number of hours of service of each part-time employee for any one month divided by 120. For example, if a company employs two workers who each clock 25 hours of service per week, the number of their total hours of service per month would be 200, divided by 120. Together these two part-time employees would count as 1.6 toward the total number of employees.
Under PPACA, employers with 50 or more full-time employees (or equivalent) are required to offer comprehensive affordable health coverage to its employees or they will be charged a “shared responsibility payment” in the amount of $2,000 per year per full-time employee, not counting the first 30 full-time employees.
For example, an employer with 100 full-time employees in 2013 who does not offer any health insurance coverage as of January 1, 2014 will be required to make a $140,000 shared responsibility payment to the federal government in 2014.
Impact on “small” employers
A company with less than 50 full-time employees will be faced with the decision to keep current coverage or buy a plan from the federal exchange.
Small businesses with 25 or fewer employees may be eligible for a tax credit if they provide qualifying healthcare coverage to employees. The tax credit serves as incentive for these employers to provide healthcare coverage to employees. The tax credit may pay for up to half of the cost of providing health insurance to employees. This credit would last for up to two years past the establishment of the exchanges in 2014.
Specifically, the tax credit accounts for 35 percent of the employer’s health care costs before 2014 and 50 percent for two years thereafter. There is no transition after the two-year cutoff so employer costs could double the following year, potentially forcing some employers to drop a benefit to which employees had grown accustomed.
A company that qualifies for a tax credit can only obtain this credit by purchasing coverage through the exchange.
Additionally, a company with less than 50 full-time employees may also have the option to not provide coverage to employees without fine or penalty. However, there are other reasons aside from the tax credit to incent employers to provide their employees with health coverage, according to Goldfarb.
For employers not required to provide healthcare or held to the shared responsibility payment, they should consider if health insurance essential to being competitive and maintaining satisfied, productive employees. Also, would senior management be comfortable purchasing insurance in a public exchange?
Individual mandate: employee responsibility
Not all the provisions and responsibilities ensued by the PPACA fall upon the employer, as employees will also be faced with decisions.
“The first thing to recognize in the Affordable Care Act is that it is an individual mandate, not an employer mandate,” says Paul T. Fader partner and member of the executive committee of Florio Perrucci Steinhardt & Fader, LLC. “So it really falls up on the individual to make sure that they have coverage.”
Employees are required to obtain health coverage through one of the following ways: employer-sponsored plan (insurance through work); government-sponsored plan (Medicare/Medicaid); or the newly established American Health Benefit Exchanges.
Taxpayers failing to obtain adequate coverage will be subject to an excise tax, according to Kathleen Alexander, CPA, a partner at Sax Macy Fromm & Co. This tax will be equal to the greater amount of the following: a fixed dollar amount or a percent of household income. This will be fully phased in by 2016 with a flat dollar amount of $695 per adult and an income percentage of 2.5 percent. The maximum household penalty increases to $2,085 in 2016.
How employers should prepare
Employers should know the direction they are heading by the fourth quarter of 2013, according to Goldfarb.
“It is important to assess the needs or your organization in light of your future objectives, your industry’s standards, and your employees’ needs,” Goldfarb says.
Goldfarb recommends implementing a tracking system this year in anticipation of information that will be required in the near future. This system should include:
- Records of the premiums paid per employee for health insurance in anticipation of having to report then on W-2’s next year. Larger employers are already required to do this.
- List of medicare eligible employees, medicaid coverage, spousal waivers, and cultural requirements such as non-English language documents.
- The number of hours worked by part-time employees and seasonal employees.
- An employee assigned to be the “point person” to be in charge of the healthcare program information and claims. Typically, this is your insurance broker. You should also have one employee with fiduciary responsibilities.
- The defined roles of each of the vendors (insurance agents, insurance carriers, consultants, etc) you work with.
- Documentation of all advice and recommendations from consultants.
According to Fader, there are several questions an employer should ask this year before ACA goes into effect:
- What is the most cost-effective way for your business to comply with the ACA?
- What is the cost of providing coverage vs. the cost of making shared responsibility payments?
- What are the potential benefits of downsizing?
Employers should also keep in mind that PPACA remains a changing piece of legislation, whose requirements will be further clarified over the next 1 to 2 years. There will be an increase in regulatory guidance in 2013 and 2014 as the United States Departments of Treasury, Labor, and Health and Human Services promulgate regulations.
The MRC’s Healthcare Committee serves the membership by providing resources and information on issues of healthcare insurance, safety, wellness, risk management and more. If you have questions on PPACA or these health and wellness topics, please contact Patti Goldfarb at 201-255-6239 or email@example.com.
Joe Garavente is associate editor of Meadowlands USA and a marketing and communications specialist for the Meadowlands Regional Chamber.