Small busi­ness’ in­surance costs

Em­ploy­ers weigh op­tions as in­surance reg­u­la­tions fall into place

Modern Healthcare - - FRONT PAGE - Me­lanie Evans

Andy Carl­son’s plans to ex­pand from two Colorado hard­ware stores to three will largely de­pend on three things, he says: po­ten­tial prof­its, es­ti­mated ex­pan­sion costs and the Pa­tient Pro­tec­tion and Af­ford­able Care Act.

With two hard­ware stores in Den­ver, Carl­son’s pay­roll qual­i­fies as a small busi­ness un­der the Af­ford­able Care Act. But he might not with a third store. Small em­ploy­ers do not face a penalty for full-time work­ers who buy in­surance through an ex­change and re­ceive a fed­eral sub­sidy to do so. All other busi­nesses, how­ever, could pay fines should full-time em­ploy­ees end up with a sub­si­dized health plan pur­chased through an ex­change.

The penal­ties, and other pro­vi­sions in the law that will af­fect how in­sur­ers set pre­mi­ums and ben­e­fits, go into ef­fect in roughly one year along with a man­date that nearly all work­ers have in­surance or pay a penalty of their own.

With a flood of pro­posed reg­u­la­tions for the law’s in­surance pro­vi­sions in the past six weeks and time run­ning out be­fore rules go into ef­fect, em­ploy­ers are look­ing more closely at what coming changes will mean for the cost of do­ing busi­ness, with some re­port­edly choos­ing to slash work­ers’ sched­ules to keep their hours be­low 30 per week, the law’s def­i­ni­tion of a full-time worker.

The poli­cies—and other pro­vi­sions in the law that more closely reg­u­late in­surance mar­kets and sub­si­dize in­surance for lowand mod­er­ate-in­come fam­i­lies—seek to bol­ster ac­cess to in­surance through an em­ployer, the na­tion’s pri­mary source of cov­er­age and one that has eroded and grown in­creas­ingly costly for busi­nesses and house­holds. The law also cre­ated spe­cific ex­emp­tions and in­cen­tives for small busi­nesses, where em­ploy­ers have been less likely than large com­pa­nies to of­fer health ben­e­fits.

“It’s ex­tremely ex­pen­sive, and ev­ery year it goes up and up,” Carl­son said. “To me, the Af­ford­able Care Act is a mis­nomer. Af­ford­able care isn’t about in­surance. Af­ford­able care is about ad­dress­ing the cost of health­care. The cost of health­care is out of con­trol.” Com­bined with a pro­vi­sion that al­lows states to ex­pand Med­i­caid, the law’s com­bi­na­tion of in­surance mar­ket rules and in­cen­tives is the un­der­pin­ning for the law’s mas­sive push to re­duce the na­tion’s unin­sured by 14 mil­lion next year and as many as 30 mil­lion by 2022.

“Ex­pect to see more ac­tiv­ity,” said Peter

Marathas, an em­ployee ben­e­fits at­tor­ney with Proskauer Rose in Bos­ton. One newly re­leased rule said busi­nesses will use em­ploy­ment lev­els this year to de­ter­mine the size of pay­roll and num­ber of full-time work­ers un­der rules next year. Marathas said that will likely prompt em­ploy­ers to re­act to the law this year. “It forces their hand,” he said.

That ac­tiv­ity may be some “trial and er­ror” as em­ploy­ers weigh their op­tions, said Paul Fron­stin, an econ­o­mist and di­rec­tor of the health ed­u­ca­tion and re­search pro­gram at the Em­ployee Ben­e­fits Re­search In­sti­tute.

Cal­cu­lat­ing the cost of the law is not lim­ited to the added ex­pense of health ben­e­fits, say ex­perts in health pol­icy and em­ployee ben­e­fits. Other fac­tors in­clude un­em­ploy­ment rates, turnover and train­ing costs and de­mand for skilled work­ers. Fron­stin said he’s skep­ti­cal em­ploy­ers will move quickly to cut work­ers’ hours.

“It’s not that sim­ple,” he said. Slash­ing hours for one worker may mean hir­ing an­other to pick up the work­load. Hir­ing and re­tain­ing that em­ployee could be tricky, de­pend­ing on the skills needed, com­pet­ing em­ploy­ers and the job mar­ket, which varies re­gion­ally. Em­ploy­ment trends which are grad­u­ally im­prov­ing are also restor­ing some of work­ers’ lever­age in the la­bor mar­ket, he said.

