- Getting People To Pay Attention
Obamacare: The Un-Affordable Care Act
Employers have been implementing parts of the Patient Protection and Affordable Care Act (PPACA), commonly referred to as Obamacare, since it was passed in 2010. While some pieces of the act went into effect right away, many were stretched out over the long term — and with 2014 being a big year for changes, businesses cannot afford to be without a compliance and implementation strategy.
PPACA is very top-of-mind these days for building service contractors, who must prepare to implement, administer and communicate with staff about upcoming changes to the health reform law. But BSC sentiments are lukewarm at best as businesses are forced to take a hard look at how the employer mandate will affect them — and the American economy as a whole.
“The government has no clue what the ripple effects of this will be,” says Mike Derryberry, vice president for training and product development at the Phoenix headquarters of janitorial franchise Compass Cleaning Solutions. “I don’t think they’ve yet figured out how devastating this is going to be to our economy. It’s just … I just shake my head. I’m speechless.”
Just when many businesses have started to recover from the recession, they are facing another huge hurdle: understanding PPACA and what it might cost.
“It’s so confusing; I don’t know what questions to ask,” Derryberry says. “I don’t know if I understand it or if I’m just so far down in the weeds that I’ll never get out.”
Of course, that’s what a good human resources team is for — and they’ve been putting in long hours to learn about how the law will affect their employers and employees. A recent PPACA webinar by HR consultancy Mercer drew upwards of 4,000 HR and executive professionals, half of whom admitted they didn’t have an implementation strategy in place prior to the June 28, 2012 U.S. Supreme Court ruling that upheld the controversial individual mandate.
Some business owners are holding out hope for the November elections; presumed Republican presidential nominee Mitt Romney and others in the GOP have promised to overturn the law if given the chance. But for now, employers need to be prepared for the next steps of implementing of PPACA.
The employer mandate
While the government claims that the act helps small businesses by making it easier for them to provide health insurance for employees, companies in industries such as contract cleaning, that employ low-wage, low-skill workers, are facing a stressful financial situation when looking at the requirement to provide insurance for all employees.
Under the law, large employers — those that employ 50 or more full-time workers — will be penalized if they do not offer full-time employees the opportunity to enroll in an eligible employer-sponsored plan. Full-time employees are defined as those who work 30 or more hours per week. If large employers do not provide that opportunity, or offer a plan that is unaffordable or doesn’t provide “minimum value”(meaning, coverage offered must pay 60 percent of total allowed costs under a plan), they are subject to penalties under the Employer Shared Responsibility provision.
Many building service contractors — realizing that offering benefits is a good retention strategy — provide benefits to their salaried, full-time workers in corporate, office positions. Fewer offer it to front-line workers and supervisors who have full-time hours, but even when insurance is offered to those employees, a small minority of them will even opt in, says Mary Miller, CEO of JANCOA Janitorial Services Inc., Cincinnati. Instead, they take their paycheck money home to pay bills and spend as they see fit.
Under PPACA, individuals without health care would be forced to pay a penalty which would likely cause most employees to opt into their employers’ health insurance plans.
Miller had the opportunity to testify to the House Subcommittee on Oversight & Government Reform in July 2012, where she spoke on behalf of the U.S. Chamber of Commerce. Normally, she says, she’s not one to ruffle feathers, but on this subject she feels particularly passionate and wanted her voice, as a business owner and a member of the contract cleaning industry, to be heard.
“JANCOA will face costs that at the very least exceed half a million dollars,” she said in her testimony. “It’s a devil’s choice. No matter what we do, our company and our employees will suffer. As many in this service industry know, for me, raising prices is not an option. … Particularly in this economy, when jobs are on everyone’s mind, why would you penalize businesses for hiring full-time employees and provide a competitive advantage to those businesses that limit the hours their employees can work? These perverse incentives will translate into dramatic differences in the bids that companies in my industry can offer to do the same work.”
