With the looming Affordable Care Act, just how ‘affordable’ will it be for the average small business?
In a time when health care costs are steadily climbing for nearly every segment of the population, the initial signing of President Barack Obama’s Affordable Care Act may have sounded like a godsend to the small business employer, whose second largest expense next to payroll is likely employee health care coverage.
However, as more details are released before the Affordable Care Act begins to roll out next January, South Jersey’s small businesses are left to sort out the details of the new health care reform plan—and determine exactly what it will mean for their employees and the kinds of health care coverage they can offer.
Some provisions as stated in the Affordable Care Act are specifically designed to address small businesses, such as tax credits of up to 35 percent for organizations that are providing health insurance for fewer than 25 employees; the credit will increased to 50 percent in 2014. However, according to some of the region’s local insurance experts, the Affordable Care Act may come with more bad news than good for the small employer—and, unfortunately, may ultimate render health care options anything but affordable.
“It’s a major misnomer because it’s not really going to do anything to make health care more affordable … if anything, it’ll be adding costs with taxes and penalties that are built into the new legislation,” asserts Amy Webb, president of Saratoga Benefit Services in Moorestown, an employee benefits firm specializing in benefit planning for small and mid-size companies throughout the tri-state area. While a certain segment of the population will be granted access to free or inexpensive health care, for South Jersey’s small businesses and employees, the changes may not be all that substantial. “For the small employer with fewer than 50 employees, things aren’t going to change dramatically other than having some additional choices … and they still won’t be required by law to provide insurance coverage,” she adds.
Gregory J. D’Orazio, employee benefits specialist for AJM Insurance Management in Cherry Hill, an insurance consulting, risk management and broker services firm for small and large employers and individuals, predicts the Affordable Care Act will ultimately increase the cost of health insurance premiums significantly in New Jersey and throughout the country thanks to the institution of the host of new taxes and mandates. He says his largest clients can expect to see the cost of providing health insurance to employees increase by more than $300,000.
How to prepare
It will become more crucial than ever for employers to determine whether or not they’re considered a small business under the plan, so as to devise a strategy to avoid new penalties. According to Andrew Ruhland, principal at NationalHR in Marlton, the act comes with an assortment of financial penalties for groups of 50 full-time, or full-time equivalent, employees, even when group health care coverage is provided. NationalHR is an employees benefits consulting firm specializing in the sales and administration of group medical, dental, vision, long-term disability, and life insurance plans.
Prior to the Affordable Care Act, the state of New Jersey implemented the Small Employer Health Benefits (SEH) Program Act in 1992 to establish that small groups have guaranteed access to health coverage, and would not lose coverage because of changes in health status. The act was established for groups ranging from two to 50-full time employees, and decreased the use of pre-existing condition limitation clauses, required a community rating for medical premiums, and established a board of directors to oversee the program and develop a standard health benefits plan. According to Anne Boychuk, initiator for Benefit Concepts in Haddonfield, an employee benefit and financial services firm offering pension solutions, group benefits, and individual wealth management for business owners and individuals, the law applied to employees working at least 25 hours on a weekly basis. However, it didn’t mean that employers had to pay their entire insurance bill, and with new provisions stated in the Affordable Care Act, waiting periods to supply coverage will decrease and employer contributions must begin earlier for new hires. Businesses with a number of employees who are on the cusp of being considered “small,” such as those with 48 full-time employees and a handful of part-time employees, will now have to even more closely monitor hours worked so as to avoid new penalties associated with the levels of insurance they’re required to offer. “Some employers could decide that they just don’t want to deal with any of this, and may just choose to pay the penalty,” Boychuk asserts.
However, when it comes to what the small business can offer its employees in the way of benefits, Boychuk advises employers to consider not only the human resources side of their business. “Instead, you have to look at the human side of all of this,” she says. “Good benefits are used as an attraction and retention tool for the highest-quality employees, and choosing not to offer health insurance benefits may lead them to lose some of those great employees to their competitors.” Meanwhile, she warns that employers who do opt not to provide health insurance to employees may have to consider offering higher salaries to allow for them to be able to purchase their own coverage. “At the end of the day, a happy employee is a productive employee, and if they don’t feel their employer has their back in terms of the benefits they’re being offered, it may lead them to feel less than content with their workplace.”
