For small businesses with fewer than 50 employees, the biggest changes health care reform will bring about are related to the benefits landscape:
1. It will change how the rates of those plans will be determined. (Click here for Health Care Reform and Small Business: Part 1 (Rates), the first part of this discussion.)
2. It will change the types of plans employers will offer employees.
Types of Plans: Slim Pickings Ahead
I predict that the time is coming where brokers will start breaking the news to small groups that they have fewer choices in benefits plans. Health care reform is dictating to large groups how benefits plans have to function. In order to meet the definition of what a plan is, carriers are going to have to redesign their plans.
The carriers for a short time will continue to have a wide variety, although they eventually will narrow the choices to meet what is called a “qualified plan.” The government is telling us all what is appropriate, and this increased pressure on carriers will lead to limited choices for consumers. Robust plans will be available, but they will be cost prohibitive for most employers.
A fascinating thought leader in this area is Dr. Ben Carson. Carson is a pediatric neurosurgeon who was raised by a single mother in inner city Detroit and eventually carried out work on the first separation of conjoined twins. To summarize his big idea, he argues that if the government is going to mandate anything, carriers should be set up as nonprofit organizations. It is an interesting idea to consider. If insurance companies were set up as nonprofits, it would take out the natural battle between a government mandating a product and a business’s focus on making a profit.
What’s a Small Business to Do?
So given the current and impending medical insurance landscape, what can a small group employer do? For companies that are around that 50-employee mark, I would recommend that you think twice about getting bigger or expanding right now. Before you begin growing, be sure you count the costs. We haven’t had to consider these costs in the past, but this is part of our new reality under health care reform. If you need to hire and doing so is cost prohibitive considering the growing costs of health care, you may need to think about increasing the prices of your own services or products.
At the end of the day, you need to know what is in the bucket of money you have to give your staff (wages, taxes, benefits, etc.) and be sure that benefits are still valuable because you will have to evaluate what makes sense. I encourage you to look at your position in the marketplace and the skill set of your employees; see if a salary increase is a better choice in place of health insurance.
Fifty is the magic number when it comes to employee counts. But for small groups under that 50 mark, health care reform still has repercussions. Be ready to tackle those today.
What questions do you have about health care reform? Contact me to see how Servant HR can help.
There has been some confusion regarding news that came out July 2 about the Obama administration’s decision to postpone implementation of his health care program’s employer mandate. This change only affects large group employers — not those with fewer than 50 full-time employees. Small group employers have other issues to consider.
For small groups, the biggest changes health care reform will bring about are related to the benefits landscape:
1. It will change how the rates of those plans will be determined.
2. It will change the types of plans employers will offer employees.
Rates: Let’s Do the Numbers
Small groups aren’t currently required to offer health care benefits to employees. If they do offer it, they are offering it at will. The common worry among employers and analysts is that health care plans will be very expensive in the future, and projections are showing that this is a legitimate concern. Even if an employer is offering health insurance benefits now, the price tag could be prohibitive in the future as plan prices increase across the board. The result could be that employees are forced to find coverage at the individual level in the exchange market.
Why are rates expected to go up? For one, health care reform requires carriers to determine rates by a community rating. A community rating system (opposed to a system based on risk) is currently being used in New York, Maine, Colorado and several other states. It’s not a foreign concept, but it is not at a national level — yet. In a community rating system, a person’s individual health history and occupation do not help determine their rate. Today, when someone is in a higher-risk industry such as construction or commercial fishing in Alaska, their occupational risk is used to figure their rate. Likewise, if someone works in a slow-moving office setting that’s considered a preferred industry, that person may be able to earn credits to get lower rates.
Under health care reform, that kind of risk isn’t weighed. Under health care reform, employers or insurance companies may no longer ask if you or anyone in your family has a history of cancer, heart disease or other health issue. This may seem good for the employee and bad for the employer, but it’s not so cut and dry. Think about your driving history. Insurance carriers regularly reward safe drivers with less expensive rates, credits and better coverage because they can make an educated guess regarding what their risk is if they insure that driver. If someone has had multiple traffic violations and accidents over the past couple of years, that information is also used to determine rates. If all of us drivers are lumped together as just “drivers” without the benefit of a little driving history, there is much less incentive for us to drive safely. Similarly, it could be argued that under the community rating system, there is less incentive for your employees to be healthy.
The community rating does consider gender, whether the person is a smoker and where they live. If you live here in Indiana, where we are known as one of the unhealthiest states in the country, even running the Indianapolis Mini-Marathon every year, abstaining from alcohol and eating right at every meal won’t help you when the community rating system goes into effect.
Consideration by insurance companies of individuals’ preexisting conditions is going away as well. This has been the case for children since 2012. Last year, virtually all carriers in the state of Indiana pulled out of writing policies solely for kids. The result is that affected parents can either pay for children’s expenses out of pocket or go through the state to get a medical coverage policy. Medical Mutual of Ohio just pulled out of Indiana completely — for children and adults. With one less carrier, we have fewer carriers competing for Hoosiers’ business.
