BizTimes Media has an ongoing commitment to keep our readers informed about the implementation and the impact of the Affordable Care Act, otherwise known as Obamacare.
In this installment, BizTimes executive Steve Jagler interviewed attorney John Barlament, a partner at Quarles & Brady LLP in Milwaukee, and John Healy, a senior account executive at M3 Insurance in Madison.
Barlament and Healy have read the law and are monitoring the implementation rules as they are being written by the U.S. Department of Health and Human Services.
Barlament is the principal author of Quarles & Brady’s “Health Care Reform Pay or Play Guide.”
Earlier this month, BizTimes solicited questions from readers about the Affordable Care Act. In his conversation with Barlament and Healy at Quarles & Brady’s downtown Milwaukee offices, Jagler relayed many of those questions to the experts.
The following are excerpts from that conversation. Readers are invited to stay tuned for additional updates about the Affordable Care Act throughout 2013.
BizTimes: To start with, how will the law affect a company that has more than 50 employees? Isn’t this a pay-or-play proposition for large companies?
Barlament: “I think so. So, you could have what I call 50 ‘counted’ employees, which is full-time employees plus full-time equivalents. When you add them up, if it adds up to more than 50, then you are subject to the pay-or-play rule. And you have to start looking at it, 50 or more.”
BizTimes: Explain the pay-or-play.
Barlament: “Sure. So the rule is that every large employer subject to these rules has to offer minimum essential coverage to its full-time employees under an eligible employer-sponsored plan. Now, we don’t have definitions for all these terms yet. So what is an eligible employer-sponsored plan? We don’t know. Affordability? We have a rough idea; it can’t cost the employees more than 9.5 percent of their W2 for self-only coverage. Some terms are identified, others are a little unknown. If an employer doesn’t offer coverage at all, or if an employer offers coverage which isn’t affordable, which doesn’t meet a minimum value test, in that case, the employer’s subject to a pay-or-play rule.
“Penalties do vary. There are two possible penalties. The first one is what we call the ‘no-offer penalty,’ where it’s $2,000 times each of your full-time employees. So if an employer doesn’t offer any coverage to its full-time employees, and if one of those employees goes down to an exchange, it’s subsidized exchange coverage. At that point, the employer would be facing a penalty of $2,000 per year multiplied by all of its full time employees.
“There’s also what we call the ‘unaffordable coverage penalty,’ where if an employer does offer coverage, but it’s not good coverage…it doesn’t provide minimum value, it doesn’t meet actuarial test, or it costs too much and it’s not affordable, again, for each of these employees who kind of leaks out of the employer system and goes to an exchange, gets subsidized coverage, at that point, the employer would basically get a $3,000 penalty for each such employee.”
BizTimes: So from a cost factor, the large employer needs to weigh how much it’s going to be to provide insurance to the company and weigh that towards the penalty cost. But I’m sure there are other actors you want to consider as a large employer, like whether or not you want to be perceived as an employer of choice that provides coverage for employees?
Healy: “Absolutely. They don’t have to offer it (insurance). But if they don’t offer affordable minimal essential coverage, then they’ll be penalized. They don’t have to offer insurance, large or small. But as you said, the key, I think, that we’re finding out from our customers is: How are they going to attract and retain employees? If they don’t offer coverage…the minimal essential coverage is affordable, the employee would have to go out and get it due to the individual mandate…and get that coverage with their after- tax dollars, which is significantly expensive, due to the way exchanges are designed to be set up.”
BizTimes: Won’t companies that are on the edge of the 50-employee level be tempted to down-size to get below 50 employees, so they can avoid having to pay-or-play?
Healy: “I think in the real world, it’d be more dependent on that employer’s business practice, what type of employees they need. If it’s an employer that has no need for highly skilled employees, they may be tempted to do that…to not pay insurance cost. There’s a fight for quality employees in Milwaukee. And if you’re not willing to offer that benefit, which is a big part of the compensation for the average employee today, what are you going to do? Increase their wages? Once you start increasing their wages, you have a whole slew of other issues you’d face as an employer. ”
Barlament: “I think a lot of it may come down to the demographics of each employer. What we’re seeing is a lot of lower-wage employers or industries where they struggle with this. People who cut lawns, perhaps…or dry cleaners are spending more time looking at this, as opposed to a 60-employee architectural firm or 60-employee law firm. The higher-waged people look at cost of health plan coverage and as a percentage of overall compensation, it’s relatively small. If you are a low-waged industry, the cost of health plan coverage is relatively high with the other wages you’re paying. I think that’s a driving factor for these companies.”
