The Affordable Care Act, and Why You Can’t Afford To Ignore It

By Robert S. Sheen

Robert Sheen

Robert Sheen is Founder and President of First Capitol Consulting, Inc., which advises employers nationwide on issues related to the Affordable Care Act. He is also Editor-in-Chief of The ACA Times.

Let’s say some material that’s part of every construction job you do – concrete or lumber, for example – increases in cost twice as fast as other materials; a couple of decades ago
it was 5% of the budget for a typical job, then the same quantity ate up 10% of the cost, and now it is close to 20%.

Chances are you’d look for ways to get those costs under control. You might try to negotiate better prices from your suppliers, look at using other materials, or even explore innovative approaches you would not have otherwise considered.

That’s exactly what’s been happening to health care in the United States. Costs for health services, and for the insurance that paid for them, rose far faster than inflation during the three decades that followed 1980. As a nation we spent roughly $1,000 per person on health care in 1980; close to $3,000 in 1990; almost $5,000 in 2000, and about $8,500 in 2010. In 1980 health care was just over 8% of the economy; by 2010, it was nearly 18%. Meanwhile, millions of Americans were uninsured, making it difficult for them to see a doctor.

Searching for a solution, in 2010 Congress passed the Affordable Care Act, or ACA. Complex, costly and politically divisive, the ACA was controversial from the start. The law continues to be hotly debated, although key provisions – coverage for those once considered “uninsurable,” equal premiums for men and women, tax credits to small businesses, coverage of dependents – are increasingly popular. And there are signs that the ACA is helping to at least slow the increase in healthcare costs.

Regardless of your views about the ACA, as a business owner it is a reality you must deal with. It affects your employee benefits cost, it can impact your workers’ health (and yours), and it requires your HR and payroll departments to prepare detailed new reports that must be filed with the IRS.

In a series of articles over the next few months, Construction Business Owners Magazine will provide you with information you need to know about what the ACA means to your company – what you must do to comply with its provisions, how to make sure your employees are informed about their options, and how you may be able to reduce your costs.

We will also provide you with supplementary materials and resources you can download to learn more.

First, however, let’s back up and take a look at health insurance and why your company provides it as an employee benefit. After all, companies don’t pay for insurance on workers’ homes or cars. Why is health care coverage different?

American companies have offered health benefits for well over a century. In the 1870s, railroads and mining companies maintained clinics, staffed by company doctors, for their workers. In 1910, the Montgomery Ward chain of department stores provided group insurance to its employees. Only a handful of companies followed their example – until World War II.

During the war, with millions of men in military service, employers had to compete for scarce workers. They could not offer higher pay, because wages were frozen by wartime regulations. Free health insurance was a legal and attractive benefit they could use to recruit and retain the workers they needed. Congress obliged by exempting compensation in the form of employee benefits from income tax and Social Security payroll tax, while allowing companies to deduct the cost of those benefits as a business expense.

Today, employee benefits remain a powerful tool to attract and keep good employees on our payrolls. What’s changed, of course, are two important elements: cost and complexity.

Back in 1980, the cost of providing health insurance to an employee, even including coverage for his or her family, was almost negligible. Even 15 years ago the cost was manageable.

In recent years, however, the premium for a health insurance plan with generous benefits soared to the point that it can almost equal an entry-level worker’s gross pay.

Companies have tried to control costs by offering lower benefits along with higher premiums, deductibles and co-pays. One result was that, prior to the passage of the ACA, many young, healthy employees chose to forego health insurance, gambling that they would not get sick or injured.

This defeated the goal of using health insurance as an attractive, tax-free incentive for recruiting and retaining employees. It meant that some employees skipped preventive medical care, resulting in a less healthy, productive workforce. It also resulted in financial ruin for some workers; about 1.7 million Americans went bankrupt in 2013 because of medical bills they were unable to pay.

Meanwhile, the sharply rising cost of health insurance had put it beyond the means of millions of low-income American families. For many, the only option for these uninsured was to ignore medical issues until they became life-threatening – and then to seek help at hospital emergency rooms, which by law cannot turn patients away even if they are unable to pay. To cover those unreimbursed costs, hospitals in turn had to charge more to their insured patients, accelerating the cycle of rising premiums.

It was to address these and an array of other issues facing America’s health care delivery system that the ACA was enacted and signed into law on March 23, 2010.

One of its key goals is reducing the number of uninsured Americans. Strategies to achieve that include:

  • Keeping young people on their parents’ policies until age 26.
  • Creating federal and state “marketplaces,” online exchanges to make it easy to compare and buy insurance.
  • Compelling individuals to buy insurance via the “individual mandate” – penalties collected by the IRS from those who fail to purchase coverage. Subsidies, in the form of tax credits, help lower-income buyers cover a portion of
    the premiums.
  • Employer mandates similarly compel companies to offer health insurance to their workers.

The law also requires insurers to offer at least a minimum set of standard benefits, deductibles and co-pays in their policies, with the generosity of those benefits indicates by metal nicknames: Bronze for the lowest level, moving up to Silver, Gold and Platinum plans.

Your insurance broker can help you evaluate the various plan levels you may want to offer to your employees, and their costs. As the owner of your company, you also have to make sure your health insurance program complies with highly detailed and sometimes complex requirements of the ACA.

As we will explore in the next articles in this series, compliance with the ACA involves tracking the hours worked each month by your employees, including part-time and seasonal workers. You are also obligated to provide your workers with disclosures about the coverages available to them, coverage information reported about them to the IRS – and to maintain records of when and how you gave them that information.

You can even be penalized if an employee, perhaps because he or she doesn’t understand the law, opts out of your company’s coverage and buys an individual policy on an exchange, hoping to benefit from a tax credit. That possibly innocent mistake can trigger penalties against your company.

On the other hand, for some low-wage workers even your company’s least expensive plan may not be affordable. If that employee meets guidelines established by the IRS, he or she may quite legally opt out of your plan, perhaps gaining free or low-cost coverage under Medicaid or some other government program, while your company is protected by a “safe harbor” provision in the law.

Our goal in this introductory article is to give you a broad overview of the Affordable Care Act, why it is important to the physical health of your employees and the financial health of your company, and why compliance with its complex regulations will require the involvement of your HR, payroll and IT departments, as well as the support of your insurance, accounting and legal professionals.

Next month: How Many Employees Do You Have, and Why Is That Important?

 

 

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