Businesses come face-to-face with health care law

“Now it’s kind of shock and awe,” said David Foster, a benefits expert at Buck Consultants, who is fielding calls. “They’re like OK, it’s real, we have to deal with it.”

‘Really just daunting’

Some business owners who feared the worst are finding that the requirements of the law aren’t as onerous as they expected. Others, however, especially those who don’t offer an employee health plan now, are hearing from the experts that their bottom lines will take a hit. So they’ve begun strategizing about the most cost-effective path to compliance.

“We’re very concerned about it,” said Jon Howell, president and CEO of the Georgia Health Care Association, a trade group whose members include nursing homes. A typical nursing home will probably face more than $100,000 in penalties if it doesn’t start offering a plan to all employees, which many currently do not. Offering a plan will likely incur as much or more in new costs for most nursing homes, Howell said.

“I get more calls from providers concerned about how they are going to be able to afford to offer these benefits when their No. 1 cost — approximately 70 percent of overhead — is labor-related,” Howell said. “The employer mandates to cover these health insurance costs are really just daunting.”

While the realities have been difficult for some business owners, Atlanta chef and restaurateur Riccardo Ullio said he was elated when he started learning the details about how the law would affect his business. Ullio, owner of Sotto Sotto, Fritti and Escorpion, said he had worried for months that the requirements of the law would threaten his business.

“For me it’s going to be fine,” said Ullio, who joked that he would have to apologize to the president and lawmakers for predicting that the law could ruin his successful business.

Ullio and other business owners are discovering that while the law pushes business to offer a health plan or pay a penalty, many employers can pass most of the costs of an insurance plan on to their employees, as long as the employees are paid enough to afford the coverage. Since most of his employees other than dishwashers are paid well beyond minimum wage, Ullio said, he won’t have to absorb many new costs after all.

Learning the details at a recent seminar was “a huge relief,” he said. “It was probably a better-thought-out law than I thought and most people thought.”

While some employers, especially the largest ones, have been preparing for the law’s impact for many months, even those companies still have a lot of work to do. The details of how the law will work, as well as the final rules, are still coming out and will require a quick reaction as the information is released. Plus, most companies must prepare to tell their employees much more than they have in the past about their benefits and their options, as the law forces gigantic changes in the health insurance marketplace.

Foster, of Buck Consultants, said smart employers will start communicating with their employees about the changes and new options well before the enrollment periods begin for 2014. “You can’t wait until November,” Foster said.

The big questions

Many employers focus on a few key issues when assessing the law’s impact.

The first: counting employees. Only companies with 50 or more full-time workers must comply. The company must count its full-time employees and then add up the hours of its part-timers to determine whether it has the equivalent of 50 full-timers.

But even that issue can be complex, as companies close to the 50 mark work with lawyers and consultants to figure out whether they can structure the business to avoid the threshold for now. “There are a lot of companies that are on the bubble and they are trying to decide whether or not they are covered,” said David Cole, an Atlanta attorney advising companies on the law.

“Once we determine whether or not they are covered, the next question becomes, ‘Well what do I have to offer? What are the risks I face?’” Cole said.

Those covered by the law must offer a health plan to their full-time employees or face a penalty of $2,000 per full-time employee per year, after the first 30 employees.

Once an employer has decided that it has to offer a plan, it then faces two big requirements: making the insurance affordable for employees and offering adequate coverage, as defined by law.

Most company plans require the employee to pay for part of the plan while the company picks up the rest. A plan is considered affordable if the employee’s contribution does not exceed 9.5 percent of her income. To satisfy the adequate coverage provision — referred to in the law as the “actuarial value” requirement — the plan must cover 60 percent of the anticipated medical costs for an average person.

‘Pretty easy to hit’

Cole said most of the employers he is working with are pleasantly surprised that their plans already exceed the 60 percent “actuarial value” threshold.

“They are finding out that their plans they are offering are pretty good and probably already meeting the requirement and if anything they are finding the opportunity to reduce the scope of their plan,” Cole said. “That’s a little bit of a concern I have long term. I think an unintended consequence of the statute will be a gradual lowering of coverage.”

Ullio, the chef, said he can offer his employees a plan that will cost most of them less then 9.5 percent of their income. He said he expects the law would force him to subsidize the premiums for only a small portion of his employees, those who earn the least.

“Unless you have a lot of minimum wage employees, the targets are pretty easy to hit,” said David Bottoms, a Marietta-based benefits consultant.

For other industries where low-wage workers are the majority, the business faces the prospect of having to pay a significant portion of almost everyone’s premium. That would likely be a huge new expense since many of these employers aren’t offering a plan now. But the alternative — the $2,000 penalty per employee — could be more costly.

Weighing the numbers

What tips the scales: whether most of these employees would actually opt for the plan or decide to remain without insurance in spite of the law’s mandate that most Americans have coverage.

Think about a nursing home with 100 full-time employees making $20,000 a year each. If the businesses decides not to offer a plan, it could face $140,000 in penalties, or $2,000 per employee after the first 30.

If the employer offered a plan with a $4,000 premium, on the other hand, the employees could be asked to pay $1,900 of the cost and still meet the affordability requirement.

But that would leave the employer with $2,100 in new expenses for every employee who opts for the plan.

The experts say that they do not expect anywhere close to all employees to opt to pay for the coverage, even though it will be the law of the land. The key issue: how many will take the coverage?

In the nursing home scenario, if 50 employees take it, the cost to the company would be $105,000 a year — less than penalties for not providing coverage. If everyone signs up, the cost would be $210,000 a year for the company.

Pay or play?

Companies that offer coverage to low-wage workers often find their employees turn down the plan. And many experts believe that will continue to be the case, since the penalties will be relatively small and will apply only to people who make enough money to be required to file a tax return.

The projections are what most employers will use to make the key decision: pay or play.

The consultants say that most clients are learning that it’s a better deal to play — and offer coverage — than to pay a penalty. That’s in part because penalties aren’t tax-deductible and an employer’s costs for providing a health plan are.

“A lot of folks are angry about the law – they say we will drop coverage and pay the fine,” said Bottoms. “Usually when they run the numbers, that’s the last thing they want to do.”