July 1, 2013

Health Care Act: Navigating Obamacare

By Erik Cagle

And Don’t Forget...

In need of a little more information? Here to offer more insight into the decision-making process is Paul Miller, vice president with insurance broker M.F. Irvine Corporate Solutions in Conshohocken, PA. He is also current president of the Philadelphia chapter of Certified Employee Benefit Specialists (CEBS). Miller offers some of the lesser-noted ramifications of “pay or play” and takes a look ahead at what we might expect to see moving forward in terms of costs.

Q: Will it make sense for an employer to just drop coverage and pay the penalty if they are paying more than $2,000 per year toward their medical benefits now?

Paul Miller: It may, but I would suggest considering the fact that the employees still have to go to the exchanges and get coverage. The $80,000 penalty mentioned (see main story) goes to the federal government and is an after-tax penalty, so the real impact to a business may be well over $100,000. The only thing this would do is get the employer out of the hassle of offering medical coverage.

This may be a solid option if most of the employees would receive a significant federal subsidy for obtaining their medical benefits on the exchange. This would occur if they are well below 400 percent of the federal poverty level (FPL) ,which is approximately $44,000 for an individual and $92,000 for a family of four. The closer they are to these limits the lower the subsidy.

Q: What will happen to the cost of medical coverage in 2014 and after? Won’t costs go down?

Miller: That depends on how many employees you have covered and how your plan is underwritten. After Jan. 1, 2014, for groups with less than 100 employees (less than 50 in some states), a carrier cannot take health conditions into account in setting rates. Some states, like New Jersey, have not allowed carriers to take health conditions or claim experience into account for groups of under 50 employees. However, most states have allowed carriers to set favorable rates for healthy groups and set higher rates for unhealthy groups of all sizes.

In addition, carriers are no longer going to be able to set rates based upon gender, and the differential between rates for younger vs. older people will be restricted. So, a group with favorable claim experience and demographics may see a very significant increase with their next renewal in 2014. Groups that have had poor claim experience or less favorable demographics from an underwriting standpoint will be less affected.

In addition, there are fees and plan changes that will increase rates in 2014. These would be built into fully insured premiums by the carrier, however; they will put upward pressure on rates.

Q: What can employers do to control their medical costs?

Miller: It is clear that if an employer’s costs for providing medical coverage are rising at a faster rate than their revenues and profits, this is unsustainable. If an employer keeps accepting medical renewals each year that exceed 10 percent, but its profits are only growing at 5 percent, it is only a matter of time until the company is out of business.

We have been working with our clients that have favorable claim experience to integrate a strategy of self-funding their medical plans. Until recently, only groups with more than 1,000 employees were consistently self-funding their medical plans because there can be cash flow volatility based upon claim experience.

However, with the shift in costs to private insurance, the changes in underwriting and the inability for a company to continue to accept increasing medical renewals, companies are looking to take control of the cost drivers in their medical plans and manage them like they would other significant expenses. Self-funding allows you to obtain the data to see what drives your costs and establish programs of wellness and disease management to have a positive impact on the bottom line.

In addition, we are incorporating a strategy of “level-funding” to address the issues that claim volatility would create from a cash flow standpoint. We have seen tremendous results in saving mid-size clients hundreds of thousands of dollars.

Paul Miller can be reached at (610) 862-4325 or via e-mail at pmiller@mfirvine.com.

Death. Taxes. Obviously-scripted reality television shows. Well, we can add the Patient Protection and Affordable Care Act (PPACA) of 2010—commonly (and sometimes derisively) referred to as Obamacare—to the list of unpleasant certainties. And while we've known about mandatory health insurance for all Americans for several years now, some of the biggest provisions to come from the 5,000-plus-page law, namely the individual and employer mandates, are scheduled to kick in Jan. 1, 2014.

And New Year's Day is closer than you think. So, are you ready?

Most of the buzz involving PPACA is the "pay or play" stipulation. Employers with more than 50 full-time workers must decide if they will offer health insurance or pay the penalty and have their employees use the state insurance exchanges. For example, a firm with 70 rated full-time employees that chooses to pay the penalty would be hit with an $80,000 penalty (the first 30 employees are not counted, thus 40 multiplied by $2,000 per person).

A second way printing companies can pay the penalty is if their coverage is not affordable to 95 percent of their full-time employees (defined as costing the employees up to 9.5 percent of their W-2 wage for single coverage), or the plan does not meet the minimum value requirement (the plans pay for at least 60 percent of covered health care expenses). The penalty equals the number of full-time employees receiving premium tax credit or cost-sharing reduction—making less than 400 percent of the federal poverty level—multiplied by 1/12th of $3,000 (lesser of amount calculated or the amount that would be owed if the employer did not offer coverage).

Most printers are in good shape. Less than 5 percent of firms do not currently offer health insurance benefits, according to a study by the Printing Industries of America (PIA). Further, 75 percent to 80 percent of the printing industry consists of firms with fewer than 50 employees. Thus, only a fraction of benefits-less companies find themselves needing to make the "pay or play" decision.

When it comes to PPACA, it's not a time to panic, but a time to act. Your insurance broker will (or should) take great care to ensure that your policy meets the minimum standards set forth by PPACA. Education is one of the most important aspects of compliance, and with Congress tweaking various elements of the law, it becomes more critical to stay abreast of any changes via your broker, the PIA or your local affiliate chapter.

