January 3, 2013

It’s the nation’s most comprehensive health insurance reform since Medicare. And it’s been endorsed as constitutional by the U.S. Supreme Court.

Now, how will the Patient Protection and Affordable Care Act (PPACA) affect your business? Will your premiums go down? Will it be easier to shop for insurance? Will the available policies offer better coverage? And will you be protected from those profit-busting price hikes that so often occur when one employee in a small group gets seriously ill?

Your most important questions will be answered at the end of this article. But here’s one thing to get out of the way first: No employer will be required to provide health insurance. Some employers, as you will see, will pay penalties if they do not provide insurance and their employees decide to buy insurance from new statewide insurance pools.

SMALL IS GOOD

Health insurance reform comes at a time of rising premiums for small business owners and employees. Annual premiums for employer-provided family coverage rose to just under $16,000 in 2012—a rate some 4 percent higher than 2011, according to a new report from the Kaiser Family Foundation. The 2012 rise is somewhat less severe than the 9 percent rise recorded in 2011. That’s largely attributed to a sputtering economy, tighter home purse strings that discourage doctor visits and higher employee-paid deductibles.

Here’s some good news: The PPACA contains some benefits geared specifically to the needs of small employers. “I think the legislation is really looking out for the smallest of small businesses,” said Shawn Nowicki, director of health policy at Northeast Business Group on Health (NEBGH), a coalition of 175 employers, unions and health care providers in New York State, Connecticut and New Jersey.

How so? Right out of the gate the bill provides a tax break. Consider the following questions: Do you have 25 or fewer full-time employees? Are their average annual wages less than $50,000? And do you contribute more than 50 percent of your employees’ total premium costs?

If your answers to those three questions are “yes,” then you may well receive some assistance with your premiums, thanks to a tax credit of up to 35 percent of your contribution toward your employees’ health insurance for this tax year and 2013. The credit will increase to up to 50 percent for tax years 2014 and 2015.

For this year and 2013, the full tax credit is available to employers with fewer than 10 employees whose average annual wages are less than $25,000. The tax credit gradually scales down as workforce sizes and average wages increase.

Here’s an example. Suppose your business employs 10 full-time workers and their average wages are $25,000. If your annual employer health care costs are $70,000, then you are entitled to a $24,500 credit each year for 2010 through 2013. Starting in 2014, the credit will be $35,000.

For some help on calculating your own credit, see the guidance recently posted on the website of the Internal Revenue Service. Go to www.irs.gov and click on “Affordable Care Act Tax Provisions”; then see “Small Business Health Care Tax Credit.” Also visit www.smallbusinessmajority.org, go to “Healthcare Tax Credit” in the upper right-hand corner and click on “Go to Calculator.”

Businesses with 50 or fewer employees benefit from another tax-related benefit: They may opt out of providing insurance with no penalties. Got more than 50 employees? The story’s a little different. As is the case with smaller businesses, you are not required to offer health insurance. However, if you do opt out and it happens that one or more of your employees goes to the state insurance pools to purchase coverage, you will pay a fee of $2,000 per full-time employee, excluding the first 30 employees from the assessment.

MORE CHOICE

Tax credits are one thing. Getting enough choice in the insurance-policy marketplace is another. Too often small business owners are faced with limited options: Maybe they have only one or two carriers who will even take the time to talk to them. And negotiating for lower premiums or better benefits? Forget it.

That’s expected to change with the network of state-level insurance exchanges slated to kick in come 2014. “The exchanges will make buying insurance a lot easier for small business owners and thus reduce the administrative burden,” said Terry Gardiner, national policy director for the Washington, D.C.-based advocacy group Small Business Majority. “Right now the employer has to get a broker, shop for policies, analyze them and then attempt to negotiate better rates from a weak bargaining position. That can mean a big investment in labor and time that can be onerous at small companies, which typically lack a human resources manager.”

Things should be much easier with the exchanges in place, said Gardiner. “The exchanges will negotiate with insurance companies on behalf of all small businesses and come up with the best deals they can find. All the employer will have to do is figure out a budget, then say, ‘Here is the amount I will contribute toward premiums and here is the employee’s share.’ The employees can then go to the exchanges and select what plan they want.” Policies will be available for each of four benefit tier levels.

States are moving at various speeds to get their exchanges up and running. “States are reacting differently based on how things were set up before reform passed,” said Rhett Buttle, Small Business Majority’s national outreach and government affairs manager. “For example, California is moving much quicker than some other states because it had already been working on many of the issues that were addressed in federal healthcare reform.”

“Now that the focus has moved to the states, it’s vital that small business owners get involved,” added Buttle. “Small business voices need to be heard by those who are drafting the regulations that will make the law a practical reality.”

