How Obamacare affects businesses – large and small
By: David Nather
September 30, 2013 05:04 AM EDT
This article is an excerpt from “Understanding Obamacare: POLITICO’s Guide to the Affordable Care Act,” a new, comprehensive guide to help POLITICO’s readers cut through the spin and learn how the law really works – and what may not work the way Congress planned. The complete series of articles will be available Tuesday.
When Congress was writing Obamacare, its biggest backers said the new law would help small businesses. Instead, they’re complaining about it.
It was also supposed to take the cost pressure off businesses in general. Instead, they say it’s just adding more pressure.
It’s one of the biggest political ironies of the health care law: Some of the loudest gripes are coming from the employers who were meant to benefit from it. But the reality is, from the smallest startups to the largest corporations, employers have a lot of new rules and reporting requirements to keep track of. And in some cases, there are new costs, too.
It’s the only way to make the law work — but it’s also a headache for many employers.
Obamacare was sold as a way to give small businesses new, cheaper sources of insurance through their own health exchanges. But most of those small-business exchanges won’t be able to offer workers a choice of health plans in 2014 — which undermines one of the main purposes of having them. And it’s harder for small-business owners to follow the new rules and requirements than it is for bigger businesses, since they don’t have big human resources departments to help them out.
“It’s very difficult for small-business owners to keep up when the rules of the game keep changing,” said Kevin Kuhlman, a lobbyist for the National Federation of Independent Business.
For large employers, Obamacare was sold as a way to rein in those runaway health care costs. But it also created compliance burdens for many employers — new reporting requirements, notices that all employers have to give to their workers and new costs through taxes and fees that help pay for different parts of the law. They’re also starting to worry about a big future penalty for especially generous health plans — the so-called Cadillac tax — that could have a far wider impact than the law’s authors originally thought.
By the time you factor it all in, business groups say, Obamacare will hurt their costs more than it will help.
“They are adding to employers’ costs. So the case can’t be made on money,” said Helen Darling, president of the National Business Group on Health, which represents large businesses and public-sector employers.
The Obama administration has won praise from employer groups for delaying the requirements for businesses to report the details of their coverage to the federal government, as well as the fines employers with 50 or more full-time workers will have to pay if they don’t provide health coverage. But they’ll still be an issue for businesses starting in 2015.
Obama administration officials say they’re doing their best to get the word out to businesses so they don’t run into any nasty surprises. There’s a new “health care changes wizard” website to walk all employers through the new requirements. And the Small Business Administration is holding Obamacare events with small-business owners across the country, conducting weekly webinars to teach them about upcoming requirements, and posting news and guides on its website.
“We know folks are busy,” an SBA official said — which is why the administration is conducting the educational events and trying to make the rules easier.
There are loud voices in the business community that depict Obamacare as the biggest threat employers face today — notably the U.S. Chamber of Commerce and the NFIB, two of the most powerful interest groups in Washington.
But there are also employer groups that solidly back the law — like Small Business Majority, an advocacy group that’s conducting the webinars with the SBA to tout the law’s benefits, like the health exchanges and tax credits for small businesses.
“The benefits far outweigh the costs,” said John Arensmeyer, the group’s founder and CEO who previously was the founder of an international e-commerce company. “There’s been a lot of confusion. … There’s been more heat than light on the subject.”
And not all of the alleged dangers to businesses hold up to scrutiny. Is Obamacare a “job killer,” as many Republicans charge? Economists say it’s just not showing that kind of impact — at least so far. And is it going to cause employers everywhere to slash their workers’ benefits? Even UPS, which got national attention for cutting its health coverage for spouses who can get their coverage elsewhere, now says it can’t really blame Obamacare for that one.
“I wouldn’t characterize it as, ‘We did this because of Obamacare,’” UPS spokeswoman Kara Ross told POLITICO — even though its memo to employees was full of references to the law.
Other leading business groups say Obamacare is just part of a bigger picture of rising health care costs that has been going on for years. Yes, they say, employers are trying to find ways to trim their health benefits so their spending rises more slowly. But to pin it all on Obamacare, they say, misses the larger trends in businesses’ health care costs.
“Not at all. Everything that’s happening now was going to happen anyway, and it’s just a matter of how fast and how much,” Darling said.
The small-business exchanges
Supporters of the law insist that small-business owners may just not know enough about the law to realize the good things they can get out of it. Case in point: the small-business health exchanges.
They’re called “SHOP exchanges,” and like the ones for individuals, they’re supposed to provide a place to compare health plans and buy them at competitive prices. They’ll also designed to give small businesses with 50 or fewer workers an important advantage: the ability to spread their risk of big medical expenses, since they’ll be part of larger groups, and use their combined purchasing power to get better rates from insurers.
