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Employers Still Struggling With the Affordable Care Act

Offering healthcare benefits is good for employee recruitment and retention, but companies must balance this need with overall costs.

Q1 2015
Five years after the passage of the Patient Protection and Affordable Care Act (ACA), a.k.a. Obamacare, many employers continue to struggle with its mandate and consequences. With employee mandates requiring employers with 100 or more workers to provide coverage kicking in this year, ACA poses major challenges for U.S. manufacturers, more than 97 percent of whom provide employee health insurance, according to the National Association of Manufacturers.

In coping with the changes, “some small businesses are ‘functional’ and some are still getting there,” says Christine Scullion, director of NAM’s Human Resource Policy issues. “There are still a lot of unknowns.”

While one of the ACA’s goals is to control healthcare costs, “anytime there are additional mandates on healthcare, that drives up costs for (U.S.) manufacturers,” Scullion notes. She says it’s difficult to generalize about solutions. “Each company deals with health insurance in a different way.” Along with continuing to evaluate the coverage they provide and how their employees are faring, it’s important for employers to let their workers “know what is going on, from a policy perspective,” Scullions says.

Healthcare Coverage Good for Business
A June 2011 survey of employers by McKinsey and Co. predicted that about 30 percent of employers would drop health coverage after ACA took effect. “We haven’t seen that, although we don’t have great data on it,” says Paul Fronstin, director of the Health Research and Education Program at the Employee Benefit Research Institute, a nonpartisan group in Washington, D.C.
In regard to health coverage, the primary issue for employers is what is the best-case scenario to keep costs down and keep employees satisfied and insured.
One possible reason is that employers who offered coverage before ACA were doing so voluntarily, for business reasons. “It’s good for recruitment, retention, and the overall success of a business.” Also, a lower unemployment rate — and more competition for skilled workers — would make some employers less likely to drop health coverage, which surveys show is the benefit employees value most. Another reason is that healthcare costs increases have slowed, Fronstin points out. “Employers have to weigh a lot of things when it comes to benefits.”

Keeping It Affordable
In regard to health coverage, the primary issue for employers is “what is the best-case scenario to keep costs down and keep employees satisfied and insured,” says Anita Baker, managing principal for Employee Benefit Plans with CliftonLarsonAllen LLP.

“Do they continue to offer coverage and, if so, what will be the increase in cost due to premium increases and additional employees/dependents joining the plan due to the individual mandate? If they are a large employer, the other consideration is making it affordable, which means the employee premium for self-only coverage is less than 9.5 percent of income. If they don’t make it affordable, they could be subject to penalties if the employee goes to the marketplace and purchases insurance,” Baker explains.

Another factor to consider is the demographics of the manufacturing industry. “An individual who makes less than $47,000 could be potentially eligible for subsidies if they purchase insurance at the marketplace,” Baker further notes.

“So what we look at is, ‘what are you currently paying now for insurance versus how much are you charging the employee?’ If the average premium is $8,000 and the employer is paying $6,000 of that, we look at that cost and ask, ‘Does it makes sense for you to continue to make the premium affordable or would it make more sense to pay the (nondeductible) penalty and allow the employee to purchase subsidized insurance at the marketplace?’” Each employer “should be evaluating what their current cost of providing coverage is and whether there are other options within law that will allow them to either hold costs steady or reduce costs by utilizing some of those other options under ACA,” Baker explains.

Before ACA took effect, providing coverage might have been too expensive to make sense for some employers, she says. “But now that there are more options and the marketplace is offering coverage — potentially with a tax credit or subsidy — the employer can offer insurance and determine the best cost-sharing arrangement. We look at what is in the best interests of the employer and the employee, utilizing all the available options.”

Additionally, before ACA took effect, some employers would reimburse their employees who bought their own individual coverage. But the law has eliminated that option, Baker notes. Employers with fewer than 50 employees, who aren’t required to offer coverage, have the option of “going to the marketplace to buy a group plan, rather than going through a broker,” Baker points out. In some cases, tax credits are available to employers with less than 25 workers, earning average wages of less than $50,000.

“Offering affordable coverage is the challenge,” says Rick Wald, the national practice leader for Deloitte Consulting’s Employer Health Reform Strategy Practice and the Employer Healthcare Consulting Practice. “The average cost of healthcare is still quite high, so the employer is taking on a financial burden. Even when (the company) passes on a reasonable percentage of a plan’s cost, as a percentage of employee’s income, the cost still often looks high or unaffordable.”
Each employer should be evaluating what their current cost of providing coverage is and whether there are other options within law that will allow them to either hold costs steady or reduce costs by utilizing some of those other options under ACA
To control costs, Wald says, some employers have been switching to narrower networks — not changing benefits but “working with vendors to identify smaller subsets of eligible providers who have more cost-control measures in effect and better quality measures. We can have a smaller network of doctors and hospitals that are more efficient, leading to better outcomes and lower costs.”

A Case in Point
Jones Metal Products (JMP), a 125-employee manufacturing firm in Mankato, Minn., dropped its group health plan at the end of 2014, after being notified by its insurer that premiums would increase 35 to 40 percent, effective January 1. About half of the firm’s employees were enrolled. “That was likely going to encourage more employees to not participate in our group plan,” says company President and CEO Sarah Richards. “Because of that the insurance company would have had the opportunity throughout this year to continue to raise rates for people on the plan; also, they would likely drop us after 2015.”

JMP, which is a union shop currently in the middle of a contract, had been giving each employee about $10,000 a year in “discretionary compensation,” to spend on benefits as they saw fit. “We didn’t want to take that benefit away because we would have to reopen union negotiations. So, our best option was to drop the group plan and continue to give them the discretionary compensation,” Richards says.

A number of employees have gotten coverage through Minnesota’s MNSure exchange, with some qualifying for income-based premium discounts. Others have gotten coverage through a private exchange Jones connected with. But, under ACA, the company is still facing penalties of up to $100,000 for 2015. “For a small, family-owned business to make that up would be really difficult,” Richards notes.

“What is really frustrating is that we’re a company that gives people a significant amount of discretionary compensation to use toward benefits of their choosing, but that does not qualify as providing a health plan under the Affordable Care Act,” she explains.

Richards would like to see the law changed so that providing the discretionary compensation would cover the minimum ACA requirements for health coverage. But she is not optimistic that will happen. She has brought the issue to the attention of Minnesota’s congressional delegation and also worked with the Precision Metalforming Association’s One Voice lobbying group.

“We haven’t heard anything positive, but we’re hoping something will be done in 2015 so we can reduce, if not eliminate, those penalties.” If something isn’t done, the company’s penalties will double in 2016, Richards notes.

On a more optimistic note, the ACA is still a work in progress, Wald points out. “It’s still evolving; there are a lot of variables out there. There are a couple of court cases challenging tax-credit subsidies, and the new Republican Congress is looking to tinker with the ACA. The House has passed a bill to change the definition of full-time employee from 30 hours to 40 hours. The point is, the new Congress will continue to ‘tweak’ ACA, and things will keep evolving.”
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