Small Biz, the ACA, and 2015

The Affordable Care Act, or Obamacare as it has come to be known, has brought with it a slew of issues related to its impact on citizens and business owners. The latter group is who I am addressing in this post.

Employers, as defined under the ACA, have special obligations that do not concern the average citizen. Joe Citizen logging onto the ACA web portal to find a suitable provider and plan only sees one half of the equation. Joe Citizen is probably unaware of Small Company’s obligations. Until now, providing healthcare to employees was generally optional to many small and mid-size businesses. It was usually offered at a premium price since the employer likely couldn’t afford the high cost to outright insure its employees. Larger companies have generally provided some level of relatively affordable health care with benefits and co-pays ranging from decent to amazing. A multi-national, multi-million or billion dollar a year company with thousands of employees, deep pockets, and bargaining power can do that. Our friend, Small Company, however lacks many of the attributes to secure low cost, high quality health insurance for its labor force of 75 or 100 employees. The ACA is set to change that very soon…as in, about a year from now. The employer provision was set to begin January 2014. However, due to issues related to monitoring implementation of the new requirements, this provision of the plan has been extended to January 2015. In other words, businesses have about a year to figure out a way to comply or change their business structure to avoid the ACA applying to them.

ACA Requirements

The American Care Act requires that employers who have 50 or more employees working “full time”, as defined by the ACA being 120 or more hours per month on a regular basis, offer affordable health care to their employees. The employer has an option, however, which is to pay a penalty if they fail to offer insurance. For some companies, this penalty will end up less than the cost to subsidize a portion of health insurance and they will simply opt to pay it. For others, however, the penalty pales in comparison to the cost of offering insurance.

Let’s get a few facts from the source itself…

  • The [penalty] payment is scheduled to begin in 2015.
  • If you have 50 or more full-time equivalent (FTE) employees, you may have to make this payment if:
  • at least 1 of your employees qualifies to save money on monthly premiums in the Marketplace.
  • If an employee's share of the premium costs for employee-only coverage is more than 9.5% of their yearly household income, the coverage is not considered affordable.
  • A health plan meets minimum value if the plan's share of the total costs of covered services is at least 60%.
  • If you don't offer insurance, the annual payment is $2000 per full-time employee (excluding the first 30 employees)
  • If you do offer insurance, but the insurance doesn't meet the minimum requirements, the annual payment is $3000 per full-time employee who qualifies for premium savings in the Marketplace

The basic arithmetic say that if a company has 50 employees (making it responsible under the ACA), but fails to offer affordable insurance, then it has to pay a $2,000 penalty per head for 20 employees - at a total cost of $40,000 per year. Definitely not pocket change in the least.

Who is Impacted?

The first assumption is that employers who have never offered health insurance to their employees are going to feel the brunt of the ACA. This is true, but they are not the only group. Keep in mind that one of the ACA’s main goals was to offer “Affordable” health care to every American. If the employer has offered insurance to their employees in spirit only - something to be a tag line on the company benefits website or brochure, then it may not cut it anymore. It sounds great to say that Small Company offers health care to all its employees…until signing up for the health care reveals that it is $800 a month with a $2,500 deductible and $50 copay. The ACA is requiring employers to step up and come into compliance with healthcare offerings that are actually affordable to average people. Failure to do so will result in fines/penalties. Additionally, if employees sign up for insurance through the exchange and choose a plan that provides a credit or cost sharing reduction, the employer must pay a penalty.

But There Must be a Way Around Fines Right? wink wink…

Small Business quickly came up with a solution to the problem. If the guidelines only apply to businesses with 50 or more employees working 30 or more hours a week, then the solution is easy. Either cut the workforce under 50, or if that isn’t a viable solution, cut everyone’s hours under 30. Aside from the bad will and drain on morale that would result in cutting 10 paid hours a week from everyone’s paycheck, or leaving everyone in fear of being laid off so Small Company can get down to 49 employees, there are other very important issues to consider.

Here’s the problem - ERISA. In case you aren’t familiar, this is the Employer Retirement Income Security Act and it offers penalties for any employer that interferes with an employee obtaining benefits to which they are entitled. (As a side note, if you are operating a business with employees, you should be familiar with ERISA to avoid claims against you.) With the ACA, employees are entitled to affordable health care because they are citizens, and full time employees are entitled to their employer offering it to them. Cut the workforce and those fired employees just had their rights interfered with by the employer. Cut the hours and those employees just had their rights interfered with by the employer. Lose/lose situation.

Another major problem with this strategy is the Whistle Blower provision of the ACA. You see, although it has yet to be tested since the law has not fully gone into effect, the ACA provisions are being interpreted by labor and business attorneys like myself. The problem is that cutting employees’ hours or laying them off without cause for the sole purpose of avoiding compliance with a law could be in violation of the Act. Firing employees who report this behavior is clearly in violation of the Act. Advising employees not to sign up for a plan on their own that comes with a credit or cost sharing reduction, or firing them for doing so, also violates the Act.

Next Steps

Not sure if your small business is in compliance with the new regulations, or maybe worried about your next step? Drop me a line and we can discuss your situation, possible solutions, and potential outcomes.