Helping everyone get coverage despite their health history seems like a good idea, but eliminating the ability to ask about preexisting conditions has negative repercussions for business. For example, employers would want to be aware if an employee coming onto a new insurance policy has had three back surgeries, because chances are good that person will need another one.
The bottom line is that when the insurance carriers can’t predict the kind of risk they may be covering, they have to think worst case scenario. As a result, rates are poised to increase under health care reform.
Look for Part 2 (Types of Plans) on the Servant HR blog tomorrow, July 26.
HealthCare.gov is a great source for more information.
The wheels of health care reform are constantly turning, leading to new and revised requirements being rolled out on a rather irregular basis. What was market driven up to this point will be directed by federal government health care reform in the future. In the past, employers of at least 50 full-time or the equivalent of 50 full-time employees had a choice whether to offer insurance. In the future, the choice will be laden with costly consequences. Health care reform is another large government regulation that will have an impact similar to that of Cobra and the FMLA on businesses. It’s a game of play or pay.
While there are still many unknowns, we do know several big changes business owners can prepare to see come to pass in 2014. Here are three ways you can prepare for health care reform in 2014 and one overarching “Bottom Line” choice to consider.
1. In light of the individual mandate, take a hard look at insurance benefits for employees.
The biggest thing to happen in 2014 will be the individual mandate. In 2014, virtually every American will have the “choice” to obtain health insurance coverage through one means or another. If they choose not to obtain health insurance, they will be subject to a related tax. Under this individual mandate, individuals will be able to purchase coverage on their own or through their employers.
If they don’t carry insurance, they will have to pay a tax. For example, if a 20-year-old male in excellent health chooses not to purchase insurance, he will have to pay a punitive tax. Other likely candidates who will choose to or have to pay this penalty include the superrich and the poor.
At this time, if you want to find private insurance, you have to go through a broker, which, some argue, is typically a rather clumsy process. As a result, the federal government is creating exchanges. These exchanges are essentially online sellers of insurance.
Unfortunately, creating a more transparent, fluid marketplace for insurance will not have the same effect this same approach has had on online sellers such as Travelocity and Amazon. The math needed to lower the cost of insurance simply doesn’t add up. The risk carriers take on is simply too high and unpredictable. In fact, projections are that insurance rates will go up as a result of the individual mandate. As insurance becomes more regulated, competition will likely go down.
2. Better understand upcoming market reforms so you can make smart decisions.
Another major change related to health insurance is market reform, which includes a number of changes. The Patient’s Bill of Rights falls under market reform and is designed to, among other things, protect children (and eventually everyone) from obtaining coverage if they have a pre-existing medical condition. The market reforms going into effect in 2014 also prevents annual dollar limits from being set on annual medical coverage of essential benefits such as hospital, physicians and pharmacy benefits.
Under the law, if a plan includes children, a parent can cover children on their health insurance plan until the child turns 26 years old. Prevention regulations in 2014 will require new private health plans to cover certain evidence-based preventive services. Rate reviews will be put in place to improve insurer accountability and transparency.
These are just few of the reforms coming down the pipeline for employers. It is important to familiarize yourself with these upcoming changes, as your employees will have questions about how these changes will affect them. Be prepared to help them understand why costs are going up and where the blame lies so you don’t feel the brunt of it.
3. Budget now to pay new taxes in 2014.
There are a number of new federally imposed taxes that will begin in 2014. These are being put into place to offset insurance premiums, which are projected to go up across the board.
- Reinsurance Assessment fee — A flat fee to be paid 2014-2016 that applies to both insurance and self-insured plans that provide major medical coverage
- The Health Insurance Industry fee — Created to help offset cost-generating provisions of health care reform
- Patient Centered Outcomes Research Institute (PCORI) fee — Designed to fund research that will compare different medical treatments and interventions to determine what is most effective
- Federally Facilitated Exchange User fee — Put in place to pay for access to exchanges facilitated by the federal government
Employers can’t avoid having to pay these taxes. It doesn’t matter how healthy your team is or how robust your wellness programs are, these new taxes need to be in your budget in 2014.
BOTTOM LINE: Decide who you are in your marketplace.
The most far-reaching, strategic action that business owners can take regarding health care reform is to think about what role they want to play and what impact they want to make in this new group benefits world and then act accordingly. Look at who you are in your marketplace and what you’re trying to be for your people. Ask yourself what all of this means from an employee retention and morale standpoint. What should you do in order to recruit and keep valuable employees?
If your business is small (49 employees or fewer), you have a real choice whether to offer insurance. If you choose to offer it, something else in your business will have to give to pay for the future pay increases that are inevitable. Perks such as gym memberships and paid parking spaces might become things of the past. If you’re a large group (50 or more employees) and you don’t want to offer insurance, you will be liable for a significant tax.
Aside from advocating change, business owners need to know how to handle the changes. Having a partner such as a PEO professional who can help them navigate these choppy waters is critical.
I can offer much more insight into how health care reform will affect your business. Please contact Servant HR more for a free consultation.
