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What health care reform means for business

Michelle Hicks

Michelle Hicks

With President Obama signing the Patient Protection and Affordable Care Act into law on March 23, many businesses, large and small, are still scratching their heads, trying to understand how the changes could impact them. Both private and public organizations have lacked the resources to carefully track all of the details in the massive overhaul bill, especially as provisions kept changing throughout the debate.

What business owners should know is that if they employ more than 50 people, they will face penalties if they don’t provide health insurance to their employees. The amount is $2,000 for every full-time worker; however, the first 30 workers are not counted. So, a company that employs 51 people but doesn’t provide health benefits would have to fork over $42,000.

Also, if a company offers health insurance, but one employee applies for a federal subsidy to purchase individual coverage, a company would also face a penalty as an incentive to keep company premiums affordable.

For companies that do provide health insurance, costs in the first three years are expected to increase, according to James A. Klein of the American Benefits Council told the publication that “there is nothing in this bill that is going to hold down health care costs in the short term, and there are some elements that could cause costs to go up.”

One example Klein sites is the gap between the time when people will be required to purchase health insurance and when insurers will be required to insure everyone, regardless of pre-existing conditions. The cost of allowing more people onto plans kicks in before the added premiums of people being required to purchase health insurance who haven’t had it before. He predicts the difference in costs will be passed off to corporate customers.

Within six months, or in January 2011 for calendar-year plans, some provisions of the Reconciliation Act will kick in for employers and may impact their plan designs, if passed. For example, employers would be required to provide coverage for adult children of employees up to age 26. And, the coverage would be provided to the employee on a tax-free basis. And, plans would be prohibited from imposing lifetime limits and “restricted” annual limits on coverage.

On the positive side, not all of the health care reforms go into practice at one time. For example, penalties for not covering employees do not go into effect until 2014. Also in 2014, if the Reconciliation Act passes in the Senate, employers would no longer be allowed to require adult children to be unmarried to be covered under the employer’s plan. So, any plans that exclude married dependents would have to be changed. And, the tax on so-called “Cadillac” plans doesn’t go into effect until 2018. That tax is aimed at the insurer, but is expected to be passed onto consumers.

Employers will also face additional administrative costs associated with the reforms in terms of different reporting and disclosure requirements. For example, summary plan descriptions will need to be rewritten to comply with uniform standards and notices will need to be generated about newly required appeals processes. In addition, employers will have to file IRS reports on the various qualified plan options they offer.

With all of the new requirements and costs, employers may begin to wonder if they want to be in the health insurance game at all. Many are expected to evaluate the costs against potential fines to see where they come out ahead. But experts don’t expect companies to drop their coverage. Health care benefits continue to be viewed as a powerful attraction and retention tool. Instead, employers should re-evaluate their mix of compensation and benefits to maximize the return of each dollar they spend.

Michelle Hicks is a communications consultant with Buck Consultants. Contact her by e-mail at [email protected].

About Michelle Hicks