By Neal Learner, Editor
April 22, 2013 Volume 4 Issue 8
Most small businesses say they will continue offering health insurance to their employees next year rather than pay a penalty when the Affordable Care Act’s (ACA) “employer mandate” kicks in. But as January 2014 approaches, some businesses are starting to finalize tough decisions on how to mitigate the expected cost increases of providing coverage, including by hiring more temporary and part-time workers and moving their operations out of the U.S. entirely, stakeholders tell HRW.
But for now, dropping health insurance appears to be low on that list of options.
According to a February survey of 400 small businesses with 50 or more workers, only 3% of employers said they plan to stop offering health insurance and pay the penalty. Another 71% said they plan to continue offering the coverage, noted the survey by the National Small Business Association (NSBA).
“We aren’t seeing an increase in businesses reporting they plan to opt for the penalty instead of provide insurance, but I think that’s partially driven by the fact that there is still a great deal of information missing about what kind of plan employers will have to offer and its cost,” says Molly Brogan, NSBA’s vice president of public affairs.
“I certainly think many employers are considering all options, but without more information, I think such analyses are increasingly difficult,” she tells HRW.
Under the ACA, businesses with 50 or more workers must offer health insurance to all employees who work an average of 30 hours per week and nine months per year. Alternatively, employers who don’t offer qualified coverage can take a penalty of $2,000 for each employee over a 30-employee threshold. The rules take effect on Jan. 1, 2014.
Many small businesses are still trying to understand how these mandates will affect them, says Brogan.
“I think the first step many are taking is determining if they are deemed to have 50 employees — which, per the law, is a wildly complex calculation including part-time employees, seasonal employees, 12-month look backs, business affiliations and so on — and therefore have to comply with the mandate,” she says. “They’re also trying to figure out if they’re eligible for the tax credit, which is actually pretty limited and only around for a few years. The rest of it is really a waiting game to get more details in terms of what the actual package looks like and costs.”
The Obama administration says the ACA will save small businesses money, and that the tax credit would provide roughly 4 million small firms a total of $40 billion in tax relief over the next 10 years.
But at least one key element of the ACA’s small business initiatives will be pushed back by a year. HHS on March 11 said it was delaying implementation of required multiple plan options under the Small Business Health Options Program (SHOP) insurance exchanges, because of “operational challenges.” Starting in 2014, workers at companies with fewer than 100 employees were supposed to have been able to choose from a variety of health plans through the SHOP. Instead, they may be limited to a single plan in most states. The delay applies only to the 33 states where health exchanges will be run by or in partnership with the federal government.
Employers Are Making Hard Calculations
Meanwhile, employers now are crunching the numbers and preparing to make some hard decisions next year, says Joel Allumbaugh, an insurance broker in Maine, and director of the Center for Health Reform Initiatives at the conservative Maine Heritage Policy Center.
He cites an example of a Maine employer who now offers benefits to employees who work 40 hours a week. Because the ACA requires coverage for employees who work 30 hours a week, this business owner suddenly will have to provide health insurance for many more people, he says.
“That’s a pretty significant impact,” Allumbaugh tells HRW. “In those cases, it becomes an economic decision. You start to say, ‘What is it going to cost us to add them to our plan? What is it going to cost us if we just drop the plan altogether?’”
Allumbaugh examined this cost question in a series of cases studies posted on the Center for Health Reform Initiatives website. One centered on a Maine blueberry farm operation that currently provides health coverage for 15 full-time employees, at a total annual cost of $90,540. The company hires an additional 295 seasonal employees, of which 70 would become eligible for coverage in 2014.
Under the first scenario, in which all 70 eligible individuals join the company’s health plan, the costs to the employer would rise by 175% to total $248,985. Under the second scenario in which 35 of the newly eligible take the coverage and another 35 receive subsidies on the exchange, the employer’s health care costs increase by 203% to total $274,762.50 (see table, p. 3). Under the third scenario in which the employer simply stops providing coverage to everyone and takes the $2,000 penalty for each full-time employee (excluding the first 30 employees), the costs drop 16% to total $76,250.
“Unfortunately, that’s the path that is most economically feasible, but it also translates to no longer offering coverage to the 20 people who rely on that coverage,” Allumbaugh says. “So who knows what the impact of that decision might be from an economics standpoint? There’s the issue of attracting and retaining employees.”
Steve Wojcik, vice president of public policy at the National Business Group on Health, notes that surveys have consistently shown that an employer’s health coverage is one of the most valued benefits. But after the ACA passed in 2010, executives and benefits consultants did the calculations to see if it makes sense to drop that coverage, he says.
“People reminded everybody that, ‘hey we’re doing this voluntarily right now, so we’re doing it for a reason and it must be a positive benefit as opposed to just a net cost,’” Wojcik tells HRW.
Employers recognize there are many reasons for providing health coverage, he adds, including two main ones: (1) the tax advantages that go to the employer and the employee, and (2) the likelihood the employers would have to increase compensation if they decided to take the penalty.
Penalty Could Rise Over Time
Wojcik also noted the $2,000 penalty will likely increase over time.
“They’re not going to stay that low,” he says. And once federal officials realize they’ll have to pay for the health care law starting in 2014, “they’ll be looking for revenue sources, and that seems like the most likely one,” he adds.
Others want to kill it altogether. Sen. Orrin Hatch (R-Utah) on Feb. 28 introduced legislation to repeal the “employer mandate provision” in the ACA. The American Job Protection Act (S. 399) has 28 co-sponsors and is endorsed by 27 business groups.
The reality of the ACA’s impact on the business community is just now starting to hit home to some business owners, says Allumbaugh, who has been giving presentations on the law’s impact before chambers of commerce across Maine.
“It’s a wake-up call. It’s scary for them,” he says of the many employers who rely on seasonal workers to staff the state’s crucial tourism industry. “There are particular industries that are very concerned and quite frankly should be. It’s going to represent a pretty significant cost impact to them.”
As such, employers are exploring ways they can stay under the ACA’s employer mandate thresholds, including by leveraging variable hours and managing the workforce differently, he notes. But Allumbaugh says one employer is considering drastic measures, and potentially moving his business out of the country.
“Once you identify, ‘Is there going to be a negative impact?’ the next question is, ‘What are we going to do about it?’” he says of these considerations.
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