Health Insurance Reform: Ramifications When Expanding or Relocating Out of State
Will “Obamacare” encourage or inhibit the expansion of companies into new areas?
Phillip M. Perry (Q1 / Winter 2013)
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Many business owners are upset about the minimum level of benefits required by the new law. In some cases, those levels are higher than what is currently being offered in the workplace. That means greater expense in the form of higher premiums.
Will employers, as a result, drop health insurance coverage completely and opt to pay the fine? Ahlrichs thinks some will be tempted. “A lot of CEOs may want to tell their employees, ‘I want out of the healthcare business. Go to the exchange and I’ll pay the $2,000 fine.’”
Employers who decide not to offer the insurance should realize there are additional ramifications, points out Ahlrichs. The first problem is that the $2,000 fine is not tax-deductible. The second problem is that the employees who go to the exchanges find out insurance is not free. “Maybe the premium for a family is $8,000 annually,” explains Ahlrichs. “Who pays it? If the employer wants to keep the employees, the employer may want to make them whole and give them the $8,000 needed to pay for their insurance.”
The story doesn’t end there, adds Ahlrichs. The premium payments are now taxable, so paychecks have to be grossed up to around $10,000, in the above example, so the employees can pay premiums out of after-tax dollars. Put it all together and cessation of a health insurance program can backfire, concludes Ahlrichs.
Realistically, though, the decision to retain or drop health insurance might depend less on the costs of noncompliance than on what other businesses in the same employment market are doing. An organization that is expanding into a new state will want to assess the benefits practices of other employers in that market. No one wants to lose top talent to other employers offering better benefits.
As a result, many businesses seem to be playing a waiting game. “We keep hearing statements such as ‘We are afraid to be the first one to drop coverage, but we are not afraid of being the second or third,’” says Shawn Nowicki, director of health policy at Northeast Business Group on Health (NEBGH), a coalition of 175 employers, unions, and healthcare providers.
Maybe that’s why most employers say they will continue to offer health insurance. “Employers see health insurance plans as important tools for employee satisfaction, retention, and for attracting talent in the future,” says Julie Stich, director of research at the International Foundation of Employee Benefit Plans (IFEBP), a research organization based in Brookfield, Wisconsin. “In our surveys, only 1 or 2 percent of employers say they will not provide health insurance coverage.”
The ACA comes at a time of rising health insurance costs for business owners. Annual premiums for employer-provided family coverage grew to just under $16,000 in 2012, a rate some 4 percent higher than 2011, according to a report from the Kaiser Family Foundation.
What steps should your company take today? Start getting up to speed on the opportunities and requirements of the new law. Then take steps toward compliance.
“Now is the time to get some education,” says Nowicki. “Meet with your broker or health insurance advisor and learn what is coming down the pike from the perspectives of benefits and taxes.”
Employers need to take a look at their current health insurance plans and make the changes required to be in compliance. Then they should communicate these changes to employees and revise the plan descriptions and handbooks.
As for the decision of whether to continue or drop coverage altogether, you will need to tackle that one before the end of this year. The so-called “play or pay” provision will activate in 2014. That means employers with over 50 employees must either offer health insurance with minimum requirements or pay a fine.
“It's not too early to look at this area,” says Stich. You will need to determine if your organization falls over the 50-employee threshold. That can be more difficult than it seems. You will need to calculate how many casual, part-time, and seasonal individuals fall into the category of “full-time equivalent” employees.
As you tackle the vagaries of the ACA, keep in mind that the entire law is very much a work in progress. The federal government will continue to issue regulations that interpret the law for real-world operations. State governments will jockey to set up exchanges of various kinds, or opt to let the federal government do the job. Finally, organizations competing for your employees may or may not set up attractive health insurance programs.
Will the new law help control rates or lead to their escalation? Time will tell. More certain, though, is the ACA’s effect on location and expansion plans. Organizations looking to relocate or expand will want to take a close look at the health insurance exchanges in each prospective state and assess their impact on employee health and benefits costs.