With the Supreme Court's 2012 ruling on its constitutionality, and the results of the November election tallied, anyone who was waiting to see what the fate of the Patient Protection and Affordable Care Act (ACA, or "Obamacare") would be can finally start making decisions about how they will approach providing health insurance to their employees, or whether to provide it at all.
For multi-shop operators, or owners that are planning on expanding, the law will have a significant impact on insurance premiums, the types of plans available, minimum coverage requirements and deductible levels. For those companies that already have more than 50 full time or full-time equivalent employees, and those that may cross the threshold by 2014, the insurance mandate will force a decision to either provide coverage or pay a penalty.
Those shops with fewer than 50 employees, however, may be able to take advantage of some temporary tax credits if they already offer insurance, or plan to in the future. And employees that may have been going without coverage will have new options for obtaining it, once the state insurance exchanges get up and running.
"2013 is the time to stay on top of this as much as possible," says Kevin Kuhlman, legislative affairs manager at the National Federation of Independent Businesses, a group that aggressively lobbied against the ACA. "Meet with your tax and insurance professionals early to discuss how it will affect your business, and educate your employees as much as possible. The more you communicate any major changes, the less of a surprise it will be to everybody."
According to some estimates, small businesses pay up to 18 percent more for health coverage than larger firms, and based on requests for premium increases by insurers this year, you can expect the cost to continue to rise. In some cases, that will be by double-digit percentages. For body shop owners, particularly for those with multiple locations, there will be both good and bad news once the insurance mandates take effect in 2014. Here's a quick rundown:
Small firms are still off the hook: Companies with fewer than 50 employees are not required to provide health insurance coverage for employees. And in 2016, that threshold will actually go up, so that companies with fewer than 100 employees will be exempt. That means the financial hit for those with between 50 and 100 employees may only be temporary.
If you have 50 full-time employees (or full-time equivalents) or more, you have to offer coverage: But not to everyone. "There is some leniency now, so employers must provide coverage to substantially all employees," Kuhlman says. "You have to offer coverage for at least 95 percent of your full-time employees."
Your employees have more insurance options and protections: In 2014, individuals and small businesses will be able to purchase insurance coverage through state-run health exchanges called Small Business Health Options Programs, or SHOP Exchanges.
Insurance companies have been barred from placing lifetime limits on coverage and from rescinding coverage, except in cases of fraud, and plans are now required to extend dependent coverage to children up to the age of 26.
Next year, insurers also will be required to provide coverage for customers with pre-existing conditions. This should make it easier for employees at smaller firms that don't provide coverage to buy into the individual market. However, with premium increases it's not clear how truly affordable those plans will be.
The exchanges can potentially lower administrative costs and provide greater market power for small groups and individuals.
The definition of a full-time employee may be different than what you assume: Under the ACA, a full-time employee is one who provides an average of 30 hours of service per week. To calculate full-time equivalents (FTEs), employers have to aggregate the number of hours worked by all part-time employees and divide that figure by 120. The average monthly number of full time employees and equivalents for the preceding calendar year determines whether you cross the 50-employee mark.
"So full-time employees work 130 hours per month, which is less than what most people consider full time, and FTEs are determined by dividing the hours by 120," Kuhlman says. "It's confusing and inconsistent."
How your business is structured also will affect how many employees are counted. If you own 10 shops and they are all under a common ownership structure, you have to aggregate those employees. The same goes for different types of businesses that you may own in addition to your body shops. If your company is structured in such a way that you think you may not have to aggregate, have a long talk with your accountant, your CFO, your insurance broker, and anyone else who can help guide you through the somewhat confusing rules.
"There are regulations that deal with this, but it requires a very fact-specific analysis," says Kara Maciel of Washington, D.C.-based law firm Epstein Becker Green.
Deductible requirements are in flux: Under the terms of the law, deductibles can't exceed $2,000 per person, and plans must be affordable (costing no more than 9.5 percent of the employee's household income). Insurers have cried foul, since they are struggling to come up with plans that meet the deductible and affordability requirements, while still meeting the coverage requirements spelled out in the law. Expectations are that the deductible levels may be raised to help bring more plans into compliance.
However, since deductibles will be reduced across the board (either to the $2,000 level or some unspecified figure later), expect premiums to increase to cover the difference. "The two ends of the law don't meet," says Bill Mattecheck, owner/president of Mattecheck & Associates. "They can't lower the deductibles without raising premiums, and then they're out of compliance."
Different states are managing this in different ways. "I don't think people are really aware of how much additional premium they will have to pay to get those deductibles below $2,000," Mattecheck says. "That's going to be a real eye opener."
