One thing you can count on after the 2012 presidential election is that health care reform, passed in 2010 — the Affordable Health Care for America Act, “Obamacare” — will continue to kick in. Business owners’ fears must now be dealt with as accountancy issues, not political ones. Chief among those fears is the “play or pay” provision, requiring that large employers — more than 50 full-time workers — provide health insurance or pay a penalty, starting in 2014.
We spoke in December with two accountants specializing in health care issues, Patti Perdue and Mark Baker, CPAs in the Health Care Group of Jackson Thornton, in the firm’s Montgomery office.
There was the hope on the part of a lot of people that with the election there was the possibility that reform would be repealed or the impact less than was expected. With the re-election, they saw the future would be health care reform going forward. Almost the next day, our phones started ringing. — Perdue
Most of the questions we see coming from the business community have to do with the play or pay provisions. There are two ways a business can be penalized: first, if they do not offer coverage to their full-time employees or if they do offer coverage but it is deemed unaffordable or does not provide minimum value. — Baker
A company could be providing insurance and think they are ok, but if it is unaffordable to the employee, there could still be a penalty and catch them blindsided. Penalties apply to large employers, employers with more than 50 full-time employees. A lot of small employers are concerned and stressed and think the penalties apply to them, but they do not. Counting those 50 full-time employees takes some skill. Fifty is the dividing line, but there are exceptions for some employees, such as seasonal. And although 2014 is the year that the penalties come into effect, penalties will be based on the number of full-time employees a company had in 2013.
Small businesses actually have an incentive to provide health care. Smaller companies with fewer than 25 full-time employees actually could file for a tax credit that can go up to 35 percent. To get the maximum credit, you have to have 10 employees or under who earn on average less than $25, 000. That’s a credit — dollar for dollar in taxes, not just taxable income — so it’s a huge benefit. There are many Alabama employers that fit that position. Many physician practices are under 10 employees. — Baker
One of the really difficult problems for some employers will be those employers who provide health care, but have not provided it on the same level for every employee. An employer with 50 or more full-time employees may be providing insurance for management at a different level than their rank-and-file employees. They may be providing family coverage to managers and single coverage to everyone else.
The reform law now requires that all plans pass the nondiscrimination test. Prior to this, only self-insured plans had to meet the nondiscrimination rules. Now all plans have to pass the test. Like a retirement plan, you have to provide insurance at the same level for all employees.
With some of our clients, health insurance is part of the compensation. Instead of additional dollars in salary, an employee may be provided family coverage. A lot of employers will have to rethink their management compensation and bring everybody up or take others down to that common level of coverage.
This may not be a huge change to implement, but it is coming along with other changes at the same time, so it will take careful attention. Just knowing that you have to do that — rethink management compensation — is the first step. We’ve learned that many of our clients, if not most, don’t know that they are subject to this rule. They may assume that their insurance companies will do the testing for them, but Blue Cross doesn’t do the discrimination testing. So, we are concerned that a lot of employers could be subject to penalties.
The government will catch it like they do most everything else — the IRS, the Department of Labor or Health and Human Services will catch it in doing compliance auditing. And they will be doing more audits, because this is an easy area for tax revenue. A routine IRS audit or retirement plan audit would catch it automatically. — Perdue
An exception to the discrimination test is that if you had a plan in place when reform passed on March 23, 2010, you are considered grandfathered. The main benefit is that you don’t have to comply with these nondiscrimination requirements. You could continue to pay differently for different classes of employees as long as you maintained the grandfathered status of the plan. You can make some changes to that plan within certain parameters, but there are very few changes you can make and still maintain the grandfathered status. — Baker
The general consensus among experts is that the cost overall will go up, and businesses in Alabama have already seen their health insurance cost go up because of the mandated requirement that their insurance must include coverage of adult children up to 26 years in age, and the requirement that preventive services be covered without a co-pay. Those types of regulations on the insurance company side just naturally drive up the cost of coverage. A lot of regulations on employers and insurance companies, like notices and benefits summaries, are also likely to create some increase, although not drastic, not as drastic as the mandated benefits. — Baker
Our clients have asked for cost estimates, a template to help them determine cost. One client who is looking at what they will be subject to over the next two or three years asked us to look at the compensation issue and consider what the penalty would look like. Another thing we are asked is that we compute the Cadillac tax — a 2018 penalty on plans that cost $10, 000 to $12, 000 a year, which is defined in the Act as a very rich health insurance benefit plan. — Perdue
Chris McFadyen is the editorial director of Business Alabama.
Interview by Chris McFadyen