There is a lot to learn regarding PPACA, and you won't become an expert in one sitting. Jim Kyger, VP of human resources and labor policy for PIA, has provided a top 10 list of issues printers need to be aware of in regards to PPACA implementation. The full list is available on the PIA Website. Here are some of the highlights:

Printers must either offer affordable health insurance or send employees to the health insurance exchange, which will be set up in October. Not offering coverage will be more costly, in the long run, and could make retention/recruiting of employees more difficult.
Companies with up to 25 full-time employees may be eligible for a tax credit for offering insurance. Average employee salaries (excluding ownership/family) must be under $50,000 and the company must pay for half of the premium of single coverage. This tax credit goes away this year, but if you didn't take it previously, consult your accountant.
For plan years that begin on or after Sept. 23, 2012, the plan must provide a summary of benefits and coverage to all health plan enrollees/ applicants. And you must provide 60 days notice of material modifications that impact the summary of benefits and coverage.

Kyger, for one, holds an optimistic view toward the readiness of printers in regard to coverage. Most of the companies he's spoken with say that their current plan meets minimum value and essential coverage. Very few printers in the 50-plus employee range plan on dropping coverage. However, there are unintended and somewhat predictable consequences. Some health insurance carriers are seeking double-digit rate increases, according to Kyger, noting that Blue Cross/Blue Shield of Rhode Island proposed an average increase of 18 percent for individuals and 15 percent for small groups.

"Small groups would affect those under 50 employees," he says. "In reality, these big increases are affecting folks who aren't covered under the health care law. It's kind of an unintended consequence.

"Medical inflation is typically more than double regular inflation; our members commonly report 7 percent to 9 percent health care premium increases," he adds. "That's going to have an impact, particularly on that 2018 requirement for Cadillac plans, super deluxe plans (with a threshold of $10,500 for individuals and $27,000 for families). Those thresholds increase by CPI; they're indexed to inflation, but not medical inflation. By 2020-2021, a lot more companies/plans out there are going to get hit by the Cadillac tax."

Those firms hovering near the 50-employee range that do not currently offer coverage need to be cautious. Businesses are allowed to measure any continuous six-month period to determine their threshold, but only this year. Kyger points out that the use of independent contractors won't fly if they do production work on a printer's plant floor; they would count as employees.

Another person who has been pounding the proverbial pavement to help keep printers abreast of PPACA matters is Jim Cunningham, president of Printing Industries of Ohio and Northern Kentucky. Cunningham ensures there is at least one Obamacare item on the agenda at each board meeting, and at least one speaker (insurance broker, labor law firms) provides a talk. The affiliate also sends out a weekly newsletter with information on PPACA.

Printing Industries of Ohio and Northern Kentucky runs a small, self-insured health care plan for its members, which currently has 500 employees and about 1,500 participants in all. Various seminars also keep members updated on changes and, at press time, the affiliate was creating a PPACA info center on its Website.

According to Cunningham, the biggest concerns for membership are centered around costs, with horror stories centered on rates doubling, even tripling. He's heard from printers who are doing their best to fall under the 50-employee mark, using less seasonal workers to stay under the cutoff. But Cunningham doesn't foresee printers cutting ranks in order to avoid being north of the threshold.

At this point, education is critical for membership, Cunningham notes. "The three or four employee shop that is so busy getting by, day by day, is not as aware of what's going on," he says. "We have a membership program where we're calling them on a regular basis...we reach those people who may typically not see the information. This is an unusual circumstance, so we want to help get them as educated as everyone else. There are so many unknowns.

"It's going to come down to the wire with what's going to happen and how people are going to be affected," Cunningham adds. "For some, the rates are going to potentially increase considerably. At some point, it becomes a balancing act for them. They're paying a lot more for insurance and they have to look at where that's coming from and how it's going to offset their costs. And for some of the self-insured plans like ours, there are benefits that we hope are going to come to fruition that offer them an alternative to the potential huge increases that they may see from their existing carriers."

One of many printing companies that falls in the 50-100 employee range is Metzgers Inc.,Toledo, OH. Andrea Ohrt, CFO for Metzgers, doesn't anticipate any significant changes to the company's health plan, but the six-month measuring period may mean that a number of employees who were designated as part-time workers will need to be offered health insurance benefits. The Obamacare threshold of 30 hours is less than Metzgers' 36-hour, full-time status.

Ohrt has heard stories about companies drawing down their workforce during the six-month measuring period, hiring more part-time workers while reducing full-time staff.

How does a company classify employees? Beginning in 2014, they will fall under three classifications, according to Mike Wong, an insurance broker with Savage & Associates, also of Toledo:

A full-time employee is one who can be reasonably expected to work (on average) 30 hours per week or 130 hours per month.
A new employee is a variable-hour employee if it cannot be determined that the worker can be reasonably expected to be employed an average of 30 hours per week. Variable-hour workers will have to be tracked for their administrative period and stability period.
A seasonal employee works less than 120 days per year, but starting next year, the law only requires employers to use a good-faith interpretation and does not need to be offered health insurance.

The exchanges offer a double-edged sword for employers, according to Wong. "The advantage of the exchanges is that people will be able to have different plan options with different insurance companies," he says. "The down side is that, because of all the requirements of the plans in the exchange, the costs could potentially be very high and even though there are going to be subsidies for up to 400 percent of the federal poverty level, the subsidies will probably be very minor the higher the income."

Wong notes that given printers' razor-thin profit margins, they may actually benefit from paying the penalty, depending upon one's current insurance plan, employee cost, printer's cost and wages.

"Metzgers, like all companies, is going to have to decide what to do with employees who are working more than 30 hours a week that they might not have previously offered health insurance to," Wong notes. "The most popular options are to hire employees to work 40 hours a week or less than 30 hours a week, or just hire more employees working less than 30 hours a week so you don't have to offer health insurance." PI

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