Premium costs will be taxed for employees who buy their own plans: For employees going out to the exchanges, any help or assistance your company provides in paying for that premium will be taxed as regular income. There will be tax credits for employees whose income is below 400 percent of the federal poverty level. If your company provides coverage via a group plan on the exchange, however, those funds will still be pre-tax.
Plans have to meet the affordability requirement, or you pay a penalty: If the insurance plan you offer exceeds that 9.5 percent of household income threshold for some employees, then qualifying employees can get subsidized coverage through the tax credit on the state exchanges. Employers would then have to pay a penalty.
They pay the same penalty if an employee opts out of the group plan and buys a plan on the exchange, even if the plan meets affordability limits. "You're facing a penalty if even one of your employees goes out and seeks coverage via the exchanges," Maciel says.
However, "We don't see that happening much if the consultant or broker is advising the group appropriately," Mattecheck says. "If you opt out of the group plan and go buy your plan on the exchange, then that money would be after-tax versus pre-tax. There would be an extra tax penalty for the employee to go off the group plan."
But how do you know your employee's household income, particularly if they have a spouse that works? There are some safe harbor provisions that allow employers to use the employee's W2 wages as the amount for determining affordability.
Employees can still opt to be on their spouse's plan: If you have an employee who opts out of your health plan to go on their spouses' plan, don't worry; you don't pay a penalty for that. All you have to do is offer a plan, and as long as it meets the minimum coverage and affordability requirements, you're in compliance.
Waiting periods have changed: Beginning in 2014, employer group health plans may not impose waiting periods of longer than 90 days, and may not impose any pre-existing condition exclusions. Firms with more than 200 full-time employees must automatically enroll new employees on the group health plan.
Smaller firms may be able to take advantage of new tax credits: Businesses with 10 or fewer full-time-equivalent employees earning an average of less than $25,000 a year will be eligible for a tax credit of 35 percent of their health insurance costs. Companies with between 11 and 25 workers with averages wages up to $50,000 can receive partial credits. After 2014, the tax credit will remain in place and increase to 50 percent of costs for the first two years a company purchases insurance through a state exchange. After that, the credits go away.
Keep in mind, that credit may or may not amount to much. "Even companies who believe they are eligible, once they go through the calculations, wind up not being eligible," Kuhlman says. "And once the exchanges open up, you're only eligible for the credit for two years."
Own shops in multiple states? You'll need help: Because insurance is still largely regulated at the state level, your company may face different requirements in different regions. The state exchanges will also operate differently. "It will be imperative that an MSO that straddles multiple states find a broker or consultant that has the capabilities and understands the differences between those specific states," says Tyler Moore, vice president at Mattecheck & Associates.
Make a lot of money? Your payroll taxes just went up: In January 2013, both the FICA and Medicare tax increased for high-income earners (those making more than $200,000) as part of the ACA roll out.
There will be a tax on "Cadillac" healthcare plans: Starting in 2018, high-cost health insurance plans exceeding $10,200 per year for individuals or $27,500 for family coverage will be subject to a 40 percent tax on the portion of the cost that exceeds those limits. Insurance companies actually pay the tax, but are expected to pass the costs along to consumers.
If you have fewer than 50 employees, you could still just drop coverage, or not offer it: But there could be real consequences to your business, particularly if you decided to drop an existing plan because premiums have increased. "There are real HR concerns with doing that," says Adam Solander, an associate at Epstein Becker Green. "It could make it difficult to retain or recruit employees. You may have trouble keeping some of those key employees."
Would it be cheaper to just pay the penalty? Maybe. Companies will pay $2,000 for each full-time employee or FTE. However, you don't pay the penalty on the first 30 employees. Determining whether or not it's cheaper to provide coverage or pay the penalty will depend on the cost of insurance, the number of employees you have, and a few other factors that will likely require an accountant to sort out. The penalties, for instance, will not be a deductible expense. And if you drop coverage and then boost employee pay to make up the difference, you'll face higher FICA taxes.
"Doing nothing has a cost, but you have to see how it compares to the cost of the health benefits," Mattecheck says. "If you are just over 50 employees, you're looking at possibly paying $200,000 for a health plan, versus paying $40,000 in penalties for those 20 employees."
For owners who want to be prepared for 2014, the key thing is to plan ahead. "You want to make sure you're putting together a comprehensive strategy and plan, take into consideration who your employees are, how many you have, what hours they work, what the health coverage currently is, and what can you do proactively either through wellness or other areas, to minimize coverage and cost increases," Maciel says.
"The good news is, if you are already providing a plan, you will see very little change other than the possibility of premium increases as a result of reform," Mattecheck adds. "If you have a commercial policy direct with a carrier, it's not going to be that dramatic. If you're a business owner that just hates the fact that you have to provide insurance, then you're going to have some significant decisions to make."
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