BizTimes: Full-time employment is generically defined in the law as 30 hours or more per week. Won’t many companies try to cut back their workers’ hours to less than 30 hours per week to avoid having to pay-or-play?
Healy: “Dalton Restaurants, nationally, they’ve talked about a strategy to reduce the hours of people kind of on the cusp, because then they aren’t going to be forced to pay a penalty to them. But again, it goes back to how many employees does a restaurant of any particular kind need to produce the experience someone goes back to.”
BizTimes: A large hotel in Milwaukee certainly has over 50 employees. Would such a business be tempted to try to keep employees’ hours below 30 hours?
Barlament: “I think so. So hotel and retail are classic examples of again, industries which are a little lower wage, and as you noted, John, are going to be experimenting with reducing hours. And again, several companies have made national news about pilot programs which they’re doing that exactly now.”
Healy:“In anticipation of the law, the difference is once you get to the threshold, you get the penalty. But you only get the penalty for people working 30 hours or more. So if it’s an effort to reduce the number of people you’ve got so you don’t get a penalty.”
BizTimes: How will the law affect smaller companies with less than 50 employees? They have more options to consider, don’t they?
Barlament: “Clearly an employer that is not subject to pay-or-play can keep doing what it is doing today, whether that’s offering or not offering coverage. I think you’re correct that they have additional options once exchanges come online, which should be Jan. 1, 2014. That’s another potential avenue for them to provide coverage to employees. I think they have all the options, plus a little bit more.”
Healy: “And those are probably employers that if they don’t offer coverage now may be the ‘winners.’ They can go as a small employer and purchase coverage. Or they can have their employees go in and purchase coverage individually. So, they have a few more options because there are no penalties.”
BizTimes: Will small businesses that provide qualified coverage for employees qualify for a tax credit under this law?
Healy: “There’s a tax credit already.”
Barlament: “There are significant tax advantages for providing coverage as an employer.”
BizTimes: For a small employer?
Barlament: “For any employer. You don’t have to be small to benefit.”
BizTimes: Explain that. What are some tax credits or advantage?
Healy: “We’re using a tool. We have an estimate of 35-percent tax credit for employers. So value of coverage they provide, they’re getting a 35-percent tax (credit) on that. If they don’t provide it, they don’t get a 35 percent tax (credit). So the benefit that they get is they’re providing coverage AND they’re getting a tax benefit. Without providing coverage, they don’t get a tax benefit.”
Barlament: “There’s definitely a tax advantage. In terms of a smaller employer tax credit, I think the credit is up to 35 percent of the employer premium contribution.”
BizTimes: How will the law affect a sole proprietor who does not have employees and maybe contracts out for some task?
Healy: “I feel they’re the same options existing today, except after 2014, there will be no pre-existing condition which can be applied. So, a person that had a difficult time getting coverage in the past will have an easier time because of the law.”
BizTimes: From your standpoint, in the end, what impact will the law have on overall health care costs in the country?
Barlament: “I don’t think either one of us knows for sure. I don’t know, not being an economist. Clearly, we’re adding tens of millions of new people into the system who didn’t have coverage before. So, I know insurance companies are excited about that proposition; it’s additional revenue for them. I think for hospitals it could be an advantage also because they have more customers walking through the door who have insurance hopefully, and therefore fewer charity cases, less to write off. Again, on the other hand, I recognize you have more demand and the same supply of doctors. Could that allow them to raise prices? I don’t know. Perhaps.”
BizTimes: So, insurance companies are going to get tens of millions of new customers because of individual mandate and such. Hospitals will have a higher percentage of patients who will have insurance. Are there other “winners” with this law?
Barlament: “It could give an advantage to smaller employers in an industry competing against larger employers. Sometimes, larger employers will be subject to the pay-or-play mandate and will look to pay tax or pay more health insurance coverage. Small employers under 50 don’t have that same obligation. Therefore, small employers in a certain industry may be in better position to compete against bigger ones in the industry. That’s one potential change.”
