The Patient Protection and Affordable Care Act (PPACA), also known as the Affordable Care Act (ACA) and Obamacare, was signed into law on March 23, 2010. As implementation is now underway, what are the implications of the ACA for electrical contractors? To discuss the answer to that question in detail would take thousands of pages. However, some key points are summarized here.
The main consideration for employers relates to the number of full-time equivalent (FTE) employees they have, with the primary demarcation being 50 or more FTE employees. The most important consideration for employers with 50 or more FTE employees is the “play or pay” option, which requires large employers—defined as having 50 or more FTE employees in the prior calendar year—to provide adequate and subsidized group health insurance to all FTE employees and their families beginning in 2015. Failure to do so will subject the employer to a penalty of, in most cases, $2,000 per year per employee (more on penalties later). The ACA defines full-time as an employee who, over the course of any given month, is employed at least 30 hours of service per week, on average.
Fifty FTE employees or more
The ACA requires large employers to offer coverage worth a “minimum value” and “affordable” to full-time employees or face a penalty. The penalty applies if coverage is 1) unaffordable: the employee premium is more than 9.5 percent of household income; 2) does not provide minimum value: employer pays less than 60 percent; and 3) at least one full-time employee declines employer coverage, enrolls in an exchange plan, and is eligible for a tax subsidy.
Regardless of the depth of current health plans that employers are offering, for a number of reasons, chances are that costs will increase in 2014.
“One relates to plan designs that may need to be enhanced with more benefits, which, of course, cost more money,” said Kevin Quinn, a partner with Chernoff Diamond, Garden City, N.Y.-based benefits and risk management consultants. “Some of these have already been implemented, such as the elimination of maximum benefits and required coverage for dependents up to age 26.”
In addition, in 2014, there will be no pre-existing condition limitations.
“There is also a reinsurance fee, which is a risk mitigation tax, because of the unknown risks that are coming into the insurance marketplace,” Quinn said. “There is a $63 charge per person in each plan, which will be charged over the next three years, the goal of which is to create a $25 billion pool for the unknown risk pool.”
Fewer than 50 FTE employees
Small employers—fewer than 50 FTE employees—are not required to offer health insurance coverage under the ACA. However, many of them may decide that doing so is necessary to maintain employment competitiveness. These employers will need to address questions such as: If we choose to offer insurance, how much will it cost? What will that insurance product look like? As is the case for employers with 50 or more FTE employees, costs for employers with fewer than 50 FTE employees who already offer insurance will likely increase. And, of course, there will be costs for employers who decide to offer coverage for the first time.
One reason for these increased costs is that there are new taxes, mandates and requirements for the kind of insurance that is being offered to the individual and small group market that don’t apply to the larger employers. That is, all employers that offer coverage will be required to cover the required essential health benefits (EHB) package, which is a comprehensive list of benefits and services that all individual and small group health policies must cover, including hospitalization and physician office services. Currently, there seems to be very little flexibility in terms of how to make these policies affordable.
Some employers with 50 or more FTE employees are considering attempts to circumvent the requirements of the ACA by shifting all or the majority of their employees from full-time to part-time status. Will this work? Technically, yes.
“Theoretically, a company can have 1,000 employees working 29 hours a week or less and not be required to offer health insurance under the ACA,” said Neil Model, president of Model Consulting, Trevose, Pa.
“We don’t believe that a large corporation would shift everyone to under 30 hours,” said Alicia Gibson, managing partner with IXG Consulting Group, Mooresville, N.C. “However, it might be a viable option for smaller companies.”
While the strategy theoretically can work, there are likely to be some major issues that might make such a strategy unattractive.
“Employers can get around having to pay insurance for employees who are under 30 hours a week,” said Chernoff Diamond’s Quinn. “However, it can be hard to manage a business this way. For example, you would have to hire a lot more employees to work part-time. This will lead to additional unemployment taxes, workers’ compensation taxes, and other fees and taxes associated with hiring more employees.”
And, of course, there is the obvious problem associated with trying to find enough employees willing to work part-time. Most employees, particularly technically skilled people, are going to want full-time work.