And like the health exchanges for individuals, open enrollment for the SHOP exchanges starts on Oct. 1 — although some enrollment is being delayed in the ones run by the feds.
“It’s giving small businesses the kind of bargaining clout that big businesses always had,” Arensmeyer said. “It creates one-stop shopping for the small-business owner.”
There’s just one problem: For the first year, employees won’t actually have choices in most of the SHOP exchanges.
In all of the ones run by the feds — and remember, these are the ones that are stretched pretty thin — the Obama administration delayed the feature where small-business workers will be able to choose their health plans. So if you’re a small-business worker and you live in one of those states in 2014, your employer will just say, “Here’s your health plan” — like they do now.
If you live in one of the states that are running their own health exchanges, you’re more likely to have a choice of health plans — most of them will have employee choice in 2014. And you may get that choice in the federally run exchanges starting in 2015, but only if the Obama administration is able to get those marketplaces running more smoothly. The Department of Health and Human Services has a website where you can look up what kind of exchange your state has.
There’s also another feature of the law that was supposed to help small businesses: a tax credit to help the smallest ones buy health insurance. It has been around since 2010 on a smaller scale, but starting in 2014, they’ll be able to get a credit for up to 50 percent of their health care premium costs if they buy insurance through one of the SHOP exchanges.
It’s only for really small businesses, though — those that have fewer than 25 employees (or their “equivalents,” again), pay less than $50,000 a year in average wages and pay for at least half of the premiums themselves. And they only get the full credit if they have 10 or fewer full-time workers and their average wages are less than $25,000 a year.
That’s why the tax credits haven’t gotten a lot of use so far — they just haven’t been very helpful to small businesses, and many of the businesses at that level don’t offer health coverage anyway (and they wouldn’t be required to under Obamacare). Kuhlman of the NFIB calls it “underwhelming.”
But even if small-business owners aren’t sure they would qualify for the credit, Arensmeyer says they should at least talk to their accountant to check it out.
Who has to cover their workers
The issue that most people know about is the “employer mandate” — a loose term for a set of fines for businesses that don’t cover their workers. That’s a big issue for small businesses that might be right on the edge of 50 workers.
Starting in 2015, any employer with the equivalent of 50 or more full-time workers will have to pay a $2,000 annual fine for each worker — not counting the first 30 — if they don’t offer health coverage.
And if they do offer health coverage, it has to meet the law’s “affordability test.” A worker shouldn’t have to pay more than 9.5 percent of his or her income for self-only coverage, and the plan shouldn’t cover less than 60 percent of the costs. If the coverage fails either of those tests, the employer will have to pay a $3,000 annual fine for each worker that goes to a health exchange for coverage and gets a subsidy for it.
The catch, though, is that it’s not just businesses with 50 actual full-time workers. It also applies to any business that has the equivalent of 50 full-time workers. In other words, when they add in their part-time or seasonal employees, their hours will add up to at least a few more full-time people.
Who counts as a full-timer? Anyone who worked at least 30 hours. That’s one of the biggest complaints restaurants and retailers have about the law — 30 hours just isn’t a standard anyone uses. But it’s in the law now, and it’s leading to the creation of complicated formulas — like the one the National Restaurant Association lays out in its own Obamacare primer — to help businesses figure out whether they meet the 50-worker threshold.
It’s a particular problem for the retail and restaurant industries, and that what’s leading to all the stories about pizza chains warning that they’ll have to charge more for their pizzas. But Neil Trautwein, vice president and employee benefits policy counsel at National Retail Federation, calls the employer penalty issue “a relatively discrete problem for a certain number of smaller employers.”
Obama administration officials say 96 percent of businesses in the United States are too small to be hit by the coverage requirements, and of the ones that are big enough to fall under the mandate, more than 90 percent already offer health coverage.
That doesn’t mean businesses won’t try to get that 30-hour standard changed, though — some lawmakers have introduced bills to raise the bar to 40 hours a week, and Trautwein says he “could see that issue catching legs.” The only problem, though, will be getting even such a small tweak through Congress, since many Republicans don’t want to do anything to help Obamacare work better.
New costs for bigger businesses
For larger employers, there are other cost concerns — including direct fees and other costs that will be passed on to them.
For one thing, there’s a $63 per-person fee starting in 2014 to help cover the costs of “reinsurance” in the health exchanges, or helping to cover the expenses of insurers that get a lot of sick people. The program lasts for three years — 2014 through 2016 — and the fees haven’t been set for 2015 or 2016 yet, according to the Society for Human Resource Management.
