Wednesday, March 6, 2013

As businesses now prepare for the largest segment of the Patient Protection Affordable Care Act (PPACA) to be implemented on January 1, 2014 there are some harsh realities that are beginning to be realized. On January 1, 2014 the mandated coverage provisions of the PPACA will go into effect.

The PPACA effectively places a new tax on employers (the shared responsibility payment) if businesses fail to meet the minimum coverage requirements. For some businesses the cost of providing the mandated benefits will threaten the survival of their business. So the natural result is an effort by businesses, threatened with survival, to determine how to avoid the tax and the mandated benefits requirement. 

It is my opinion that employers between 50 and 75 FTE's will be impacted the most by the bill.  These employers are going to have to make some very hard decisions regarding how they will provide or if they can afford to provide healthcare benefits to their employees as mandated. These employers are truly facing the choice of providing healthcare benefits as mandated or staying in business. So what are some of the harsh realities the PPACA will bring to these small employers?

a. Employers who are at or just above the 50 FTE mark may choose to decrease their FTE's below 50 by eliminating full time employee positions. I recently spoke with an owner of a restaurant. He told me that he was currently at 60 FTE's, but by January 1 he would be at 40 FTE's by changing his format to a buffet instead of a full service establishment. At 40 FTE's he is not mandated to provide coverage to his employees avoiding the tax and the coverage requirements.  This elimination of full time positions is likely to occur in service companies where many of the employees are paid at or just above minimum wage.  With the economy still slow finding new employment at this level will continue to be difficult.

b. Employers may choose to reduce employee hours below 30 hours per week (the PPACA definition of a full time employee) to get below the 50 FTE threshold.  Because the PPACA requires employers to average part time hours into FTE's, some full time employees are going to be reduced to part time status to get the total count of FTE's below the 50 threshold. Reducing hours obviously reduces disposable income to the employee.

c. Employers may choose to reduce benefits to the minimum required coverage to reduce costs. This is the only mechanism the business will have to keep the employer premium cost affordable.  The minimum coverage a qualifying plan can offer is 60% coverage after deductible and co-insurance; however the "individual only" plan cannot cost the employee more than 9.5% of their household income or 9.5% of their Box 1 W-2 wages. Many employers provide coverage that meets or exceeds the minimum threshold of 60% but not the employee cost provision. To offset the increase in employer contribution would be required to make to get the employee cost at the 9.5% level; the employer will reduce the plan benefits to the 60% minimum to reduce the premium cost. This will naturally result in more out of pocket expenses shifted to the employee.

d. Employers may decide to drop their group plan entirely and elect to allow employees to seek personal policies through the healthcare exchanges. This would result in the business paying the "shared responsibility payment" (i.e. tax) if they have over 50 FTE's.  The "shared responsibility" payment will be assessed at $2,000 for every FTE over 30. For many employers the "shared responsibility" payment is less than their current costs so they will drop their current plan and elect to pay the tax. The impact to the employee is that they will have to pay their entire personal premium cost without employer assistance. Some employees will qualify for premium subsidy assistance through the healthcare exchange, but not all.

The purpose of this paper is not to promote or demean the PPACA, just to point out that there are consequences to the guidelines that the bill requires. It is also not my intent to ignore the positives the PPACA provides like, healthcare availability to those with pre-existing conditions and increased coverage for mental health and substance abuse treatment.  However, while the positives are good for the individuals impacted, they can also have a negative impact on the business for who the individual works.

In the end businesses are in business to make a profit. The PPACA is going to change the considerations that businesses have to make to keep their costs down and profits up to satisfy investors and to allow their  businesses to grow and expand.