Temporary high-risk pools, called Preexisting Condition Insurance Plans (PCIPs), are being put in place until the state exchanges are activated. The PCIPs are important to individuals, including small business owners, who have been unable to get health insurance because of a preexisting condition. Anyone who has been denied coverage due to a preexisting condition and who has been uninsured for at least six months prior to applying for enrollment is eligible. Those individuals who join a PCIP will be able to get coverage until 2014, when the state exchanges are established, without a gap in coverage.

Will insurance carriers cooperate with the new exchanges? Gardiner thinks so. “The carriers will want to market their insurance policies through the exchanges because of the vast pool of customers they represent,” he said. Bottom line: “Small employers will be able to offer choice instead of a single plan, at reduced administrative costs, so they can become more competitive with big-business competitors,” Gardiner noted.

More choice? Great. But will those state exchanges really exert downward pressure on rates? Maybe the competitive marketplace will work as planned, but no one really knows how the numbers will calculate. “On one hand, the exchanges would provide a standardized process to make it easier to go online and select plans,” said Nowicki. “And while the competition will theoretically make insurance cheaper, it is hard to say whether it will in actuality.”

BROADER COVERAGE

Greater choice of plans is a big plus. And overall plan quality should also improve. Too often small businesses have had to settle for substandard plans that don’t go anywhere near matching the coverage of plans available to big business. That can make it difficult for small employers to compete for the best talent.
The new law changes that: Carriers are required to comply with minimum standards that erase some perceived abuses of years past. Here are some examples of the new parameters:

• A requirement that all policies cover children younger than 19 with pre-existing conditions. That mandate extends to all adults in 2014.

• A ban on lifetime dollar limits.

• Elimination of rescission—or the practice of canceling coverage after someone gets sick.

• A requirement to extend coverage to age 26 for dependent children.

Finally, the legislation prohibits the practice of raising premiums when workers get sick. Carriers will be allowed to adjust rates only on the factors of family composition, tobacco use, age and employer location. That should eliminate the sudden spike in premiums that so often occurs for small employers.

“Many times small businesses don’t even know why their insurance gets jacked up,” said Gardiner. “The smaller your company, the worse it is. This reform bill will reduce such dramatic changes because everyone will be in one large pool.”

The end of price discrimination by health status, along with the bill’s requirements that everyone buy insurance, should encourage worker mobility. Smaller employers will find it easier to recruit top-performing workers from big-business competitors.

THE CHALLENGE AHEAD

Employers are unsure about how difficult it will be to understand and comply with the legislation’s provisions. There is a hidden cost in terms of labor and time required to manage all the changes required by the legislation. Employers will have to learn about the requirements of the legislation and monitor additional guidance from agencies such as the U.S. Department of Health and Human Services.

It can all seem like an unneeded headache at a time when business owners are already reeling from the effects of a soft economy. “Employers are all groaning at the thought of administering health insurance under this new legislation,” said Joan Smyth, partner at the New York City-based Mercer consulting firm. One option is for employers to opt to pay the penalty for not offering any health insurance—but that can be expensive as well.

Employer concerns that higher carrier costs will trickle down to the real world of monthly premiums seems to ring alarm bells everywhere. “One area where Congress will come back to the table in future years is that of the overall issue of health care inflation,” said Gardiner. “Some $2.4 trillion flows into the health care industry each year. Reforms to control costs have not gone far enough. Congress will have to come back and finish the job on cost containment.”

Nevertheless, Gardiner feels the legislation in its current form was a necessary first step. “We cannot keep going down the road where we have 47 million people uninsured who are utilizing the emergency rooms,” he said. “We are paying for that now, because each of our policies now pays $1,100 on average each year for uncompensated care.”

END GAME

Now, let’s tackle those four questions that opened this article: Will your premiums go down? Yes, if you are one of the many small employers hit by huge price increases because of an uncompetitive marketplace or a serious illness suffered by one employee. Perhaps only modestly, if at all, if you are a larger employer, in which case you may be pleasantly surprised at the greater “bang for the buck” you get in terms of more comprehensive care that you are able to obtain for you, your family and your workers.

Will it be easier to shop for policies? Yes, once the state exchanges are up and running. Will the quality of the policies be higher in terms of coverage? Yes, this is a given. And will you be protected from those profit-busting price hikes that so often occur when one employee in a small group gets seriously ill? Yes, this illness will be cured by the legislation.

What should you do now? Start by putting together a game plan that tackles the provisions of the law that kick in this year and next. By all means, lay the groundwork for those provisions slated to take place over the next five years. However, bear in mind that the legislation’s finer points may get tweaked a lot—especially those long-range items that do not go into effect until 2014. Watch for regulations interpreting the law (see sidebar: Tracking New Regulations.)

The scope of what the federal government has done with health care reform is big. The legislation attempts to put a lot of moving pieces together, to weed out inefficiencies in the market and to create statewide buying exchanges. Time will tell how much impact this has on employers.

—Philip M. Perry is a freelance business writer based in New York City. He maintains a website at www.editorialcalendar.net and can be reached at webmail@pmperry.com.