Ju­dith Feder, a health pol­icy pro­fes­sor with the Ge­orge­town Univer­sity Pub­lic Pol­icy In­sti­tute, said com­pa­nies that rely on ex­changes for in­surance cov­er­age leave work­ers with­out the tax ben­e­fit of em­ployer-spon­sored cov­er­age (work­ers’ con­tri­bu­tion is paid with salary be­fore taxes; that’s not the case in the ex­change) and risk com­peti­tors lur­ing work­ers away with more at­trac­tive of­fers. Those that gam­ble “may lose in the process,” Feder said.

“The de­ci­sion about whether or not to of­fer ben­e­fits and how to of­fer ben­e­fits really comes down to more than cost,” said Shawn Now­icki, di­rec­tor of health pol­icy for the North­east Busi­ness Group on Health. She said de­bate over re­ac­tion to the law among the group’s mem­bers falls be­tween the ex­tremes of com­plete em­ployee cov­er­age and no ben­e­fits what­so­ever.

Penal­ties in the law ap­ply to busi­nesses with 50 or more full-time equiv­a­lents, or work­ers with enough hours to equal 50 em­ploy­ees who work at least 30 hours per week. Em­ploy­ees who work at least 30 hours may trig­ger the penalty if they buy cov­er­age through in­surance ex­changes cre­ated by the law and re­ceive sub­si­dies avail­able through the law for low-in­come buy­ers.

An em­ployer that does not of­fer in­surance will pay $2,000 for ev­ery full-time em­ployee on the pay­roll if any worker trig­gers the penalty, though the law ex­empts 30 full-time em­ploy­ees from the to­tal.

An em­ployer that does of­fer in­surance faces an alternative penalty. If ben­e­fits meet the law’s stan­dard for an af­ford­able pol­icy, an em­ployer won’t face any penal­ties for full-time work­ers who turn to the ex­change. But if the ben­e­fits are deemed un­af­ford­able and any full-time worker trig­gers the penalty, an em­ployer will pay the lesser of $3,000 per em­ployee with sub­si­dized in­surance through an ex­change or $2,000 for ev­ery

full-time worker be­yond the first 30.

Small em­ploy­ers with fewer than 50 full­time equiv­a­lents are ex­empt from any penal­ties, and the law of­fers pre­mium tax cred­its for two years to the small­est busi­nesses with the low­est av­er­age salaries.

In­surance mar­ket­ing and ad­min­is­tra­tive costs, which get added to pre­mi­ums, will likely drop as small busi­nesses shop through an ex­change in­stead of sep­a­rately, said Linda Blum­berg, a se­nior fel­low at the Ur­ban In­sti­tute who has mod­eled pos­si­ble em­ployer re­ac­tions to the law. An­other di­rec­tive that sets rules for how in­sur­ers set pre­mi­ums pro­hibits in­sur­ers from ad­just­ing pre­mi­ums based on health sta­tus, which Blum­berg said will lead to more sta­ble year-over-year health­care costs.

How­ever, small busi­nesses with largely young, healthy work­ers will likely see pre­mium costs climb as in­sur­ers ad­just pre­mi­ums for the new stan­dards.

The law’s new rule to es­tab­lish a min­i­mum set of es­sen­tial health ben­e­fits may also raise pre­mi­ums as small com­pa­nies are forced to ex­pand ben­e­fits to meet the new re­quire­ments. The law also man­dates fi­nan­cial cov­er­age for small busi­ness in­surance, which could re­quire em­ploy­ers to shoul­der a greater share of the ex­pense, said Michael Miller, di­rec­tor of strate­gic pol­icy for Com­mu­nity Cat­a­lyst, a not-for-profit health­care ac­cess ad­vo­cacy group based in Bos­ton.

Fed­eral of­fi­cials will fi­nal­ize pro­posed rules in coming months that will af­fect em­ploy­ers’ in­cen­tives, Miller said, such as one that could de­ter­mine whether work­ers’ spouses and chil­dren are el­i­gi­ble for sub­si­dies when an em­ployer of­fers health cov­er­age con­sid­ered af­ford­able. (Tax cred­its are not avail­able to work­ers whose em­ploy­ers of­fer cov­er­age deemed af­ford­able un­der the law’s cri­te­ria.)

It’s un­clear yet how em­ploy­ers will re­spond, he said. “We just don’t know where it’s go­ing to land.”

Molly Bro­gan, a spokes­woman for the Na­tional Small Busi­ness As­so­ci­a­tion, said even with­out the risk of penal­ties, the trade group be­lieves poli­cies such as the re­stric­tions on pre­mium ad­just­ments and stan­dards for es­sen­tial health ben­e­fits will in­crease costs for small em­ploy­ers. “They’re go­ing to have to charge ev­ery­body more,” she said.

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