Health Insurance Debate: Play Or Pay, But First, Wait

Editor’s note: This story appears in the latest magazine issue of Talk Business Arkansas, which you can read online at this link.

The Obama administration’s recent decision to delay enforcing the mandate that larger employers offer employee health coverage won’t affect most Arkansas businesses. Most don’t qualify, and most that do already provide health insurance. For those that are affected by that part of the Affordable Care Act, the delay merely puts off an important decision: Prepare to start paying for coverage, or prepare to start paying a fine.

The act requires employers with 50 or more full-time equivalent employees to provide health insurance. That number is calculated by adding the number of full-time employees (at least 30 hours per week) to the result of a formula that calculates the hours worked by part-time employees.

Only five percent of Arkansas businesses have 50 employees, full-time or part-time.

According to the U.S. Census Bureau, there were 64,471 establishments in Arkansas in 2011, and 61,219 employed fewer than 49 employees. Meanwhile, according to the U.S. Department of Health and Human Services’ Medical Expenditure Panel Survey, 97 percent of Arkansas firms with 50 or more employees, full-time or other, already offered health insurance in 2012 – better than the national average of 95 percent.

Under the Affordable Care Act, the insurance that employers provide must be affordable in that employees must pay no more than 9.5 percent of their family income for an employee-only plan. And it must provide a minimum value by paying no less than 60 percent of the total cost of medical services for a standard population.

Employees who can’t get affordable insurance through their employer can purchase it through the Health Insurance Marketplace exchange, with tax credits and other subsidies available on a sliding scale for families making up to 400 percent of the poverty level. For a family of four, that’s $94,200. Arkansans can start shopping for insurance through the exchange Oct. 1.

According to the U.S. Census Bureau’s Small Area Health Insurance Estimates, 500,000 Arkansans ages 0-64 were uninsured in 2010. Anna Strong, director of health care policy for Arkansas Advocates for Children and Families, said the presence of the exchange, along with the so-called “private option” passed by the Legislature earlier this year, makes the employer mandate unimportant for 85 percent of uninsured Arkansans because they will qualify for one of the other.

“In the big scheme of things, the change in the employer mandate for this year does not affect whether or not people can access affordable health care insurance,” she said.
Randy Zook, executive director of the Arkansas State Chamber of Commerce, said many of his members won’t be affected too much by the law because they already provide affordable health insurance as a benefit or because they don’t have enough employees to qualify.
Many of those that will be affected, on the other hand, aren’t happy about it. Zook said he’s heard employers claim they will turn some of their full-time employees into part-timers in order to get under the threshold. Many are angry about the fact that the government is requiring them to provide the coverage.

“Look, lots of small business people are still absolutely up in arms over this,” he said. “They’re angry about it. They don’t like it. They’re looking for options. They’re trying to figure it out. Now, are they going to close their businesses? No. They’re going to figure out an option that’s viable and that works for them. … Business people are incredibly resilient.”

Still, Zook said that not everyone is against the Affordable Care Act. Some see it as an opportunity to provide part of the population with better access to health care, leading to healthier consumers and employees.

Gina Martin would probably have a hard time seconding that idea. The vice president and co-founder of Little Rock Tours, her firm has provided coverage for any employee who wants it, but most part-timers have refused the benefit because of its costs. She said her company has gone from paying 100 percent of health care premiums to 50 percent because of rising costs she said have occurred since the act was passed. Her personal insurance increased 42 percent this past year.

“We are a business that was providing the coverage, and Obamacare came in, and it made it unaffordable for us to continue the coverage,” she said. “So it actually did the exact opposite it was intended to do, at least for our business.”

Martin, who has spoken in Washington and appeared on “The Mike Huckabee Show,” said a particularly troublesome aspect of the law for her business is the way it calculates hours. The Affordable Care Act doesn’t just count full-time employees but also full-time equivalent employees by calculating the total number of part-time hours worked. For her company, which has a lot of part-time bus drivers, those numbers add up to 47 full-time equivalent employees. A few extra trips could increase driver hours past the 50 full-time employee equivalent threshold.

“Those trips should be great,” she said. “We shouldn’t have to turn business down. But it could be the one or two trips at the end of the year that could push us over the edge, and then that one trip that we might make a little bit of money might cost us $50,000 to $60,000 in penalties.”

Martin said her company had been gathering information about how to comply with the law, so the Obama administration’s decision to put off enforcement until 2015 didn’t help her much. “The delay didn’t do anything other than create another year of uncertainty,” she said. “I think for some people, it was a relief. For our business, we were semi-prepared to deal with it, and now we’re just waiting again.”

There is an option: not providing the insurance, or at least not providing enough of it. Employers who don’t offer insurance to at least 95 percent of their full-time employees and who have at least one employee receiving a tax credit through the Health Insurance Marketplace will pay an annual fine: a $2,000 Employer Shared Responsibility payment per full-time employee, excluding the first 30 employees. Those who provide insurance that doesn’t meet minimum requirements must pay $3,000 for every full-time employee who qualifies for a tax credit through the exchange. Unlike health coverage, these payments are not tax-deductible.

Martin said that paying the penalty is an option for her business. “This has nothing to do with greed,” she said. “It has everything to do with survivability of our business. … We would love to be able to continue keeping health care for our employees, but we have to be realistic about what we can afford.”

One fast food restaurant franchisee who asked not to be identified said his company probably will try to provide coverage when the penalty begins applying in 2015 for a simple reason: He thinks the fine inevitably will increase. The owner has spent a considerable amount of time researching the issue since it was passed, including meeting with five insurance agents and going to classes offered by the restaurant chain, which initially said the cost would be $300 per month. At the moment, it would be considerably cheaper for his company to pay the fine than to provide insurance – a conclusion many other employers will reach. Once that happens, he said, the federal government will be forced to raise the fine to inspire more companies to offer insurance.

Zook, the State Chamber of Commerce director, agreed with that assessment. “The fine is going to rise to whatever level it takes to ensure that the only option is provide insurance,” he said.

Keith Vire, CEO of the Arkansas Support Network, supports the Affordable Care Act. His firm provides services to 700-800 people with developmental disabilities, along with another 600 families, throughout Northwest Arkansas. Because these are highly intensive services, the company employs about 720, about 30 percent of whom are part-time and many of whom are young.

The organization has tried to provide health insurance for full-time employees but pays only about 80 percent of the premium and covers only employees and not their families. Because of that, Vire has been shopping around for an option where it can self-insure with a high deductible.

Vire said the firm began looking for a new plan before the Affordable Care Act was passed and has seen insurance costs rise in the meantime. He also thinks coverage quality has declined. However, he supports the law. “I am in favor of it, but it’s going to be really, really hard for us,” he said.