There’s also a fee to support the Patient-Centered Outcomes Research Institute, an organization created by Obamacare that’s launching research to see what treatments for certain medical conditions work better than others. It’s a smaller fee — $2 per person for all health plan years that end after Oct. 1, 2013 — but it lasts longer, until 2019.
And don’t forget the taxes that health insurers will be charged each year, starting in 2014, also to help fund Obamacare. The IRS is supposed to send each insurer its estimated fees each year, according to the regulations, but the total fees from all the health insurers are supposed to raise $8 billion in 2014, $11.3 billion in 2015 and 2016, $13.9 billion in 2017 and $14.3 billion in 2018.
Health insurance companies are lobbying to repeal the tax, but you know what they’ll do in the meantime? Pass the costs on to employers. It won’t hit the largest employers, though, which often insure themselves — just the businesses that get their coverage through insurance companies.
An August 2013 survey by the International Foundation of Employee Benefit Plans found that employers expected their biggest Obamacare costs to be the Patient-Centered Outcomes Research Institute fee, general administrative costs, the expense of explaining Obamacare to workers, the reinsurance fee and the cost of covering workers who didn’t have health insurance before.
Danger ahead: The ‘Cadillac tax’
One issue that worries large employers is an Obamacare tax that doesn’t kick in until 2018 — but it’s a big enough concern that large employers are starting to prepare for it now.
The “Cadillac tax” was put in the law to discourage businesses from providing too much health coverage — because if workers are shielded from too many costs, the thinking went, they’ll overuse medical care and not pay any attention to the costs, and health care spending will keep rising too fast. Starting in 2018, there will be a 40 percent tax on insurers — which would be passed on to employers — for any health coverage that goes beyond $10,200 for individuals and $27,500 for families.
It was supposed to be aimed at the most gold-plated of all of the health plans. But now, businesses are worried that by the time it goes into effect, it’s going to hit a lot more than just the Cadillac plans.
“You can be driving a Ford and still hit the Cadillac tax,” said Sandy Ageloff of Towers Watson, a human resources consulting firm. “That is something that all employers will have to confront if they continue to offer benefits.”
Employers are already planning ahead to try to keep their costs down. In an August 2013 survey, Towers Watson found that more than six out of 10 employers said the fear of triggering the Cadillac tax would influence their health care benefit strategies in 2014 and 2015. The survey covered 420 companies with 8.7 million employees.
For one thing, the thresholds were set in 2010, and even though the law has a method for raising them if there’s a lot of growth in health care spending, employers are still concerned that they’ll get busted for offering fairly standard plans. And after 2018, businesses don’t think the thresholds will rise fast enough. They’ll be linked to the increase in the consumer price index, but medical inflation pretty much always rises faster than that.
Think of the Cadillac tax as the slow-moving car in the right lane, chugging along at 45 miles per hour. It may be pretty far in the distance, but if you’re an employer and you’re moving along at a reasonable clip in the same lane — say, 60 miles per hour — and you don’t slow down, you’re going to run smack into it.
“What keeps me up at night is thinking about how to manage our costs so they stay below the Cadillac tax threshold,” said Bruce Elliott, manager of compensation and benefits at the Society for Human Resource Management. “If managers aren’t looking at that, they should be.”
Keeping up with the reporting rules
All employers are also racing to keep up with their reporting requirements, and the notices they have to give to their workers about Obamacare — which aren’t always well-publicized.
Take the notices employers have to give to all of their workers, starting Oct. 1, 2013, to let them know that the new Obamacare health exchanges are available. The notices are supposed to tell workers that they can get health coverage through the exchanges if their employer’s health insurance would cost them too much or wouldn’t cover enough of their medical expenses. And the notices should tell employees whether the employer already offers coverage that meets Obamacare’s standards.
So who has to give out these notices? According to the guidance on the Department of Labor’s Obamacare website, it’s any business that falls under the Fair Labor Standards Act. That’s usually any business that does at least $500,000 a year in business and has “one or more employees who are engaged in, or produce goods for, interstate commerce.”
The requirement didn’t get a lot of publicity from the Obama administration, said Kuhlman of the NFIB, because it was a minor provision that got delayed. Then in May 2013, “they said, ‘Now we have a better idea of what this should look like, and here it is, and your new deadline is Oct. 1,’” he said.
“I think we had a lot of members who had no idea this was coming, and it’s not their fault,” Kuhlman said.
The SBA official said the notice has been publicized in its webinars, and employer groups like the National Restaurant Association have been spreading the word, too.
There’s also the new summary of benefits and coverage employers have to provide to their workers, which are supposed to compare their health plans in an easy-to-understand grid.
And when employers do start reporting the details of their coverage to the federal government — now scheduled for 2015 — they’ll have to prove they’re providing health coverage with enough value to avoid the fines and report on who had health coverage so their employees can avoid the individual mandate penalties.