SIDEBAR 1: TRACKING NEW REGULATIONS

SIDEBAR 2: GET SOME HELP

SIDEBAR 3: HIGHER COSTS

SIDEBAR 1: TRACKING NEW REGULATIONS

What will the federal health care reform law mean in terms of new regulations? Most of the answers will be coming in the form of guidelines from the U.S. Department of Health and Human Services, Office of Consumer Information and Insurance Oversight. For the latest news visit http://cciio.cms.gov and click on “Regulations and Guidance.”

The agency has issued guidelines in at least three areas that will be of interest to small businesses owners: dependant coverage of children, early retiree reinsurance program and grandfathered health plans.

“These regulations apply to anyone, including small business owners,” said Rhett Buttle, national outreach and government affairs manager for the Washington, D.C.,-based advocacy group Small Business Majority.

“For example, any small business owner who has a child under the age of 26 that needs insurance will benefit. And the early retiree reinsurance provision will provide relief to employers and access to many people who retire without employer-based coverage (but before they’re eligible for Medicare). This is significant to small businesses because up to 50 percent of small business owners are over the age of 50.”

“The grandfather clause allows small businesses to keep the current insurance plan they have (before reform became law), as long as it provides adequate care and they don’t make any substantial changes to the plan,” said Buttle. “These ‘grandfathered’ plans will not be subject to many of the law’s new regulations on benefit design and company behavior.”
(Back to the article)

SIDEBAR: GET SOME HELP
The Patient Protection and Affordable Care Act (PPACA) is a massive piece of legislation with provisions that can be difficult to comprehend. Here is some assistance on the web:
The U.S. Department of Health and Human Services (HHS) has launched a website to provide information about the health care reform legislation at www.healthcare.gov.

The Kaiser Family Foundation has created an outstanding compendium of documents summarizing the health reform legislation. Go to http://healthreform.kff.org/.

The Small Business Administration (SBA) has posted information on how health care reform will affect small businesses. Go to http://www.sba.gov/content/health-care-health-care-reform

Mercer, the New York based consulting firm, has mounted a useful site with documents and guidance about the health care reform. Go to www.mercer.com/us-health-care-reform.

(Back to the Sidebars)

SIDEBAR 3: HIGHER COSTS

Everyone admires the ideal of health care parity. But many people are concerned about the cost. If carriers are required to start covering all those previously excluded individuals who have pre-existing conditions, won’t the higher costs be passed along in the form of higher premiums?

One counterbalance to this scenario is the legislation’s mandate that all Americans purchase health insurance or pay a fine. If enough healthy people join the insurance pool, goes the reasoning, their small medical bills should counterbalance the big bills from seriously ill people. “Insurance is about balancing risk,” said U.S. Department of Health and Human Services Secretary Kathleen Sebelius. “So we need people who are well to be in the system.”

Maybe so, but not everyone is so sure the math will work out. “Carriers are very nervous about the mandate to cover pre-existing conditions,” said Joan Smyth, partner at the New York City-based Mercer consulting firm. “They are told that things will balance out because a lot of healthy people who currently don’t buy insurance will be required to do so under the legislation. But the insurance companies are saying ‘not necessarily, because the penalty for not buying insurance is very low and does not kick in until 2015.’ The fear is that a lot of healthy young people will wait until they have an accident before they buy health insurance.”

The carriers’ fears are discounted by Terry Gardiner, national policy director for the Washington, D.C.,-based Small Business Majority, an advocacy group. “One of the things to keep in mind is that the mandate to include high-risk individuals does not go into effect until 2014 when the exchanges are in place,” he said. “Then there will be 30 million new people covered—including many healthy ones who do not now buy insurance. So there will be new policies and revenues to offset the greater costs for covering high risk people.”

Gardiner also discounts the idea that penalties for not buying insurance are too low. “In Massachusetts [which adopted a similar health reform law] the penalties were even lower than in the federal legislation and most people have joined up and gotten their insurance. Given the possibility of getting reasonable coverage at reasonable costs, most people will jump at it. Also, remember that individuals will be able to get tax credits, so people cannot say ‘I cannot afford it.’”

According to Congressional Budget Office, health reform will reduce the cost of a given plan in the small group market by one to four percent by 2016. As for estimates from the key players that support one side or the other—they are hard to come by, given the unknowns that are factored into the calculations. How many people will opt out of buying health insurance and decide to pay the fine instead? How many people will get sick with serious illnesses? No one knows, so the jury is out and will likely remain so for quite a while. “Carriers are probably calculating anticipated cost increases,” said Smyth. “But they are not sharing that information yet.”

Insurance company profit margins might suffer for another reason, suggests Gardiner: “Carriers are going to have to compete with each other in the health insurance exchanges.” But that’s healthy: “The good companies will figure out how to do so.”

(Back to the Sidebars)