Depending on the source, the Patient Protection and Affordable Care Act, a recently enacted law designed to reform the health care and health insurance systems, is either a bold step toward improving health care in the U.S. or a growth-stunting nightmare that upsets 60 years of progress in employer-provided health insurance. Either way, the legislation is becoming a reality and is quickly pushing businesses closer to the administrative equivalent of the fiscal cliff.
“What I tell people is that PPACA is really the most significant health care legislation since Medicare was passed in 1965,” says Marty Hauser, CEO of SummaCare Inc.
The law is an attempt to reform the insurance industry, he says, eliminating certain practices such as refusing coverage to those with pre-existing conditions, and improving access while bringing greater transparency and accountability to health care delivery.
“These are monumental changes,” says William Hutter, founder and CEO of Sequent. “This is one of the largest government overhauls ever. It’s going to dramatically impact employers and the employer-based distribution system for health care.”
With that, employers will need to better understand the administrative requirements they’ll face, which is not simple.
“It’s a vastly complicated law,” says Joe Popp, JD, LLM, tax supervisor and affordable care act implementation specialist at Rea & Associates. To illustrate its complexity, Popp says the PPACA is being administered simultaneously by the IRS, Department of Labor, Health and Human Services and the Occupational Safety and Health Administration.
“All in, it’s going to take eight years of change,” Hutter says. “And most of the rules and the regulations that are going to govern how this is enacted aren’t even written yet.”
“It’s kind of like trying to change the tire on your car while you’re driving 70 miles per hour down the highway. Things are changing almost daily,” Hauser says.
Furthermore, business owners are going to have to cope with the increased costs.
Paul Jackson, a partner at Roetzel & Andress says there will be 21 increased taxes or fees that business owners or employers have to pick up.
“The Congressional Budget Office estimated that those will be more than $1 trillion each year — that’s trillion with a ‘T,’” he says.
Waiting for guidance
While there is some guidance on how businesses can prepare for health care reform, service providers who spoke with Smart Business said their employer clients complain about a lack of regulatory clarity. In fact, that was a concern for Sen. Max Baucus, a major contributor to the act. At a meeting of the Senate Finance Committee, he expressed concern over the gap in understanding of the PPACA by small businesses, which led him to say, now famously, of the act’s implementation, “I just see a huge train wreck coming down.”
And there certainly is reason for businesses to worry because a misstep on the side of the administration can lead to significant penalties.
“What I’m hearing most from clients is they’re concerned with compliance,” Jackson says. “They’re concerned about whether they fall within the pay or play, but also concerned about the penalties.” For example, he says employers can be fined $100 per day per individual for not providing the summary of benefits and coverage statement to employees, which is one of the new disclosure documents required by the act.
Another significant concern is confusion.
“Without clarity on how this affects them as an employer, employers are really grasping at straws,” says Kevin Cavalier, vice president of sales at SummaCare,
Still, some businesses wonder where they should begin.
“There are companies that have been on top of this for a long time, they’re ready to go and they’re waiting just like we are for guidance coming out from the IRS and HHS, and they are ready; they’ve done their implementation work,” Popp says.”But for most businesses, they haven’t really started or they’re not very far on the path.”
Cavalier says in the fall, the government will begin public service announcements and education to the employer community.
“I think then you’ll start to see advice for an employer based upon their specific situation,” he says.
However, quickly approaching is the enactment of one of the more complicated provisions, referred to as “pay or play,” which will require tough choices.
“The employer needs to make decisions on how it impacts them and what to do come 2014,” says Cavalier.
Pay or play
Most affected by the law will be employers with about 50 employees. According to the DOL, a large employer, defined as one with 50 or more full-time equivalent employees — those working an average of 30 or more hours weekly — could be assessed a tax for not offering its full-time employees the opportunity to enroll in a health insurance plan that offers minimum essential coverage.
This means employers have to make a choice whether to offer affordable coverage or pay the tax penalty, which has led some employers to question the value of providing health insurance. According to Jackson, “We have a number of clients that are seriously considering dumping their health care and just saying, ‘OK, we’re going to pay the $2,000 per year, per employee penalty because we can’t obtain health care coverage for employees for that amount of money.’”
Companies with between 40 and 60 employees have a tough decision to make.
“For those companies, some of the struggles are, is there a way you can get under 50 so that you don’t have to take on some of these other burdens,” Popp says.
Those trying to operate with fewer employees could implement lean processes, work with fewer people or outsource responsibilities such as payroll.
However, Cavalier warns of the repercussions of not offering health insurance.
“The con is if the employer chooses to do that, what does it do for employee morale?” he says. “What does it do for retention of good employees, especially if you’re in an industry that’s competitive in regards to obtaining new employees that have skill sets that you need?”
Beyond the pay or play decision, employers will also have to deal with individual market reinsurance fees, changes to W-2 reporting requirements, minimum essential coverage requirements and the implementation of health care exchanges.
“The administrative and compliance demands of ACA are very confusing and very expensive,” Hutter says.
While it’s certainly easy to see the PPACA as a dark cloud, there are positive aspects to the law. Hauser says, when looking at the act broadly, it is attempting to address pressing issues. “Regardless of whether you support or oppose the health care law, I think everyone would agree that the current way we do health care in America is pretty non-sustainable, especially in a world economy.”
He says the act has brought more focus to prevention by creating incentives for employers to offer more wellness and incentive programs “so that we can move from a sick-care model to a real health care model.”
Though discussions of the costs associated with the act have been at the forefront, there are other considerations for employees.
“It’s not numbers. The numbers are going to be what the numbers are, and there’s nothing anyone can do about that,” Hutter says. “Knowing that, now you have to figure out what the best thing to do for your organization is.”
He says the most important asset companies have is the thinking and creative abilities of their employees.
“Companies are going to have to think long and hard about whether they want to undermine the relationship with that most valuable asset of any company, which is its people.”