But even if it gets simpler to do that, it will never be totally simple, according to Trautwein of the National Retail Federation, because there is so much reporting that will have to take place not just between employers and the federal government but between health exchanges and employers. And that increases the odds that some important piece of information will get lost between offices, he says, like when a health exchange checks with an employer to make sure a worker is really eligible for a subsidy.
“It could be a nightmare … if the notifications from the Wyoming exchange come to corporate headquarters and don’t go to the right group if it’s a chain restaurant,” Trautwein said. “It’s inside baseball, but it’s not, because it’s one of those issues that’s going to surprise and shock a lot of people.”
Obamacare’s impact on businesses is one of the most passionate areas of debate between ACA critics and supporters. Some of the most bitter areas of contention:
What you’ll hear: Obamacare is a job killer. And it’s creating a new, part-time economy.
Reality check: The “job killer” label is one of the Republicans’ favorite terms to describe the law, with “part-time economy” close behind. They’re both meant to describe the bad economic impacts the law could have, as employers either don’t hire people — to keep their businesses below 50 workers — or cut their hours to keep workers below 30 hours a week.
The problem is that economists who look at the broad national data just don’t see it. At least, not yet.
“It’s hard for me to see Obamacare in the employment data,” said Mark Zandi, chief economist at Moody’s Analytics. “I’m really hard-pressed to find an impact on jobs.”
And Mark Pauly of the University of Pennsylvania predicts that “the fraction of jobs that are going to be affected is tiny relative to the overall job market.”
Zandi cautions that “the script is still being written,” and with the employer mandate delayed until 2015, some of the impact could have been postponed with it — although a lot of businesses were already preparing for the mandate before the delay was announced.
There have been a lot of stories about individual employers cutting back on workers’ hours, like adjunct professors and other part-time state employees losing work hours in Virginia. If it’s all anecdotal, there certainly are a lot of anecdotes.
But although Zandi says there has been “a bit of a pickup” in part-time employment, it’s not enough to prove a broad trend.
“The anecdotes are very supportive of the idea that we’re moving to a part-time economy. The data, at least so far, are not,” Zandi said. ”Maybe it’s the beginning of a trend, and maybe that will become obvious in another year, but it’s not obvious at the moment.”
What you’ll hear: Obamacare means I won’t be able to cover my spouse anymore, just like UPS quit covering spouses.
Reality check: There is no widespread move yet to cut spousal benefits completely, according to employer surveys — and even UPS now says it wouldn’t pin its decision on Obamacare. But that doesn’t mean it’s off the table for the future.
It certainly sounded like an Obamacare decision when it was announced. The shipping company is making workers’ spouses ineligible for health benefits, starting in 2014, if they can get coverage through their own employer. In its memo to employees, first reported by Kaiser Health News, UPS cited several Obamacare-related costs, including the reinsurance fee, the medical research fee and the likelihood that more workers would sign up for the company’s health care plan.
But most economists never really believed that UPS was really cutting spousal benefits just because of Obamacare — most figured it was something UPS was going to do anyway. And Ross, the UPS spokeswoman, said that’s basically right — because the decision was driven by rising health care costs in general, and Obamacare is just part of that trend.
“This is something we constantly look at because health care costs have been rising every year,” Ross said.
For now, at least, UPS is an outlier. The Towers Watson survey found that only 7 percent of employers were thinking of cutting spouses’ coverage or charging more for it in 2014, when they can get other coverage. Don’t rule it out for the future, though: 23 percent said they were thinking about it for 2015 or 2016. And there could be other changes down the road, the survey said, like charging more to cover spouses and all dependents.
The big picture, though, is that more businesses are thinking about changing to high-deductible health plans as a way to shift costs to employees, according to consultants and business groups. The Towers Watson survey found that 40 percent of employers were considering changing the design of their health benefit plans in 2014, and another 31 percent were thinking about it for 2015 and 2016.
“We definitely see them lowering the value of their plans,” as well as turning to other cost-cutting measures like using smaller networks of doctors, said Ageloff of Towers Watson.
What you’ll hear: Employers are going to stop covering their workers and dump everyone into the health exchanges.
Reality check: That’s not in the cards — at least for 2014, because employers don’t have a lot of confidence that the health exchanges for individuals will work.
The Towers Watson survey found that only 11 percent of employers were “somewhat confident” that the Obamacare exchanges would provide a workable alternative to their own health coverage while 88 percent weren’t confident at all.
They’re taking a wait-and-see attitude, though, so there could be a bigger move toward exchanges later if they work. By 2015, though, 24 percent of employers said they were “somewhat confident” and 5 percent said they were “very confident” that the exchanges would be a good alternative.