Thursday, May 30, 2013

As we get closer to January 1st implementation date of the Patient Protection Affordable Care Act (PPACA) there are now concerns surrounding some unintended consequences that may result from the multiple regulations businesses must now follow.

As with any program of this size it is impossible to know the full nature of the impact until the plan is implemented and the system has a chance to adjust. When the PPACA was initially passed there were cries that the PPACA would impact businesses in ways the writers and supporters of the bill did not envision. We may now see some of those warnings come true.

Here are a few of the unintended consequences that seem to be likely.

"Well" people may not sign up – This will be a major blow. The PPACA is built on a simple mathematical formula; it is the same formula insurance companies use when determining rates for health insurance policies. That formula is; multitudes of people sign up for an insurance policy, some of those people need health care but the majority do not, so the well people pay premium and do not use services, and the insurance company uses that premium to pay for the claims of those who have health insurance claims. If the "well" do not sign up then the formula breaks down. This could result in tremendous premium increases. The PPACA is counting on two measures to encourage "well" people to sign up.

A. Many people will be eligible for premium assistance. True, however only those at the lowest income levels will have the premium completely paid. The coverage will cost the individual some amount and they may not be willing to pay that amount no matter how small.

The guidelines allow for individuals or families making between 100% and 400% of the federal poverty level to receive assistance from the federal government to help pay premiums. To get a sense of what that means a family of four can make $94,000 and get some assistance.

Premium assistance may not be enough. There is nothing that would prevent someone from waiting until they need some type of medical treatment to sign up. Theoretically someone could wait until they were on the way to the hospital and call the healthcare exchange and sign up for a policy.

B. If someone does not have a policy they will have to pay a penalty. True, but the penalty for 2014 is $95 or 1% of income whichever is greater. The penalty is on a graduated scale based on family size and does increase in coming years.  It is highly unlikely that the actual costs of a policy will be lower than the penalty so many may choose to pay the penalty.

Rates are going to increase – The issue of rates has been debated since the PPACA passed in 2010. Most all agree that rates will increase and the general consensus is that the increase will be around 25%. As of this date seven states have reported carrier rates and those increases have been below 25%. There are a couple of factors to consider when looking at the rates for 2014.

A. Carriers have to have rates approved by the states so it is possible they want to "play nice" in this initial year of implementation and with so many unknown factors they will be cautious of asking for too much.

B. Insurance companies are banking on millions of "well" people entering the pool of insured's. If this does not happen then all bets are off on where rates will rise. The true test will be rates for 2015.

C. There is a government safety net available to insurance companies to help cover the cost of the most ill. This safety net is only available for 2014. This will impact rates in 2014 since insurance companies know they have a "back up".

Large employers may drop their plans – The promise that "you can keep your current plan" may not be an option. A large employer is any company with over 50 full time equivalents. Large employers have a choice, provide qualifying health insurance coverage or pay the "share responsibility payment". The "shared responsibility payment" for 2014 is $2000 for every full time equivalent over 30. This becomes a math problem for large employers. Two thousand dollars is $166.67 per month. It may be very difficult for an employer to pay less than $166.67 per month for any group policy when we consider the employee cannot pay more than 9.5% of their box 1 W-2 wages.

If the large employer chooses to cancel their policy then each employee would have to purchase their own policy at the Healthcare Marketplace or pay the individual penalty. Which brings us back to the initial question; will the "well" people sign up?

Small employers may eliminate positions or not expand – The threshold is 50 full time equivalents. For many small employers who are at 55 full time equivalents may eliminate positions to get below 50 FTE's by the year end. In addition many small employers who are currently at 48 FTE's but would like to employee 3 more people now face a huge decision. Will the income and business growth generated by 3 new people be enough to justify not only their salary and benefits but also putting the company in the "large employer" category resulting in having to provide qualifying healthcare coverage or paying the $2000 shared responsibility payment?

It is also likely that small employers will be forced to drop their current group plans. With the anticipated rate increases and the requirement that small employer plans not have a deductible in excess of $2000 for an individual or $4000 for a family, these two issues combined will put the rates out of reach for many small employers. They are not required to provide coverage so it becomes a math problem with not penalty.

Cancelling the small group plan may be a good thing for the employee depending on their income. For individuals making between 100% and 400% of the federal poverty level they will get some financial assistance from the federal government to help pay their premiums. If the small employer cancels their plan then the employees will be required to get their own policy at the Healthcare Marketplace or pay the personal penalty. Which brings us back to the initial question; will the "well" people sign up?

We will have to play the cards dealt – From all indications the statues as written will be the ones we have for a while. The extreme partisanship we have at the highest levels of government today will likely prevent any major changes or adjustments as we go forward. It would be almost impossible to implement a plan the magnitude of the PPACA and not have to make some major adjustments after the plan is implemented. The Department of Health and Human Services and the IRS can make limited changes and adjustments however any major legislative adjustments are probably out of the question. For now we will have to "play the hand we have been dealt".

In preparation of the January 1st implementation date I am recommending that;

1. Large employers begin the process of calculating the cost of providing coverage or cancelling their plan. The "shared responsibility" payment will not be due until sometime mid 2015 so a company would have access to the money for almost 18 months.

2. Small employers have to calculate the cost of keeping their plan or dropping the plan and letting the employees get individual plans. In addition an employer at or just above the 50 full time equivalents has to evaluate the option of getting below the 50 mark. The regulations require a six month average be utilized. An employer can use January – June or July – December 2013 to determine if they average over 50 FTE.

3. Consider renewing on December 1st of this year. Companies do not have to be in compliance until renewal in 2014. By renewing in December 2013 both large and small employers may "buy" some time to make a decision.

The Illuminare Group Inc. works with employers of all sizes to simplify and manage compliance with the PPACA and payroll issues. If you would like to talk to someone about your particular situation please contact Gary@IlluminareGroupInc.com or call 615-542-1919. Initial consultations are FREE.

Also check out our website www.IlluminareGroupInc.com for additional blogs and information on the PPACA and payroll compliance.

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