Even if leaders are born and not made, none is born ready to be their most successful. Jeff Leffew, founder and president of Servant HR, has worked with lots of business leaders through the years. Here are three characteristics he has noticed the most successful ones possess as they are faced with HR challenges and tasks.
Visit the Servant HR video page to learn more ways to strengthen your HR. If you can’t see the video above, visit http://youtu.be/Cz5Wg1Rupxg.
Through 2018, business owners will have new requirements to fulfill as part of the Obama administration’s healthcare reform or Affordable Care Act (ACA). The law spans 2,409 pages. In my experience with business owners, they typically aren’t interested in reading thousands of pages of legal details and spending an inordinate amount of time to learn the ins and outs of a reform. But it can be difficult for growing businesses to stay compliant because of the overwhelming bureaucracy, and triggers spurred by increasing employee numbers.
To keep things relatively simple, for 2013, here are three major HR-related requirements business owners need to fulfill to avoid getting into hot water.
1. Beginning March 1, 2013, employers must provide employees with written notice about their state’s health insurance exchanges.
If you follow the news at all, you have heard about health insurance exchanges. Just last week, the federal government extended individual state’s deadlines to make a decision about who would be setting up their exchanges: the individual state or the feds.
The tricky part about the ACA’s deadline, as you may have guessed, is that these exchanges likely won’t be in place by March 2013.
The exchange is a virtual marketplace that allows individuals or small businesses to purchase health insurance. It’s mandated that each state have its own exchange. If a state sets it up on its own, it is responsible for vetting out prospective private carriers to become part of the exchange. This calls for a review of each carrier to make sure they meet and maintain the required standards. Individuals can then go on the online site and get quotes for insurance.
The debate around exchanges is especially because the ACA says states have to carry out the health insurance exchange projects out of their own pockets. Many states have said they weren’t going to do it. Indiana, for one, is struggling with the choice.
2. On 2012 W2s filed in 2013, employers must report the value of employer-sponsored healthcare coverage for each employee.
For example, say I’m a dependent. My company pays $X and I pay $Y into my employer-sponsored benefits plan. The total value ($X+$Y) must now be included on a W2 starting next year.
No clear reason as to why we have to report this has been given. But a few things are sure. With this new requirement, insurance premiums will be more traceable, which relates to the tax value. The government currently knows our pre-tax contributions, but it doesn’t know the amount an employer is paying.
This requirement comes into play more clearly in 2014 when the so-called “play or pay” penalty takes effect. Essentially, if an employer of 50 or more employees doesn’t provide minimum health coverage and also a minimum employer contribution, the employer will pay a penalty. The W2 number in theory enables government regulators to make sure people are staying legal.
Employers of small businesses don’t need to be concerned with this rule — for now. Employers filing fewer than 250 W2s the prior year are exempt from further notice.
3. Flexible Savings Account limits to no more than $2,500 is effective on Jan. 1, 2013.
An FSA is an IRS-created program that allows employees enrolled in a qualifying high-deductible health plan (HDHP) to save for and pay for health-related things such as unreimbursed medical expenses. With an FSA, employees set money aside for impending medical expenses that may incur through regular contributions from their paychecks. When they spend money from their FSA, it is tax free. For example, an employee can choose to save $1,500 at the beginning of the year for their FSA. When that employee goes to the doctor’s office or pharmacy and uses the FSA card, they don’t’ pay taxes on the expense.
Currently, there is no limit on the amount an employer may contribute to an FSA, and generally the employee either uses the money or loses it.
The big advantage of FSAs for employers is they provide a tax shelter. With the cap on the amount that can be contributed, this tax shelter is diminished. In general, a disadvantage of FSAs for employers is that if an employee used the maximum amount of his FSA amount within the first few months of the calendar year and then quit his job, the employer is the big loser. On the flip side, if the employee elects $1,500 and just uses $500 for an entire year, the employer wins by enjoying the tax shelter FSAs provide.
Broader repercussions for employers
Because of healthcare reform and its Medical Loss Ratio provision, there’s a push by insurance carriers to lessen or eliminate commissions for their brokers. With the MLR, health plans have to provide rebates to employees if employers’ percentage of premiums spent on reimbursement does not meet the minimum standards for a given plan year. If an employer gets caught spending less than the standard, they have to reimburse by actually writing checks to the employees.
As a result, carriers are looking for ways to cut costs. In the near future, commissions for brokers are going to look a lot different and, in some cases, are going away. The danger for employers is if you don’t have someone consulting or advising you and your employees, you are the one who is at risk. And with tougher, different rules, you need someone to hold your hand and guide you through the implementation of the healthcare reform.
Unique thing about Servant HR is we automatically have all the data we need to take the steps required to satisfy the ACA requirements. A traditional broker, for example, doesn’t have access to payroll. He can’t do the pay-or-play analysis. We have much more access and abilities.
In the future, we will also see a shift to moving full-timers to part-time work. There will be a huge part-time market develop as employers begin to feel the pains of ACA rules and discover ways to avoid them. Employers have to figure out how to migrate through this landmine.
Watch this video to see Servant HR’s Leah Elms cover “Three Things Every Employee Should Know About Healthcare Reform.”