Providing Health Insurance Under the Affordable Care Act
Competitive benefits are necessary to attract and retain good employees.
As a healthcare provider, you or your office manager probably spend a lot of time thinking about health insurance. Are your patients covered for certain services? Will your shrinking reimbursements pay enough to cover your costs? What new red tape will you have to wade through this year?
But when was the last time you thought about the health insurance provided in your own practice? Much of the upheaval of the Affordable Care Act has calmed in 2015, but the insurance industry is still shifting and could continue to do so for years to come.
“The reality is, when we talk with clients, we are talking about reform as it is today,” said Jason Rothman, a member of the employee benefits practice group at Ogletree, Deakins, Nash, Smoak & Stewart, P.C. “It is ever-changing, especially now with the new composition of Congress … how it all unfolds this year will be very interesting.”
Even if your organization wasn't affected much by the ACA, this year may be a good time to reevaluate your benefit plans and make a change.
Skin in the game
Some predicted the ACA was going to move employers out of the health insurance game altogether, but that has not been the case. In 2009, prior to implementation of the ACA, 66% of small businesses offered some form of health benefit coverage; in 2013, 70% did, according to a survey by the National Small Business Association (NSBA).
There were provisions in the ACA that attempted to keep employers in the game. Before 2014, employees were able to get coverage in the individual market and any money their employers paid toward premiums was tax deductible for the employer. As of 2014, those payments were no longer tax deductible.
The only way to receive tax deductions for health insurance now is to provide an employer-sponsored plan, said to Gray Tuttle, principal with Rehmann's Healthcare Management Advisors. Reimbursements for individual plans could be counted as wages on a W-2, but employees would be taxed on the money.
“It was a pretty insidious piece of the ACA that most people didn't understand or overlooked,” he said. “The only fix for small employers is to provide an employer-sponsored plan … and then they are playing with the ACA.”
If some of the changes has made you think it might be time for your organization to “play with the ACA,” as Tuttle said, there are a few numbers to consider.
The most important number is 50. First, any business with fewer than 50 full-time employees is exempt from penalties for not providing insurance. Second, businesses providing insurance through the Small Business Health Options Program (SHOP) are eligible to receive tax credits of up to 50% of the amount they pay in premiums. Next, employers have to cover more than 50% of the cost of the employees' coverage. Finally, the employees must make less than $50,000 in annual wages to qualify for the tax credit.
There are a few other caveats to the tax credit. Businesses must have fewer than 25 full-time equivalent employees to qualify. Tuttle also said 70% of eligible employees have to be covered and part-time staff (working fewer than 30 hours weekly) can be excluded. A final important thing to remember, according to Tuttle, is the income of the owners of a practice can be excluded from the $50,000 wage calculation.
Thus far, the SHOP exchange has only been available to businesses with 50 employers or fewer. But Rothman said the number is moving up to 100 employees in 2016.
“The range of increase in premiums from 2014 to 2015 was incredible,” Rothman said. “I talked with one [business] that said they had a 0% increase and another whose premium went up over 50%. They are hanging on this year to explore the SHOP program in 2016.”
For smaller businesses that joined the SHOP plans, Rothman said many saw similar prices or small increases.
One thing to remember, aside from employers being required to pay 50% of the premiums for plans, is the plans have to be “affordable” for the employees.
According to Rothman, employees can pay no more than 9.5% of their total income toward premiums for the plans to meet the mark. The easiest way to tally this is by ensuring no employee has to pay more than 9.5% of the federal poverty level wages. If plans are too costly, an employee seeks insurance on the state exchanges and he or she receives a subsidy, the employer pays a $3,000 penalty for that employee.
Larger employers with higher wages may be left to the devices of their brokers to figure out health insurance. Providing this benefit is not an inexpensive endeavor. In 2009, small businesses estimated their monthly health insurance costs were just under $600 per employee. By 2014, it was $1,121, according to the NSBA survey.
Employers are using a variety of tactics to contain costs and still provide benefits. The 4 main measures noted in the NSBA survey were providing less robust plans and increasing deductibles, co-pays, and employer contributions.
Other options are providing coverage only to the employee and his or her dependents (not spouse). Also, employers can provide a plan that satisfies the ACA requirements, and any other, fuller plans could require more cost-sharing. Any time a benefit is reduced, there are employee relations impacts, Rothman said.
Nothing at all
Only a small handful of employers have looked at the numbers and decided the penalty for not offering insurance ($2,000 per employee) is cheaper than providing it.
Most professional businesses understand that competitive benefits are necessary to attract and retain good employees, Tuttle said.
If a practice doesn't offer insurance, physicians will no longer have health costs to deduct at tax time either. And the only way they can itemize heathcare costs is if their costs exceed 10% percent of their annual adjusted gross income.
For instance, if a provider pays $18,000 a year for his or her family coverage and it is no longer deductible, taxes would go up by $7,200 (based on a 40% tax rate). Spending $6,000 a year on an employee's coverage would more than make up for the potential tax increase.
“They may be able to justify the cost of benefits when they fully analyze the impact,” Tuttle said.