Health care reform is on the way, with most mandates starting in 2014, but it will be 20 or 30 years before we really know how the Patient Protection and Affordable Care Act (PPACA) will work, says William F. Hutter, president and CEO of Sequent.
“That creates much uncertainty for small and middle-market companies.
They don’t know what to do. And that uncertainty is bad for the economy and it is bad for business. When business owners can’t make decisions, it’s bad for all of us,” says Hutter.
Smart Business spoke with Hutter about some of the lesser-known aspects of the PPACA.
What are the minimum participation standards?
There are two standards for minimum participation:
• 80 percent of all eligible employees must take coverage from the employer.
• 70 percent of net eligible employees must take coverage from the employer.
Net eligible employees won’t include those who decide to get coverage from a spouse’s plan.
A really unique caveat about this is that if a company cannot maintain those participation requirements, technically no carrier has to write it coverage. That would force the company into a state health care exchange because it would be unable to provide a health insurance program for employees.
You could try to increase employee participation by improving the plan, but then the cost goes up and the company can’t afford it. Or the cost goes up and somebody can go to the state health care exchange and get a subsidized plan for less.
A lot of companies with between 75 and 150 employees are really going to be challenged. If they can’t meet minimum participation requirements and can’t afford to design a plan to compete with the exchange, they can give up and let everybody go to the exchange. But then they have to pay a $2,000, per employee, nondeductible penalty. For a company with 100 full-time equivalents (FTEs), that’s a $200,000 tax and they still don’t have a health plan.
How can companies that provide adequate health insurance still wind up paying penalties?
Say I run a company that has more than 50 FTEs and I’m offering a good health care plan. However, because of the subsidies that are offered, an individual opts out of my health care plan and instead seeks out insurance from a state exchange. A family of four can earn up to $80,000 and get a subsidy for buying on the exchange. I could still wind up paying a $3,000 penalty if I have an employee who opts out.
So companies will be weighing whether it costs more to provide health care or simply pay the penalty?
Correct. If that’s the case, how does that impact my company culture and how do I want to take care of my employees and their families? We don’t know how some of those questions are going to manifest. Or the fact that, as an employee, I get my health care out of an exchange, therefore I can go to work anywhere I want to. That begins to break down the loyalty factors between employees and companies.
What impact will the PPACA have on health insurance costs?
Based on the average cost of $440 per month for an individual, 75 percent is used for claims. That means the remaining 25 percent, or $110, goes for administration costs, profits, compensation, rents and other expenses related to the health care plan. The legislation says that 85 percent of every dollar must be used to pay claims. In order to maintain that same $110 a month, the cost for an individual goes up to $730; it’s just a reverse calculation. This can be attributed to the legislation and how it ultimately impacts the medical loss ratios.
William F. Hutter is president and CEO at Sequent. Reach him at (888) 456-3627 or [email protected]
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