The Affordable Care Act is generally considered the most comprehensive health insurance reform plan since the enactment of Medicare and Medicaid. Despite political pledges to repeal the law at the first opportunity, Texas businesses should focus their efforts on understanding the requirements of the Affordable Care Act and taking the necessary steps to ensure continued compliance.
There are major provisions of the Affordable Care Act that have potentially significant cost implications for Texas employers, most of which take effect in 2014. Until additional federal regulations fill in the gaps, it will take some time to comprehend the full ramifications of the legislation. However, there are distinct parts of the law that provide a clear picture of what Texas businesses need to understand now as employee health benefit strategies continue to evolve.
Creation of Health Insurance Exchanges
The passage of the Affordable Care Act provides new opportunities for solo entrepreneurs and small businesses to obtain competitive rate health insurance. State Health Insurance Exchanges (HIX) remain a key component of the legislation. A health insurance exchange is envisioned to be a virtual marketplace where individuals and small businesses can shop for health insurance at competitive rates. The exchange will allow visitors to compare costs, providers, and obtain quality ratings and other details. Exchanges are required to be fully operational by January 1, 2014.
In theory, an exchange will give small players in the health insurance market the same purchasing power as big business because increasing the size of the insured pool spreads out the risk, which in turn lowers employer costs. Initially, exchanges will serve individuals and small businesses. Large employers, those with over 100 employees, will be eligible to shop exchange programs in 2017.
States wishing to plan, create and implement their own HIX will receive federal funding until 2015, at which time they should be self-sustaining. Those states declining the federal government’s funding assistance will be forced to participate in a federal HIX. At this time, Texas has declined to participate in the state-based exchange program, which would default Texas into a one-size-fits-all Federal Health Insurance Exchange plan.
Individual and Employer Mandates
Whether it was designed to be a penalty or a tax, the requirement that every American carry health insurance or face a penalty is the law. The employer-based mandates were specifically designed to augment the individual mandate by facilitating the ability for Americans to obtain affordable coverage. Employers that have been on the sidelines, awaiting the long-anticipated Supreme Court ruling before developing a compliance program, are now forced to scramble before the 2014 compliance deadline.
As related to providing health insurance, the Affordable Care Act divides employers into three general categories.
- Small Employers with fewer than 50 employees are exempt from having to provide health insurance. However, tax subsidies are available to those small businesses that opt to provide employer-sponsored health insurance program through an exchange. Individual employees from these small companies will likely turn to the health exchanges referenced above for their insurance needs, or face fines.
- Midsize Employers with 50-199 full-time employees that didn’t previously offer health insurance must provide health insurance for all full-time workers by 2014, or face stiff financial penalties. To avoid penalties, employers must offer baseline coverage providing at least 60 percent of the actuarial value of the cost of benefits that cannot exceed 9.5 percent of the employee’s household income. If the coverage offered fails either of the affordability requirements, then the employee may independently apply and receive premium credits to purchase insurance through the exchange. If one employee of a midsize employer receives a premium credit to purchase health insurance through an exchange, then that employer would be assessed a fee of $2,000 per full-time employee, excluding the first 30 employees. For example, an employer with 50 full-time employees will pay a penalty of $40,000 ($2,000 X 20) for not offering coverage. For midsize employers that actually offer coverage, if one full-time employee receives a premium credit because the offered coverage is “unaffordable,” then the employer will be assessed a fine of the lesser of $3,000 for each employee receiving the credit or $750 per full-time employee.
- Large Employers with 200+ employees must enroll all new employees in their health insurance plan immediately. The penalties discussed above for failing to offer insurance, or for offering insurance that is too costly, apply to large employers as well, magnified only by the actual number of employees.
Small Business Tax Credits
Although few small businesses (fewer than 25 full-time employees with average salaries of less than $50,000) have taken advantage of the federal government’s existing health care tax credit program, some small businesses remain eligible for a small tax credit (average of $2,700 last year) to offset costs of providing health care insurance coverage.
The 80 Percent Rule
The law attempts to hold health insurance companies accountable by requiring that insurers spend at least 80 percent of every dollar on medical care – not administrative costs. Insurance companies must now reveal how much they actually spend on health care versus how much they spend on other non-care related expenses, such as claims administration, salaries and Super Bowl ads. The law provides that if insurers spend less than 80 percent of premiums on medical care, then they must refund the difference with health care rebates.
What Should Texas Employers Do?
While the dust is still settling employers, no matter the size, should become increasingly more familiar with the sections of the law that applies to their specific organization. Companies should audit their existing health insurance plan for Affordable Care Act compliance. Any compliance issues must be addressed prior to 2014, or face stiff financial penalties. However, the most essential compliance step for any businesses is to determine how many full-time workers or full-time worker equivalents are employed by the organization. If a business clearly meets the midsized employer level (50 or more full-time employees), then efforts should be placed on determining the best options.
Employers anywhere near the magic number of 50 employees must ensure an accurate employee count. Once the employee count is understood, it’s time to determine options, including a review of the potential penalty assessments.
The law was specifically drafted to avoid skirting the employer mandate requirements. While employers will not be required to provide coverage for part-time employees, part-time worker hours may be used in determining whether an employer has 50 full-time employees. For example, an employer that reduces his work staff from 50 full-time workers to 100 part-time workers may still face the employer mandate penalty because it appears that the target is the baseline of total hours worked by all employees. Additionally, business owners that own multiple, but separate companies performing completely different lines of work, may find their employee counts were combined for purposes of determining overall employee counts because the law looks to who owns the company for assessment purposes.
While there are many unknowns still to be discovered, there are certain things Texas businesses should now do to ensure Affordable Care Act compliance. While the debate may linger, the appeals have been exhausted, and the law remains. Waiting on the sidelines is no longer an option. It’s now time to get to work.