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)

{{RELATEDLINKS}}The Affordable Care Act (ACA) is now the law of the land. Over the coming 12 months, federal agencies will roll out a cascade of regulations intended to offer practical guidance for the law’s implementation. But here’s the rub: States will also have the option of developing their own guidelines in a number of areas. Among the most important are details concerning the state-level health insurance marketplaces or exchanges. Decisions made at this level can make a big difference in the attractiveness of a state to new business.

State Exchanges
Competition is good. That’s the theory behind the new exchanges designed to allow individuals to shop for plans from competing carriers. Individuals who opt out of employer healthcare plans, or who work for employers who offer no such plans, may shop at the exchanges. (Smaller employers of fewer than 50 workers may also access exchanges.)

“To understand how the exchanges will work, imagine navigating to a travel website that aggregates airfares,” says Karl Ahlrichs, benefits consultant for Indianapolis-based insurance broker Gregory & Appel. “You type in your parameters and the site sorts your options and you pick what you want. That’s what employees will be doing with the exchange sites.”

Under the best of conditions the new exchanges will also help trim the human resources overhead, by providing a host of robust administrative services. “Businesses that send employees to the health insurance exchanges will be getting out of the health insurance management business,” notes Ahlrichs.

Organizations on the move will want to take a close look at the prospective states’ exchanges. “Exchanges will differ from state to state,” says Joan Smyth, partner at the New York City-based Mercer consulting firm. “Companies moving into a new state, and who have employees who might be attracted to the exchanges, should examine those exchanges in terms of their offerings.”

Suppose State A’s exchange offers more affordable and better quality policies than State B’s? State A may be more attractive as a company’s new home.

“Expansion decisions depend partly on the quality of the available work force,” says Ahlrichs. “And that includes how healthy people are. State A’s workers, receiving access to more healthcare, will be healthier and thus more productive and incur less absenteeism.”

A state with a robust exchange may be more attractive in another way, says Ahlrichs. “The state that does a good job designing an exchange with lots of options, and has a statewide focus on health and wellness, can make it easier for entrepreneurial types to get health insurance coverage. That can make the state more attractive for businesses looking for high-quality individuals for contract work.”

Other Variables
There’s another variable: Under the provisions of the ACA, states have the option of extending Medicaid to more lower-income people, with the federal government paying the tab. Not all states will do so, and that can have an impact on relocation and expansion decisions.

“The fact that a certain state has chosen to extend Medicaid may make it a more attractive option for companies looking to relocate or expand, if they employ a lot of low-wage labor,” says Ahlrichs. Again, the attraction is a healthy work force with less absenteeism. At the same time, adds Ahlrichs, the business looking to expand into such a state must balance the quality of the work force against the possibility that resulting Medicaid expenses may drive up taxes.

States that get proactive in encouraging health initiatives may also enjoy an advantage. “Long term, the big answer to the health insurance conundrum is wellness,” says Ahlrichs. “Within the ACA there are incentives for wellness. States that properly implement those incentives will have an advantage. They can say not just that they have the arts, infrastructure, and financing but that they also have a healthy productive work force.”

Employee Mobility
There is another hidden benefit that the new law may provide smaller organizations: access to higher-quality personnel. That, in itself, can help sway a location or expansion decision.

“Today, at larger employers, there are many high-quality mid-career professionals who are frustrated because they cannot be very entrepreneurial,” says Ahlrichs. “They would love to join a smaller organization where they can try things out, or they might want to band together and start something.”

In the current system, says Ahlrichs, if such people quit their current positions they may be uninsurable. “They may have a daughter or wife who is a diabetic or cancer survivor. Or they themselves may have some chronic condition. As a result, they are handcuffed to their desks because of healthcare.”

When the exchanges come online, the handcuffs come off. “There will be a significant shift in high-performing talent out of the larger organizations and into smaller ones,” says Ahlrichs. “This could be a huge benefit to small entrepreneurial organizations, which position themselves as places where talented people can exercise some freedom.”

Next: Decision Time

{{RELATEDLINKS}}Decision Time
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.”

Act Now

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.

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