There are two potential penalties within the ACA that have implications for employers. One is the No Insurance Coverage Penalty. The other is the Unaffordable Coverage Penalty.
Under the No Insurance Coverage Penalty, if an employer with 50 or more FTE employees elects not to offer health insurance, that employer will be fined $2,000 per year for each benefit-eligible employee, minus the first 30 employees. So, for example, if an employer has 100 FTE employees and does not offer health insurance, that employer will be fined $140,000 per year (70 employees times $2,000). The fine is not deductible on taxes.
Under the Unaffordable Coverage Penalty, if an employer offers health insurance coverage that is deemed unaffordable to one or more employees (generally those earning lower wages), and if one or more of those employees applies for and receives a government subsidy, the employer will be fined $3,000 per year for each employee that receives a government subsidy. Again, this fine is not deductible.
“In other words, the $2,000 fine is for every employee over the first 30, if you do not offer coverage at all,” Model said. “The $3,000 penalty is only for individual employees for whom a plan is not affordable.”
25 or fewer FTE employees
While there are fines and other penalties for employers with 50 FTE employees that do not comply with the ACA, there are actually tax credits available to small employers with 25 or fewer FTE employees.
Specifically, two years of tax credits will be offered to qualified small businesses. To receive the credits, the small business must have an average payroll per FTE employee of no more than $50,000 and have no more than 25 FTE employees. For the purposes of the calculations of FTE employees, seasonal employees and owners are not considered.
However, these credits are very targeted. For example, the full credit is reserved for businesses with 10 employees or fewer and average wages of $25,000 or less. The credit phases out as it gets up to 25 employees and average wages of $50,000. In addition, as noted, the credit is only available for two years.
Starting in 2014, small firms can participate in the new Small Business Health Options, or SHOP, exchange, a new marketplace where individuals and small businesses can buy affordable, qualified health benefit plans. These exchanges are designed to offer more choices of high-quality coverage and lower prices, and the exchanges will offer a choice of plans that meet certain benefits and cost standards.
Each state will decide if it will participate in an exchange, and there will be charts to identify the multiple levels in the exchange. Individuals and small businesses in states that elect not to create individual state exchanges will be served by a federal exchange. As a result, it is important for all employers to understand what their individual state is or is not going to do and what the calculations will be.
“Whether they offer benefits or not, employers will be required to notify all employees that the exchange exists and that it is a viable option for those who may be eligible for a premium reduction or tax credit,” said IXG’s Gibson.
According to Quinn, all employers, regardless of size, were required to notify their employees about the health exchanges to all of their employees by Oct. 1. Employees may have wondered if they could get insurance at a lower cost through the state exchanges.
“Employees are also going to be disappointed if they find they do not qualify for a subsidy, especially when their group premiums are increasing because of all the new costs that have been created, and when benefits not specifically related to essential benefits or value are stripped out of the policies in an effort by insurance carriers to keep policies as affordable as possible,” said Victoria Braden, president and CEO of Braden Benefit Strategies, Johns Creek, Ga.
Besides educating employees about the exchanges, employers will also need to educate employees about their individual responsibilities, such as, in 2014, being required to purchase insurance on their own if they are not going to be covered by an employer’s group plan.
Where can employers get accurate, comprehensive and up-to-date information on the ACA and its various requirements? It is important to stay on top of information as it comes out from the Department of Health and Human Services, the Department of Labor, the state exchange websites or your trade association. It is a good idea to gather this information on at least a weekly basis.
Larger employers should also rely on their legal, human resources and accounting departments.
Employers of all sizes should rely on their health insurance brokers or agents, as well as experienced human resources consultants.
“These people can assist you in navigating this complex regulation,” Braden said.
Working with these experts on both short- and long-term planning can save employers significant amounts of money, according to Braden, when one considers the alternative—ACA-related audits and fines.
“I would also recommend that employers work with a competent health insurance agent and/or provide access to online webinars as a way to educate employees and curtail the loss of productivity associated with employees asking all of these questions of their employers directly,” Braden said.