Finance executives waited anxiously this past summer for the Supreme Court’s ruling on the Affordable Care Act (ACA). But months after the law was ruled constitutional, uncertainty still reigns. Companies are still trying to figure what the costs of complying with the ACA will be. Some are studying whether it makes sense to discontinue health benefits and instead pay a penalty. Many smaller companies still don’t know that they qualify for health-care-related tax breaks.
The law’s “employer shared responsibility” provisions, scheduled to take effect in 2014, include a penalty for companies that do not provide “minimum essential coverage,” to be collected via corporate tax returns. A “large” employer, generally defined in the law as having more than 50 employees, is subject to the penalty if even one full-time employee qualifies for “premium assistance tax credit” (designed to help low- and middle-income individuals and families purchase health insurance). In most cases, the penalty will be $2,000 per year per full-time employee.
The Internal Revenue Service tried to assuage some concerns over shared responsibility earlier this month by issuing a safe-harbor notice that should help employers figure out which workers are deemed full-time, and thereby help some to avoid the shared responsibility penalty. Along with the Health and Human Services Department and the Labor Department, the IRS also recently provided guidance about the ACA-mandated maximum 90-day waiting period between new employees’ start date and when their health benefits kick in, also to take effect in 2014. Many employers currently use a longer waiting period, often six months.
Some observers say more clarity is still needed, however. The general air of uncertainty around the ACA is provoking much discussion among companies’ executives these days, says Shawn Nowicki, director of health policy for New York Business Group on Health, an employer-based business coalition with a subsidiary that offers a health-insurance exchange. Until fairly recently, most discussions about a company response to the ACA took place at the human-resources level, but now CFOs and their key reports are getting more involved, he notes.
Still, the higher level of discussion has not generated much action, according to Nowicki. Many corporate executives are waiting to see whether their competitors will abandon health care and pay the penalty, he notes. From a purely financial standpoint, doing so would be a wise choice for most employers that offer health benefits, because their per-employee health-care costs are typically several times greater than $2,000 per year, often $10,000 to $15,000. Standing in the way, though, are recruiting and retention concerns.
Some companies, Nowicki says, plan to structure employee contributions so that low-wage workers would be better off receiving the premium subsidy the federal government will offer for purchasing insurance through the planned state insurance exchanges, which under the ACA must be operational by 2014.
A two-tiered approach could develop, he says, in which a company could offer an employer-sponsored plan to certain employees while those ineligible would be sent to the exchanges. The company would still be subject to the penalty, but the math could work out to where “they feel comfortable with this arrangement,” he adds.
It is generally believed that many states are unlikely to meet the 2014 time line for exchanges to be operational, but some states are well along the path to meeting the deadline. Among the most advanced is Connecticut, which created its exchange in 2011 and is moving closer to implementation. Other leaders include Maryland, Nevada, Rhode Island, Vermont, and Washington.
Aside from just health-care-exchange decisions, companies will have to take a look at all facets of their operations because of the ACA, noted Les Funtleyder, president of Poliwogg Investment Advisors and author of Health Care Investing: Profiting from the New World of Pharma, Biotech, and Health Care Services (McGraw-Hill, 2008), at a New York State Society of CPAs (NYSSCPA) briefing last week.
Pharmaceutical firms, for example, will likely be less dependent on size and scale and more so on innovation in their business lines, noted Funtleyder. That’s because the costs of ACA compliance, he said, will force them to be more competitive.
Other industries will take some direct hits. Medical-device firms, for one, will be hit hard by an ACA provision called the Medical Device Excise Tax. Device manufacturers and importers will have to pay the new tax on their sales starting in 2013.
Small and midsize companies in all industries, though, can still benefit from the Small Business Health Care Tax Credit, a 35% maximum credit on health-care spending by certain small businesses and 25% for tax-exempt employers.
But companies are relatively unaware that the credit is available, noted Charles Bell, programs director for Consumers Union, the nonprofit publisher of Consumer Reports magazine, at the NYSSCPA briefing. The cost of that oversight will rise at the start of 2014, when the credits extend to 50% and 35%, respectively.