The federal government claims that PPACA will provide employers the flexibility to make better choices about the health care plans and benefits they provide; the irony has not been lost on BSCs, many of whom disagree with the central tenet of the law, the individual mandate, which eliminates the choice to be insured.
Regardless of where opinions fall, BSCs must face the real possibility that pieces of the reform law will continue to go into effect overthe next few years — and it will pay to be prepared if the election in November doesn’t give Republicans enough power to overturn it.
Doing the math
Figuring out the financial implications of compliance is something every “large employer” will have to do if they haven’t already, which centers around calculating a “pay-or-play” strategy.
In other words, is it worth it to provide insurance if it isn’t already being provided, or to continue coverage if it has been offered?
Starting in 2014, any company with 50 or more full-timers must provide insurance; if it doesn’t and even one worker turns to the government for a health care tax credit or subsidy, penalties start at $40,000 ($2,000 per worker, exempting the first 30), with $2,000 per additional worker beyond 50.
Employers face $3,000-per-employee penalties if they offer insurance but it isn’t considered “adequate” and “affordable” — plans must cover at least 60 percent of health care expenses and insurance must cost the employee less than 9.5 percent of his or her family’s salary.
And for a BSC, the numbers just don’t look good, any way they’re sliced, Miller told the subcommittee.
“According to the health reform law, we are a large employer. The bulk of our employees are low-wage, low-skilled workers. We offer health insurance to all of our employees, which, again, 98 percent of our employees are, and pay on average 85 percent of the premiums,” she said.
Even though a vast majority of JANCOA’s employees are full-time — a rarity in the cleaning industry — only 6 percent of them elected to take the limited benefit plan that is offered, Miller says.
And when the employer responsibility and individual mandates are enacted in 2014, PPACA will have effectively taken away her employees’ rights to choose whether they want insurance as well as her company’s ability to offer the type of plan they have had in place, she said.
“Our options are to: Pay nearly $4,400 to provide coverage to each of our full-time employees that satisfies the mandate, which will be nearly $1.4 million; stop offering coverage and pay $2,000 per full-time employee in penalties which will be instead $640,000; or transition all of our staff to part time status in order to void the exorbitant increase in costs, which would be virtually impossible given that we are a responsible union company.”
PPACA could put companies out of business, she testified.
“If my business doesn’t grow at all, my costs will increase 6.5 to 14 percent. I don’t have margin to absorb that — I cut mine as skinny as I can to be able to work with my customers more and remain affordable while they were having issues with the recession,” she said to the subcommittee.
JANCOA is not alone in having cut its profit margins during the recession; many BSCs did the same thing in order to grow — or at least avoid shrinking — during the past five years.
“My focus for the last couple of years has been, let’s at least stay above water,” Derryberry says. “It’s required a great deal of attention and a great deal of effort on our part, which means we haven’t really had time to plan and think about what all of this is going to mean.”
Just when it seemed business momentum was picking back up again and things were moving in the right direction, dealing with PPACA is the last thing a lot of employers want to do.
Weighing the cost benefits of providing insurance vs. paying the penalties is something that every building service contractor in America is doing — and it’s likely that a good number of companies will choose the option that will least impact their bottom line.
By some measures, very small employers, who are exempt from the pay-or-play penalty, could come out ahead by providing insurance for employees, since they are eligible for tax credits.
Have a strategy
Coming up on 2014, expect a change in day-to-day benefits administration, including significant increases in employee inquiries, increased requirements and options for employees and legislative communication mandates.
An ongoing communications strategy to keep workers informed as reforms take place and the exchanges are launched is going to be key to ensuring less confusion — and will bolster relationships with employees as well.
Ensuring that HR staff and departments are educated and compliant is the first step; another way BSCs can cover their bases is to consult with tax, insurance and legal advisors on a regular basis.
While there are many uncertainties about the future of PPACA, the Supreme Court decision is the call to action every business needed. Resources for HR professionals include educational websites such as HealthCare.gov and webinars and other informational sites like Mercer.com.
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