“Most employers are competing for employees, so for the most part, I think many will stay the course and continue to offer health care coverage for their employees,” Webb adds. “However, there will likely be more cost sharing, with employees paying more for coverage out of their paychecks … and the benefits will likely go down as premiums go up.”
D’Orazio notes, however, that as health insurance costs have continued to increase, it’s not a new trend for employers to be passing along those increases to their employees—in many cases, without being able to increase wages proportionately.
“Employees are contributing more and more toward the costs and getting less coverage every year,” he says. He predicts that high-deductible health plan enrollment will increase among employees, while more and more small employers consider self-insurance options to help control their costs. “I keep hearing the same concerns: ‘The costs keep rising, and I keep getting less benefit.’ This has been a trend for years for most employers and employees, and I don’t see the Affordable Care Act having a tremendous impact in this area,” Ruhland adds. “I would expect costs to continue to rise, and for the employee to continually elect to shift more costs in the plan to themselves in order to avoid premium increases.”
Shopping for benefits
As such, it will become more crucial than ever for employers to develop a firm budget for their employee health insurance costs. “I’ve been advising my clients to offer a defined contribution amount to their employees, and offer several insurance options so that employees can become better consumers of their health care and base their buying decision on their unique needs,” he adds.
“Employees need to do a cost benefit analysis and take a hard look at what their medical and claims costs really are … then they can make an intelligent buying decision based on their own needs,” D’Orazio agrees.
In fact, many experts are predicting that the smaller employer—specifically those were 20 or fewer employees—may ultimately choose not to offer health insurance coverage to employees. The employee’s only option, D’Orazio says, becomes purchasing coverage on their own through a federally managed insurance exchange that will now be available as part of the act. Though many of cost and benefit options have yet to be posted, it’s predicted that they will be available in October for an effective date of Jan. 1. “With the advent of the insurance buying exchanges, there will be more choices for both the employer and the employee,” Ruhland asserts. “But there are still many questions as to what these buying exchanges will look like. Until we see the details of the exchanges, it’s difficult to predict the impact they will have on the market.”
Of course, should the new act make purchasing health care options more expensive for the small employer, they may also be forced to scale back on other benefits, such as 401K deposits and ancillary benefits such as disability insurance. “The other thing we could start seeing is that small employers can offer a certain contribution to their employees and then allow them to choose where to invest the money, whether it’s for their 401K, life insurance, or other benefits,” Webb adds. “Instead of employers now saying, ‘Here’s the plan I offer, take it or leave it,’ they may now have more opportunities to allow their employees to choose the plans that best fit their needs.”
On the other hand, putting the power in the employee’s hands when it comes to selecting their own coverage may be considered a component of controlling costs.
“We do not see the exchange as a threat, but rather as another choice for the employees of our groups,” Ruhland adds. “For employers, it’s a new market with new choices which must be evaluated once the details become available … for employees, my advice is change is coming, and fighting it instead of searching for the opportunity it presents is futile. There will be new choices, and educating yourself will put you in a better position as a consumer.”
Indeed, employees of many small businesses may ultimately have to educate themselves on the buzzwords associated with the ACA, like health savings account plans, in addition to understanding the finer details of purchasing their own consumer-driven health care plans and doing what they can to get the best rate possible. “We all need to become consumers of health care, not users, which has been past practice,” D’Orazio says. “This will result in behavior changes amongst employees when it comes to making purchasing decisions.”
“Years ago, people believed that purchasing medical care meant that everything should be covered,” Boychuk says. “These days, you can think of what your health insurance will cover in terms of your car or homeowner’s insurance; you wouldn’t expect your car insurance to pay for an oil change or tire rotation, or your homeowner’s policy to cover the cost of cutting the grass or replacing the filters in your furnace.”
For the small business employee, the Affordable Care Act may mean coming to terms with exactly what medical costs they need covered, and becoming savvy consumers on learning to make difficult decisions to help get the biggest bang for their buck, such as researching prescription fees and plans.
`“The average person spends more time researching a family vacation or buying a car than investing in their health insurance plan, and after 20 years of not having to think about our health coverage in this way, small employers and their employees alike will have to make the shift to becoming consumers of their own health care,” Boychuk concludes.
Published (and copyrighted) in South Jersey Biz, Volume 3, Issue 6 (June, 2013).
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