Obamacare and Employers

by

David D. Schein

President and General Counsel, Claremont Management Group, Inc.

The June 28^th USSC ruling on Obamacare brought new attention to this Act. Many anticipated that the “individual mandate,” and perhaps the entire Act, would be ruled unconstitutional. Instead, USSC ruled that the individual mandate under Obamacare was a tax, and therefore constitutional. 

A provision that would deny current Medicaid funding to states that declined to expand their Medicaid coverage was struck down. As a result, it is expected that numerous states may decline to expand their participation in Medicaid. The consequence for employers is that the expected reduction in health insurance premiums with the Fed and states covering many individuals is not likely to occur. This will likely result in higher health insurance costs. 

Many call for the repeal of the Act. However, employers should work to understand the Act as it presently operates since repeal is not an easy thing to achieve. Employers could always be pleasantly surprised if the Act is repealed or substantially modified in the future. 

For employers, parts of the Act are already in effect. One example is the Age 26 dependent coverage rule. This provision is fairly simple and some states, like Texas, had already expanded coverage for dependents up to the age of 26. Also in effect are requirements for “first dollar” coverage for preventive care; that certain medical “essential benefits” be available without lifetime maximums. 

Employers with less than 100 employees have relaxed Cafeteria Plan requirements.

On an individual basis, employees are capped at putting $2,500 into a Heath Savings Account (“HSA”).

Over 2013 and 2014, numerous additional changes will be implemented under the Act and most will increase the cost of health insurance premiums.  

Another floating situation is the creation of state “health exchanges” to provide health insurance for those who are not covered by an employer or cannot afford their employer’s plan. The hitch here is that while some states already have such exchanges, states may opt not to participate in the exchanges under the Act. As part of the Act, covered employers will be required to provide an exchange-related notice to new hires. 

Penalty Provision: Employers with less than 50 employees, including a calculation of full-time-equivalents (“FTEs”) for part time employees, are not subject to the penalty provisions at this time. (Each 120 hours a month of part-time work equals one FTE.) Failure to provide health coverage results in a monthly penalty equal to 1/12 of $2,000 after disregarding the first 30 employees. Premium credit penalty is $3,000 or $2,000 per employee, depending on certain factors. For a detailed discussion of this provision from the NFIB, see:

http://www.nfib.com/Portals/0/PDF/AllUsers/Free%20Rider%20Provision.pdf

 The pundits have criticized this penalty, as providing a disincentive for businesses to exceed 50 employees. This may lead to an increased incentive to outsource jobs outside of the United States. 

A possible plus for small employers is that the Act does provide a small business tax credit to encourage businesses with up to 25 FTE employees to provide health insurance. Average wages must be less than $50,000 for the business to participate.

The ultimate impact on employers is still to be determined of this complex and controversial bill.