The Affordable Care Act: Rolling with the Regulatory Changes
The Affordable Care Act is an extensive piece of legislation with significant implications for businesses, particularly when it comes to hiring practices. Given that many middle market companies are likely to have more than 50 full-time-equivalent (FTE) employees (defined as working an average of 30 or more hours per week for more than 120 days in a year) and will have to meet mandated health coverage requirements in order to avoid a penalty, it's imperative that businesses know the ins and outs of the regulations.
More than 90 percent of executives see health care costs as a challenge, according to an NCMM report, "The State of Healthcare in the U.S. Middle Market." When it comes to hiring, however, the impact of the ACA is more subtle than many business execs may realize.
ACA Deadlines and Changes
Regardless of the ultimate impact of the ACA on your business, it's unlikely to be immediate. In March 2014, President Obama signed a two-year extension to the employer mandate, but the extension was only applied to companies that have 50–99 FTEs. Companies with 100 or more FTEs, meanwhile, must still comply with the first extension that the Obama administration put into place, which has a deadline of January 2015, so the window is quickly shrinking for these businesses to comply. Additionally, any employers with 100-plus FTEs will have to offer coverage to 70 percent of them in 2015 and to 95 percent by the following year, so growing midmarket companies should be on top of their employee headcount and know who they need to cover.
Does Your Coverage Meet the Requirements?
Many companies already offer health care insurance because it helps them provide competitive employee benefits to attract quality talent, but you want to be sure that the insurance you offer meets the federal requirements, as Aetna notes. There are multiple provisions to keep track of. For example, coverage must reach a 60 percent minimum value requirement (meaning a health plan should be set up to pay at least 60 percent of the total cost of medical services for a standard population). In addition, in order to be considered affordable, employee contributions cannot exceed 9.5 percent of their household income (this percentage should account for any other working residents of the employee's household and other income the employee may receive). Employee wellness incentives must also meet national guidelines.
Calculating Future Costs and Potential Risks
Another tricky area will be determining the actual cost of any health care insurance program that you have in place, because money spent by employers on health care coverage can be tax-deductible. Some additional provisions will appear soon that will affect coverage requirements; others, such as the so-called Cadillac tax on high-value plans, aren't slated to take effect for years, but it's foolish to hire personnel without understanding the long-term financial implications.
One possibility for companies is to find appropriate private health insurance exchanges and give employees money to enroll themselves. As NCMM has previously discussed, this type of move means a shift from defined-benefit plans to defined-contribution plans, similar to how retirement packages have largely moved from defined benefits to defined contributions. Defined contribution plans can be risky, though, especially if employees prefer to buy low-premium, high-deductible insurance plans, which appear cheaper from the outset but could end up costing the employee if health issues arise. There's already a large percentage of people with significant health care debt, as a Bankrate survey shows, and you don't want to your employees to add to that number.
As your midmarket firm expands, it could be affected by new provisions of the Affordable Care Act, so it's important to stay on top of any requirements that might surface. Consider retaining an experienced consultant to help you walk through the various choices and find the best solution for your company.
Erik Sherman is an NCMM contributor and author whose work has appeared in such publications as The Wall Street Journal The New York Times Magazine Newsweek, the Financial Times Chief Executive Inc., and Fortune. He also blogs for CBS MoneyWatch. Sherman has extensive experience in corporate communications consulting and is the author or co-author of 10 books. Follow him on Twitter and circle him on Google+.