It’s Complicated
Compliance with the Act is likely to make a big enough dent in companies’ balance sheets that Lars Froiland, agent and owner of Builders Insurance Group in the Twin Cities area, recommends to his pro dealer clients that they prepare alternate, more modest income projections that take the law into account.
There are several things dealers will be responsible for sooner than later to comply with the Act. For example, their internal accounting will need to track and report more information. The Society for Human Resource Management points out that, starting in 2013, employers must state the value of their insurance coverage on their employees’ W-2 forms. They must also cap the dollar limits on their plans’ flexible spending arrangements at $2,500, and increase what they withhold for Medicare from paychecks of employees with incomes of $200,000 or more.
Ryan Young, senior director of federal government affairs for the Independent Insurance Agents & Brokers of America (known as “The Big I”), adds that next year, the Act calls for a 0.9% federal tax increase on high-income earners and a 3.8% tax increase on investment income, each earmarked to defray the cost of expanding health care through this legislation.
Employers should be aware, too, that when the Act goes into full effect in 2014, it limits employees’ deductibles and out-of-pocket expenses. Also, an employer can’t wait over 90 days to add a new worker to its health care plan.
Scott Vogt, director of client services for St. Louis-based The Lockton Companies, the giant insurance broker, reminds his pro dealer clients that, Act or no Act, there’s basic blocking and tackling they must continue executing to keep health care costs down. These include purchasing coverage efficiently (with a close eye on fees), making sure employees stay within network for services rendered, and managing eligibility, especially for family members.
About Those Exchanges …
By Jan. 1, 2014, all Americans must be insured, either through their employers or by purchasing policies from Exchanges that are supposed to be set up in every state but will be run by the federal government if a state declines to create its own. (As of mid July, 15 states had set up Exchanges.) Without question, one of the biggest decisions dealers will make in the next 15 months is whether to continue offering health insurance to employees or to move them into those exchanges.
That decision could vary according to a company’s size and location. The Act mandates that all businesses with 200 or more employees automatically enroll workers into a company-sponsored health insurance plan, though employees can opt into an exchange.
On the other hand, companies with fewer than 25 employees will be eligible for a tax credit of 35% in 2013 and 50% in 2014 and beyond if they insure their workers and if they pay for at least half of their employees’ premiums.
Companies with 50 or more employees are required to offer insurance, move employees into exchanges or pay a penalty of $2,000 per employee per year. The first 30 employees are exempted from that penalty.
Ostensibly, this seems like a no-brainer for companies and workers. The federal government is going to subsidize a good portion of insurance bought through exchanges for households earning less than four times $23,050, the federal poverty level for a family of four. That works out to $92,200 a year.
That penalty is far less than what most companies pay for insurance.“I haven’t written a $2,000 policy since 1980,” quips Burman Clark, president of Roanoke, Va.-based broker Muneris Benefits.
Employer-sponsored insurance could become less attractive by 2018, when the Act imposes an excise tax on so-called “Cadillac” plans that are valued at more than $10,200 per individual and $27,500 per family.
Still, many dealers seem reluctant to dispense with health insurance, which they view as a recruitment and human resource tool. “Insurance is one piece of the anchor that keeps your people in place,” says Moore of the LBM dealers association. “I’m not so sure dealers will want to send employees to exchanges that aren’t mature.”
Expect larger companies to keep their insurance plans intact, partly because many employees come to these companies with full expectations they are going to be protected, observes Froiland. He, Clark and other agents also expect many companies that move employees into exchanges to maintain a benefits connection through a defined contribution to their employees’ health care expenses, similar to how they contribute to their 401(k) retirement plans.
