Health Care Reform: Procrastinate No More
The Obama administration’s recent decision to postpone a key feature of the Affordable Care Act doesn’t mean that business owners can put off thinking about the health reform law altogether.
Still, Peter J. Marathas Jr., the partner in charge of benefits and executive compensation at Boston’s Proskauer Rose LLP, recently received three calls in one day from clients who were dismayed to learn that most requirements of the law – set to go into effect 2014 – remain on schedule, despite the well-publicized employer-mandate penalty delay.
While businesses might think they can procrastinate, employers with at least 50 full-time workers (or the equivalent) only got breathing room from the delay of employer-mandate penalties and closely related reporting requirements. There’s still plenty employers can do now to prepare for the coming health reforms. Here's a short list of what experts recommend.
1. Understand what’s expected in 2014 and 2015. The federal government is delaying until January 2015 collecting fines from certain employers that don’t offer affordable health insurance to their full-timers. The administration also says it will delay and try to streamline ACA annual reporting requirements for large employers, which are integral to applying the penalties for failure to provide affordable coverage of at least minimum value. The administration also is delaying requirements for verifying individuals’ eligibility for government health premium subsidies, and previously postponed for a year an ACA feature that will allow employees to choose from multiple employer plans on small-business health exchanges.
That said, "there are myriad rules that are currently effective," including the ACA’s numerous health plan requirements, and small businesses need to know what they are, says Marcia Wagner, managing partner of The Wagner Law Group, an employee benefits-focused firm. She recently published a newsletter outlining what has and hasn’t changed with ACA implementation since the delay.
Regardless of size, businesses offering coverage must supply employees with a summary of benefits. All employers subject to the Fair Labor Standards Act will have to provide employees with notice of state-based health insurance exchanges, or marketplaces, by Oct. 1, when open enrollment is set to start, Marathas notes. Coverage purchased through the individual and small-business health exchanges is to become effective starting in January.
Businesses providing coverage must comply with the 90-day waiting period limit that goes into effect next year, and to taxes associated with the ACA, among other regulations, according to Marathas, who suggests businesses get professionals to help them with the law, such as a “solid broker” and a lawyer who understand and take seriously the ACA.
2. Properly calculate your business’ size. In 2015, whether your business has 49 or fewer "full-time-equivalent" workers, or 50 or more, will an enormous difference. Those with fewer than 50 don’t have to offer health insurance under the ACA. Those with 50 or more may face big fines if they don’t offer coverage and at least one employee receives a federal subsidy to buy coverage in a state-based marketplace.
But gauging your business’s size can be tricky, especially since employees working at least 30 hours a week count as full-timers under Obamacare, and part-timers’ hours count toward the number of FTEs.
Start keeping thorough records and monitor your growth carefully, experts suggest, especially if you’re hovering around the 50 employees mark. Make sure to maintain the records that the Internal Revenue Services expects, most importantly time sheets or time-entry data. And know that it’s likely that in a couple of years, the IRS may challenge small employers to prove they aren’t subject to the law, Marathas says.
"They should have spreadsheets that show they did the homework—the calculations—and they should keep the primary records that support their figures," he says. "Also, if they are claiming a reduction for 'seasonal employees,' they should keep records on those folks to demonstrate they only worked for four months or less."
Adds Liz Moughan, director of the retail and hospitality practice at workforce management software company Kronos Inc., businesses with fewer than 50 FTEs will need to stay on their toes. Rosters are "something that they’ll continually have to watch and monitor," she says.
Not creating a process could lead to misclassifying workers and expose a business to huge penalties in 2015. Roberta Casper Watson, who recently joined The Wagner Law Group as head of its welfare benefits department, noted that employers with 50 or more FTEs can be fined $2,000 per full-time employee, minus the first 30 workers, if the business doesn’t offer coverage to most of its full-timers and even one worker receives a federal subsidy to buy coverage on an exchange.
That could be costly for a business if workers it considered to be independent contractors are later reclassified as employees by the IRS. The business could be on the hook for $2,000 times its revised full-time employee count (minus 30), even if it provided coverage to many of those full-timers, says Casper Watson.
Miscalculating the number of employees, Marathas says, "could be disastrous."
3. Develop your plan. "I think that the worst thing employers can do is simply say, 'Well, it’s delayed for a year, I’m going to stop thinking about that part of the law.' I think they should use that year to think about their strategy, because you need a strategy," Marathas says.
Businesses need to figure their costs, employees’ work hours and who their full-time employees are so they know who will be offered coverage; they should build up their reporting systems, and if they’re not offering coverage, they should decide how to realign the workforce to reduce exposure to penalties, he says.
"This is stuff that has to be worked out," he says. "Don’t take this as an invitation to stop working on this."
The IRS, in initial guidance released last week on the delay, says the proposed information-reporting rules would be issued this summer. The agency encourages businesses to comply voluntarily with those rules and to maintain or expand health coverage this year. "Real-world testing of reporting systems and plan designs through voluntary compliance for 2014 will contribute to a smoother transition to full implementation for 2015," the notice says.
Kronos adds that the extra time allows businesses to explore alternatives to such drastic moves as laying off workers, raising prices, cutting employee hours or slowing growth, as some reportedly considered doing.
Moughan suggests businesses they might take the year, for example, to examine what the optimal mix of full-time and part-time employees would be and then manage to that number, she says. "Businesses cannot rest idly," says Moughan and should "take a more thoughtful and strategic approach to how they can handle the changes in the Affordable Care Act."
One "very employee-centric" specialty retail client says the ACA was a "trigger event" to change its full-time, part-time mix, says Moughan. While some businesses were talking about cutting employee hours because of the ACA, this client decided to test flipping its workforce from 30 percent full-time and 70 percent part-time employees to 70 percent full-time and 30 percent part-time, she says. The company wants to see if the change will result in better customer satisfaction and sales, offsetting some ACA costs, she says.
Until now, response to the ACA to has been "a study in procrastination," says Marathas. He says businesses waited for mid-term and presidential elections and the U.S. Supreme Court ruling to see if the law, enacted in 2010, would be repealed or overturned. It wasn’t. "There’s always been a series of 'let’s wait, let’s wait,'" he says. Businesses that wait now because of the penalty delay will be in the same boat a year from now, he says, "scrambling to see what they’re going to do."