BizTimes: As you know, Wisconsin Gov. Scott Walker deferred the task of creating a health insurance exchange for Wisconsin residents to the federal government. Five years from now, how will history be judging that decision?
Barlament: “I don’t know, and I don’t think anyone else knows for sure. I don’t view it as a monumental historical decision, in the sense that I believe Gov. Walker could change his mind.”
Healy: “And I agree. It’s far too soon to tell or be able to have a crystal ball and see what would happen five years from now. There are so many things that need to happen between now and 2014 to determine whether this is a good decision or not.”
BizTimes: What are the two or three most widely held misconceptions about the law among employers?
Barlament: “One big misconception is the belief that if you currently offer health insurance today, it’s a no-brainer to drop the health insurance and pay the penalty tax. When you run through the numbers, as John knows, and try to forecast and make predictions, what I’ve seen working with M3 and other consultants…is that the numbers are not as clear-cut as you may expect.”
BizTimes: Now, I’ve had some of our readers flat-out tell me that this law is going to be the death of America as we know it. That this is a government takeover of health care, and there are going to be death panels. And that we’ve become a socialist country. What do you say to appease that or quell those fears? Or are they right?
Healy: “I think that there are, you know, as with any landmark legislation out there, there are a lot of opinions out there based on political views. You can probably find there are people on the opposite end of the spectrum from those who believe this is the best thing that could ever happen. So, because there are so many things we don’t know, I think it’s just far too soon to tell what’s really going to happen. With all the pending legislation and the lawsuits out there now, ultimately, the form that this law takes could look a lot different than it looks right now. So, what we counsel our clients is, ‘Don’t go too far to overcorrect in one direction or the other.’ Think about what it is that makes your business… how you attract and retain employees, what’s the best way to operate your business profitably. If that means to continue to provide employer-sponsored health care coverage, don’t change that. If you no longer can do that, if you feel that it’s not financially viable for you to do that, then that’s the route you have to take too. I don’t know, I think it’s far too soon to tell that it’s going to be the beginning of the end of society. That seems a little overstated to me. ”
Barlament: “I haven’t bought any guns or any cabin in the woods to hide out in or anything. So, in all seriousness, I agree with John. It seems a little difficult to forecast exactly what’s going to happen in the future, what it’ll look like. I know some people say this is a government takeover of health care. I guess I don’t view it as a takeover of health care. Clearly, all of the products which are provided through the exchanges are for private insurance companies. The public options, in which the government would actually provide coverage and displace the private insurance companies, got rejected did not make it into the law. I would not view it in those terms. ”
BizTimes: The vibe I’m getting from you two gentlemen is that we as a society are going to be OK, that this is not a doom-and-gloom proposition. Am I on or am I off?
Healy: “I don’t see it as a doom-and-gloom proposition. I don’t see it as the beginning of the end. I see it as it’s not perfect, and it’s probably going to look different than it is right now. There are a lot of things that need to happen. Because of all those things that need to happen, I think that there will parts of the law that might be changed to be more favorable to a greater number of people. That’s the optimistic viewpoint that I would have, as opposed to, you know, as John said, having a house in the woods with guns.”
Barlament: “It’ll be interesting because we’re about a year out from when the exchanges come online. It’d be interesting to have another conversation two years from now, like a year after the exchanges, and see what we think in that point in time, because it is very difficult to forecast, especially because we don’t have key regulations yet. We don’t know what the exchanges will look like. States don’t know it. There’s just so many moving parts out there.”
BizTimes: My last question today is a philosophical one. The Declaration of Independence assures the rights to “life, liberty and the pursuit of happiness.” Philosophically, can a person pursue life, liberty and happiness without access to health care? Is health care a right?
Healy: “I don’t know the answer to that question. I guess I would say that when you talk to someone who’s very unhealthy or ill, the only thing they’re worried about is their health. They’re not worried about anything else. When you talk about life, liberty and pursuit of happiness, they may have liberty and they may be alive. But they can’t pursue happiness because all they’re concerned about is serious health conditions. So the right to health care, and someone else should pay for that, that’s a deeper question I don’t know I can answer.”
Barlament: “Yeah, and I don’t have any particular insight to that. I think I’ve heard of some articles making that argument, but I haven’t really explored it.”