Health reform rules still a mystery to many small businesses

If you run a company with 50 or more full-time employees and have not done your homework on health reform, you might soon regret it.

The Affordable Care Act imposes some complex rules on employers. Merely discovering what it will require is labor-intensive and could turn out to be an expensive exercise for companies that don’t already have the in-house expertise to understand the health reform act or to manage the monitoring, tracking and reporting of data needed to ensure compliance with it.

Many employers, facing the possibility of having to offer medical insurance to employees for the first time, are hiring new staff or contracting outside help to perform administrative legwork needed to determine precisely what their new responsibilities will be.

And then there’s the expense of actually buying the insurance for employees, or enriching the benefits that are already offered, or paying penalties for declining to offer coverage — or for inadvertently miscalculating who’s eligible and who’s not. Those costs will be incurred by many, but far from all, employers as they seek to meet their obligations under the law.

A central mandate of the new health care law — that employers with more than 50 full-timers offer affordable medical insurance to employees who work more than 30 hours a week or pay a tax penalty of $2,000 per employee (minus the first 30 employees) — will take effect on Jan. 1. That might seem like a long time away, but employee enrollment in health plans for next year will start in earnest this fall — only a few months from now — and eligibility for that insurance will be based on hours worked this year.

“The reality is that (businesses) are not up to speed yet,” said Scott Hauge, president of Small Business California, a San Francisco-based advocacy group. “This is going to hit them like a ton of bricks.”

In a survey of employers conducted by ADP, which administers payroll and benefits for millions of American workers, only 17percent of midsize firms said they were confident that the managers who made their decisions about employee health coverage fully understood their responsibilities under the Affordable Care Act. Among large companies, the number was 41 percent.

Kim Megonigal, Chairman, CEO and founder of Kimco Staffing Services, an Irvine-based temporary employment firm, says he’ll need to hire three or four extra people to do all the new administrative tasks required by the reform. “You’re going to have to track it; you’re going to have to document it, because you are going to have to fight the IRS on it.”

The biggest impact will fall on employers with at least 50 full-time employees who don’t already provide insurance.

Leslie Perry, Orange County manager of Barrett Business Services, which provides human resources services to largely blue collar companies, says some of her customers are “very concerned” that they will have to offer insurance again after discontinuing it during the recession. “This might be the first time in five years that there is any net income, and they have to give up one-third or a half of it. It is a scary thing,” she said.

To put this in context, the number of companies that do not provide insurance but will be required to do so next year is not huge. Of firms with 50 to 199 employees, 94 percent offered medical coverage last year, according to a survey by the Kaiser Family Foundation. Among companies with more than 200 employees, 98 percent offered coverage.

But even some companies that already provide medical insurance to employees could see their costs rise. If the employer’s share of the premium on the lowest cost plan fails to meet a new affordability threshold, the company will be required to increase its contribution or pay a penalty. Similarly, employers could be obliged to buy a higher-level plan or pay a fine if the cheapest insurance they offer does not pay at least 60 percent of average medical claims.

The proportion of employees accepting their companies’ health benefits might also rise, because the law will require most individuals to pay a tax penalty if they don’t have insurance.

Sam Ingardia, co-owner of Ingardia Brothers Produce in Santa Ana, says about a quarter of his 173 employees have not signed up for the company’s insurance and of those, 20 to 25 have no insurance at all. He expects a significant number of the uninsured employees to sign up in 2014, raising the company’s health insurance expenses by tens of thousands of dollars.

It is likely, however, that employees at many companies will decline medical benefits and pay the penalty. At $95, or 1 percent of household income, the penalty will still be a lot cheaper than paying their share of medical premiums. The penalty rises in subsequent years, but the math should be similar.

Another factor likely to relieve cost pressure on certain employers is that some younger workers will be able to stay on their parents’ insurance until the age of 26, and will therefore be disinclined to accept their own employers’ offer. Of course, for the employers of their parents, it cuts the other way.

That’s just one of the unintended consequences that may arise from the complications of the new law.

Sheldon Blumling, a partner at Fisher & Phillips, an Irvine-based labor law firm representing employers, said he could envision a situation in which employees with incomes low enough to qualify for subsidized insurance on the state exchange might actually prefer to work for employers that don’t offer coverage that meets the law’s requirements. That’s because employees only qualify for subsidies if their companies offer no coverage, or if the coverage they do provide does not meet the health reform thresholds.

Blumling said he could also imagine conflicts arising between employees who would otherwise qualify for subsidies and their employers, who might decide to provide a reform-compliant level of insurance in order to avoid paying the penalty.

The Affordable Care Act probably presents the biggest challenges to employers in industries that use a lot of part-time and seasonal workers. Their hours can vary dramatically from week to week or month to month, making it difficult to calculate who is eligible for benefits and who is not. That includes construction, retail, restaurant, tourism, hospitality and temporary work.

Megonigal, the owner of the temp agency, says the health reform law is seriously complicating his business. He estimates that of the 6,000 workers placed in jobs by his agency, about 2,000 may qualify for health benefits in 2014. Of those, “maybe only 20 percent” will accept the offer, he estimates. But that is still about 400 new workers on the insurance rolls, and Megonigal says he is already telling customers to prepare for his rates to rise.

Some employers, faced with high additional costs, have been cutting workers’ hours to ensure they don’t work more than 30 a week. Elizabeth Parker, owner of the Tulsa Rib Co. in Orange, says people have walked into her restaurant looking to supplement their income because their employers had cut back their hours for precisely that reason.

In the municipal government of San Clemente, “we are carefully monitoring the hours worked by our part-timers to make sure people don’t automatically kick over into receiving benefits,” said Sam Penrod, the city’s manager of human resources.

But many business owners say it is better to take the long-term perspective than fret about immediate costs. “I think we have no choice but to provide the insurance,” Megonigal said. “As a staffing company, if we want to recruit the best employees, we have to offer benefits.”

———————–