The Patient Protection and Affordable Care Act (PPACA), also referred to as the Affordable Care Act (ACA), Healthcare Reform and Obamacare, represents one of the most extensive changes to the nation’s healthcare system. In its most basic terms, the law aims to rein in healthcare costs and expand individual access to affordable health care coverage. Despite this simplistic definition, the details contained in the law can be quite confusing, especially for the nation’s employers who face some of the law’s most complex compliance challenges.
With compliance comes considerable financial and operational implications for businesses large and small that must now share in the responsibility of providing employees with varying degrees of healthcare benefits. As a result, reform will ultimately force employers to make significant changes to the ways in which they conduct their businesses. They will need to gain a thorough understanding of their new responsibilities under the law and take the necessary steps to carefully plan and implement mandated strategies.
Moreover, they will need to educate employees about new benefit options and coordinate all activities with various internal business functions, as well as governmental organizations such as the Internal Revenue Service and business partners that include insurance brokers and tax and accounting professionals.
Understanding the Basics
Since the PPACA was signed into law in 2010, it has already provided millions of Americans with healthcare benefits that were not previously available to them. These include the expansion of coverage to dependent children, the elimination of cost-sharing requirements for preventative-care services and the exclusion of lifetime limits on the amount insurers will pay for an individual’s medical care. To continue realizing these and other intended benefits of reform, the PPACA will impose on insurers, healthcare providers, businesses and consumers a series of regulations that will be introduced in stages over the next few years.
At its core, healthcare reform requires all U.S. citizens and legal residents to buy and maintain health insurance. At a minimum, this must include essential coverage for ambulatory and emergency services; hospitalization; chronic disease and preventive and wellness care; maternity and newborn care; mental health, substance abuse and rehabilitation treatment; and prescription drug, vision and dental care.
Failure to secure appropriate and essential healthcare insurance by January 1, 2015, can result in financial penalties. This deadline was pushed back in mid-2013 from its original start date of 2014 to give companies more time to research their options and comply with the new rule. However, most aspects of the Affordable Care Act are still in place with their original deadlines.
Later in 2013, a variety of healthcare options will be introduced to meet the needs of various consumers, whether they are unemployed, self-employed or working for other businesses. For example, new federal- and state-run competitive healthcare marketplaces, also referred to as Health Insurance Exchanges (HIEs), will provide individuals with an online resource where they may review a range of plans and purchase one that meets their specific healthcare needs and financial situation. Similarly, beginning in 2014, small businesses with 50 or fewer employees will have access to Small Business Health Option Programs (SHOP) through which employers may offer their employees approved health plans with a range of benefit levels and cost-sharing arrangements.
However, to achieve the ultimate goal of affordable and attainable healthcare for all, large businesses will need to take on a significant portion of the financial and administrative burdens associated with paying for PPACA implementation. For example, beginning in 2015, large businesses, defined as those with 50 or more full-time equivalent (FTE) workers, must choose between offering health insurance to their employees or paying a financial penalty. Conversely, businesses with more than 200 FTE employees will not have the option to pay a penalty; they will have no other choice but to enroll all of their workers in company-sponsored medical plans.
Regardless of the size of a businesses or whether or not it selects to offer employee health coverage, all U.S.-based employers will need to establish systems and processes for tracking employees’ hours, maintaining detailed records, meeting stringent IRS reporting requirements and leading the charge to educate the workforce about their rights and responsibilities under healthcare reform.
Deciding to Play or Pay
Large businesses with 50 or more employees must take the time now to assess their options and decide whether they will “play” by the rules of the PPACA and offer health insurance to their full-time employees (including dependents under the age of 26), or decline to provide company-sponsored coverage and instead “pay” an assessment of $2,000 per full-time worker per year.
Playing by the rules of reform further requires employer-sponsored plans be “affordable” and cover at least 60% of employees’ annual healthcare costs while ensuring employee costs for premiums do not exceed 9.5% of their pre-tax household income. This affordability requirement does not extend to coverage offered to an employee’s dependents, who, as a result, may face additional expenses should an employer choose to pass along a portion of increased premium costs to them.
Employers opting to pay the Employer Shared Responsibility assessment may do so if at least one of their FTE employees qualifies for a tax credit from the government to purchase individual coverage through a public exchange.
When deliberating whether they will play or pay, employers should review a range of cost calculations and considerations to determine the pros and cons of providing their workers with medical care coverage. For example, businesses may deduct on their corporate returns the costs they spend to provide employee health benefits. Conversely, employers that opt to pay the shared responsibility assessment may not deduct that payment from their corporate taxes.
In order to properly prepare for and implement strategies to comply with the provisions of healthcare reform, businesses should first become familiar with the law’s related deadlines. They must set aside the time to fully understand and prepare for the consequences that compliance may have on the financial and administrative aspects of their organizations. To do so, they may require the assistance of outside professionals, such as insurance brokers, lawyers and accountants, who not only understand all of the complexities associated with compliance but can also provide guidance that is tailored to meet a business’s specific needs and desires.
Healthcare reform is a reality. No longer can employers sit back and take a wait-and-see position. Astute business executives have already started the planning process, weighed the various options available to them and decided how best to proceed. While the true costs and challenges of reform may not be known for some time, the one certainty is that both employers and employees alike will need to take appropriate actions to adapt to the changes that lie ahead.