The U.S. Supreme court upheld Obama’s Affordable Health Care Act (more commonly known as Obamacare) on June 28, 2012 in a 5-4 decision. Many businesspeople hoped the Supreme Court would strike down Obamacare, turning it from an urgent problem into a nonissue. That hope is now gone.
If you are a small business owner with more than 50 employees and you haven’t decided what you are going to do about Obamacare, now is the time to fi gure out your strategy.
What Obama Care Means Today
Some aspects of Obamacare are good. Nobody likes it when insurance companies refuse to insure someone because of a preexisting condition or put lifetime policy caps in place. Getting a checkup without a copay, and being able to cover a child up to the age of 26, are also benefi ts. These aspects of the law are unlikely to go away.
In addition, the new laws force insurance companies to be more transparent than has been required previously: they have to explain why premiums are going up, and they can be barred from participating in the state exchanges if states find that they are raising premiums arbitrarily. Additionally, insurance companies can’t have too high an overhead. If they spend less than 80 percent of the premiums on actually providing medical care, they will now have to refund that money.
At the same time, some states are cooperating and some states are exploring perceived wiggle room to see just where they can get away with business as usual. It’s anyone’s guess what the final law is going to look like.
The big problem is the cost. You already know that U.S. healthcare is expensive. The motivation behind healthcare reform is the promise of lower premiums down the road as the U.S. healthcare system becomes more efficient. Unfortunately, we are a long way from that point.
• Many experts are worried that short-term costs will increase and that those costs will be passed on to consumers who can ill afford them
• The Congressional Budget Offi ce estimates that government spending on health care will increase from the current rate, which is 17 percent of the gross domestic product, up to 25 percent in 2037.
• State Medicaid costs are going to increase. States will be required to cover everyone who makes up to 133 percent of the federal poverty level. That means millions of working families are going to be eligible, not just those who are officially defined as poor. Although federal funding will pay for this expansion until 2017, states will have to start taking over after that point. States will also have to pay more for doctors and more for medical facilities because they will have to deal with many more patients than before.
• By 2014, states will have to set up Small Business Health Options Programs, or exchanges, where small businesses can create purchasing pools. A larger pool of people, obviously, has an advantage over a smaller group when it comes to buying insurance. The size of the businesses that can join will vary from state to state. A small business is definitely not more than 100 employees, but states can also limit the pool size to companies that have no more than 50 employees through the end of 2016. If a company outgrows the size limits, it will be grandfathered in. The advantage of bargaining for insurance as part of a larger pool should cause premiums to decrease.
• Taxes are going to go up for those who are wealthy. In January 2013, there will be a Medicare surcharge of 0.9 percent for individuals who earn more than $200,000 per year; for families, the magic number is $250,000. There is also a 3.8 percent tax, aimed at wealthy citizens, that will tax “unearned income.”
Getting good professional advice – in the form of an insurance agent – is key when it comes to deciding how to navigate the changes to come. The best strategy for you is going to depend, to some extent, on whether you already offer insurance to your employees. Below, some important points to consider and discuss.
The Tax Credit
If you have a small enough business, Obamacare still might not affect you negatively. For example, very small businesses won’t be penalized if they don’t provide insurance, and the federal government has been offering a tax credit to the very smallest businesses. As you would expect, smaller businesses are eligible for bigger tax credits.
Many companies that qualify for this tax credit benefi t have not taken advantage of it, even though it has been available since 2010. They say the benefi t isn’t big enough What ObamaCare for the amount of work required to get it. Some 170,300 companies received the tax credit in 2010, although somewhere between 1.4 million and 4 million companies were actually eligible. It will be interesting to see whether interest from companies increases over time, or if the federal government will sweeten the deal to increase participation.
Skipping Insurance
McKinsey & Co. estimated in June 2011 that 30 percent of employers are going to get rid of their employee health plans after 2014. In addition, the survey found that some 85 percent of employees would prefer to keep the job and lose the insurance than switch jobs in order to get insurance.
You have to admit, choosing not to provide insurance is both bold and simple: All you have to do is pay the penalty. If you can afford it and your employees are unlikely to go elsewhere, then the bottom-line truth — at least in terms of plain dollars — may be that paying fines might be cheaper than paying for insurance. If you couple that approach by paying your employees the money that was previously going for insurance, they’ll see a wage increase, too. Isn’t that a win-win for everyone?
Not completely. Employees still have to get insurance. If they don’t, they face a fine, too, and it will get bigger as time goes by: in 2014, it is a modest $95 or 1 percent of their income. In 2015, it is $325 or 2 percent of their income. And there’s a big difference between what pre-tax and post-tax dollars can buy. When you buy insurance on a company level, being able to use pre-tax dollars effectively creates a nice discount for your employees.
What happens if employees, faced with reality instead of an abstract decision, decide they really are better off changing jobs? You can’t control what other companies are going to do, but if you don’t offer insurance, and your employees can get it somewhere else, are you really sure they won’t take the opportunity?
Not buying insurance for your employees is like playing chicken. It may be a gutsy approach, but being gutsy is not the same thing as being wise. You don’t know what is going to happen in the future, but deliberately offering a deal that is second-best means you may well lose your best employees to better opportunities.
Going Out of Business
Another alternative is to let the business go. If you don’t have a small business, no one can force you to buy insurance for your employees. However, this is a short-term and short-sighted decision. Owning your own business has always been one of the best ways to build wealth. Unless you want to retire anyway, a better alternative would be to fi gure out how to stay in business and take care of your employees at the same time.
How Insurance Companies Are Responding
According to a Bloomberg Government Analysis, insurance companies have been keeping a close eye on all these changes, and it shows in their business strategy. Since Obamacare was passed into law, private insurance companies have become increasingly involved in public health insurance programs. This is despite Republican predictions from Rick Santorum and Michele Bachman that government would take over the insurance industry. The truth is that the insurance industry is still thriving. Coverage is stable, there hasn’t been any substantial acceleration with respect to cost growth, and profi ts are stable.
Increasingly, insurance companies are putting their money into managed-care programs for Medicare and Medicaid, with revenue from these programs accounting for more than 40 percent of what they make. At the same time, commercial business revenue is now less than half. The Bloomberg analysis was based on the financial filings for the five largest publicly traded companies and one nonprofi t: Aetna, Blue Cross-Blue Shield (the nonprofi t), Cigna, Humana, UnitedHealth Group, and WellPoint. These six insurance companies cover one out of every three people who have insurance.
Clearly, these companies expect Obamacare to be fully implemented, and they are preparing their business plans accordingly. They were not waiting for the Supreme Court to vote; they’ve been busy for years with new plans.
Insurance companies cater to their customers just like any other business. Since Obamacare will require that you look for insurance solutions, insurance companies will be eager to provide them.
Change is unsettling. However, the moreknowledge that you are able to acquire, the better your decisions will be.