Mid-Sized Businesses Face Challenges with the Affordable Care Act

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medical_billing_advocate-124Business owners are facing unprecedented challenges due to the Affordable Care Act (ACA), also known as Health Care Reform or Obamacare, which may have a profound impact on their bottom line. The changes required by the new law may prove to be some of the most difficult compliance issues companies ever tackled, and the high cost of implementation could impede their achievement of business goals.

A recent survey completed by ADP Research Institute shows that most companies are already in a difficult situation when it comes to trying to understand and prepare for the fundamental changes that will alter the landscape of healthcare in the U.S. forever.

There is a surprisingly low level of awareness, says the report, when it comes to specific compliance requirements related to the Health Care Reform act. One example of a company’s lack of knowledge is that most key benefits decision makers do not even know that they are legally required to inform their employees about any and all establishments of the insurance exchanges.

In fact, the report cited that only 17% of human resources and employee benefits decision makers at mid-sized companies (firms that have between 50 and 999 employees) are “highly confident” that they understand their responsibilities under Health Care Reform.


The Fallback

business_meetingBecause they don’t understand the law, many human resources and employee benefits professionals are consequently unprepared, and as a result, haven’t even begun implementation. According to the survey, most benefits decision makers were never expecting the Supreme Court to uphold the entire law, and therefore hadn’t taken any steps toward compliance.

Owners of mid-sized businesses are in a particularly frustrating position because, according to the report, they are “expected to operate with the agility of smaller businesses but abide by many of the same regulations that govern larger enterprises.”

In certain provisions of the Reform law, companies with more than 50 employees are considered large businesses, even though by other federal standards, they would be categorized as small. Specifically, they are prohibited from applying for small-business tax credits; they can’t shop for coverage on new employer insurance marketplaces; and they don’t qualify for the small-business exemption to rules requiring companies to offer health coverage.

What’s the Real Cost?

In addition to the frustration of not understanding the compliance requirements and feeling unprepared for the impending changes under the new law, an employers’ biggest challenge of all may be the significant costs involved. In the ADP survey, 82% of key decision makers at mid-sized companies believe the cost of supplying employer-sponsored health insurance will be a barrier to achieving their business goals.

man against the worldThe overhaul of insurance plans will also force employers to consider new options, such as high-cost offerings, referred to as “Cadillac” plans. According to ADP, plans like these carry a 40% excise tax, which will be levied on insurers and third-party administrators – a cost that will likely be passed on to employers.

Another element of the new Affordable Care Act costs is called the health insurance provider tax (HIT). It’s a tax that the federal government charges insurance companies, and the size of the fee depends on how many people are being covered. Insurers, of course, pass the cost on to employers, who then pass some or all of the cost on to employees.

According to Clare Krusing, a spokesperson for America’s Health Insurance Plans (an industry trade group), it’s a trickle-down sales tax. “Like any sales tax on anything you buy it does raise the cost of that particular service”, she says. “We are seeing that consumers are paying more in the form of higher premiums as the result of this tax.”

The Plan

There is so much information still unknown in regards to the costs associated with the Affordable Care Act that it has become nearly impossible for business leaders to make strategic decisions. Now that we are on the upside of a difficult economic time, many executives are looking to expand, invest in technology, and make key investments.

According to a March 2014 report by Deloitte, offering new products and services, as well as hiring and training, are key future investment areas. More than 1/3 of companies wanted to upgrade existing technology or invest in new systems.

According to the National Federation of Independent Business (NFIB), the law will make it “extremely expensive” for a small business to grow. For example, a restaurant that grows from 49 to 50 employees could face a $40,000 penalty if it does not provide healthcare coverage.

“A business can avoid the penalties by firing employees, not hiring new ones, replacing full-timers with part-timers, or by outsourcing. Estimating the costs of hiring and expanding will be complex and confusing.”

“A business can avoid the penalties by firing employees, not hiring new ones, replacing full-timers with part-timers, or by outsourcing. Estimating the costs of hiring and expanding will be complex and confusing,” NFIB stated.

How can companies plan for key investments and make strategic decisions that would grow their businesses, when there are so many costs associated with Health Care Reform compliance, yet they have no idea exactly what those costs will be?

medical-billing-advocate_12261346Earlier this year, one of the many changes made by the Obama administration to the ACA gave a much-needed break to medium-sized businesses, offering them an extra year to provide health coverage to their employees. Although they still have to report how many of their workers have coverage, they aren’t required to actually provide the coverage until 2016. If the company is not compliant in 2016, it will owe a penalty.

This is just one small reprieve in the sea of unending legislation and reforms, but it still offers little time and little consolation to employers who are uninformed, unprepared, and uncertain.

The administration has claimed repeatedly that the Affordable Care Act will not negatively affect the job market. However, according to a poll of businesses with 40 to 500 employees conducted by Public Opinion Strategies (commissioned by U.S. Chamber of Commerce and the International Franchise Association), the reforms have already impacted the market.

The survey shows that 27% of franchise and 12% of non-franchise businesses have already replaced full-time employees with part-time employees. Other methods utilized to cut costs include hiring only temporary help, cutting other benefits, and cutting or terminating bonuses.

Some pundits have begun discussing a change to eliminate the employer mandate, or offer a different solution, for those very reasons. “Repeal of the employer mandate might, in fact, not be such a bad idea”, Timothy Jost, a law professor at Washington and Lee University and vocal supporter of the Affordable Care Act, wrote recently.

Some companies, Jost states, “have reportedly constrained growth to avoid becoming subject to the mandate” and other companies have started to “cut the hours of part-time employees to below 30 to avoid having to offer them coverage.”

Some companies, Jost states, “have reportedly constrained growth to avoid becoming subject to the mandate” and other companies have started to “cut the hours of part-time employees to below 30 to avoid having to offer them coverage.”

Jost thinks the rule should only be thrown overboard if it’s replaced with a more effective requirement that is not as overwhelming for employers. For example, a previous version of the employer mandate required firms to instead commit a percentage of their total payroll to cover employee healthcare benefits. Compliance under the earlier version of the law “would be infinitely simpler than those required by the current mandate.”

Another expert questioning the Affordable Care Act for employers is Robert Gibbs, Obama’s former press secretary. “I don’t think the employer mandate will go into effect. It will be one of the first things to go,” Gibbs said during an appearance earlier this year.

Many employers across the country likely share these viewpoints. America’s tradition as the land of opportunity – fostering the dreams of so many who have started companies – is at stake. The entrepreneurial spirit, now alive and well, could be severely impacted by the Health Reform Act. Will that be the legacy left behind by the implementation of the Affordable Care Act?

Filed under: Small Business ACA, US Healthcare, Resources, Obamacare, Medical Billing Industry, Affordable Care Act

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