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Companies that deferred compliance with the Affordable Care Act until the Supreme Court made its ruling have their work cut out for them.
David McCann, CFO Magazine
September 1, 2012
CFOs, health-care attorneys, and benefits consultants expressed surprise, and in some cases shock, at the U.S. Supreme Court's decision this summer to uphold the individual-mandate provision of the Patient Protection and Affordable Care Act (PPACA).
The decision, which left virtually the entire law intact, was particularly disappointing to the many finance chiefs who were hoping that the law, its array of reforms, and its associated costs would simply go away. The ruling does create a degree of certainty for executives who didn't know if or when they would have to comply with provisions of the law yet to take effect. But some say that significant uncertainty remains because of the likelihood that Congress will continue its partisan battle over the PPACA.
"The court may have decided, but Congress certainly will weigh in again," predicts John Leahy, finance chief at iRobot. "I was hoping the court would throw the whole thing out." For iRobot, the uncertainty was so great that as of July, the company had not bothered to quantify the cost impact of the law, according to Leahy. At the time, iRobot executives also had not begun to think about the decision now facing employers: whether to discontinue offering employee health benefits and instead pay a penalty while steering employees to the state health-care exchanges (often called the "pay or play" decision) scheduled to be operational by 2014.
Paul Janicki, CFO of Roquette America, likewise rails against uncertainty, which he says may not be cured even by this fall's elections. "In the not-too-distant future, [Roquette] will start the budget process for 2013, and we also do a higher-level planning for three to five years out," Janicki says. "Part of that is labor cost. We have to estimate what that will be. But with health care, it's difficult to calculate what the impact will be." Even benefits consultants can give only general guidelines, Janicki adds, because it's a complex law and regulations for implementing much of it have yet to be released.
On the other hand, the National Business Group on Health, which represents the interests of about 350 Fortune 500 companies in health-benefits matters, thinks the court's decision will help employers move forward with health-coverage plans. "They might not like it, but at least they know what they need to do," says Steve Wojcik, the group's vice president of public policy.
Behind the Eight Ball
Many companies had been waiting for the court decision before getting to work on complying with the next wave of PPACA provisions to take effect. In particular, those that haven't addressed two rules that will become effective over the next few months "are definitely behind the eight ball at this point," says Amy Gordon, a health-care attorney with McDermott Will & Emery.
One provision requires companies to distribute a new Summary of Benefits and Coverage (SBC) to employees. Insurance carriers must prepare the documents for fully insured employers, but it's still the employer's responsibility to make sure they are ready and mailed by deadline dates. "You have to stay on top of your carrier," says Ben Lupin, director of compliance for benefits consultancy Corporate Synergies. "They're not the ones who will be penalized if the SBCs are not out in time."
But self-insured employers have it worse, because they have to prepare the forms themselves. For most, it will take significant time and expense to "parse through what you need to provide and fit it into the exact model the government is requiring," says Lupin.
The other upcoming provision requires companies to report the value of health benefits on employees' W-2 forms. It's a comprehensive requirement; if an employer offers a free clinic or subsidizes a flexible spending account (FSA), the dollar value of that benefit must be calculated. "Companies have known that the W-2 requirement is coming, but frankly, some of the payroll vendors haven't gotten around to implementing it effectively, and so some employers have ignored it until now," says Lee Doble, a managing director at Frank Crystal & Co., an insurance broker. Such companies will have to make a good deal of coordinated effort with their payroll vendors to meet the January 2013 deadline for reporting the information.
Pay or Play
Now is also time to begin considering a more profound implication of the PPACA: the pay-or-play decision. Companies with more than 50 employees that decide to forgo offering health insurance will pay a penalty, in most cases $2,000 per employee per year. But health-care costs are higher than that for almost all companies, so based strictly on the math, it would be an easy decision to discontinue health benefits.
Of course, there is more to the decision than costs. Competition for labor is a weighty concern. "If you're looking to hire someone who's getting benefits elsewhere and you're not providing them, you're going to have a hard time landing that person," says Doble.
Few observers believe companies will start eliminating health benefits in droves. The companies most likely to do so are those with fewer than 50 employees, those that can no longer afford to shoulder the health-care burden as costs continue to rise, and those of any size that employ large numbers of full-time hourly workers, such as retail, food-service, and health-care organizations, many experts say.
It is conceivable that some large companies will take the opportunity to cut out a major cost area, especially a few years from now after it becomes clear how the state exchanges are working. For now, though, consultancy Towers Watson is hearing that at least 90% of large employers plan to offer coverage through at least 2014 or 2015, says Sandy Ageloff, a health and group benefits leader for the firm.
Theoretically, employees at companies that do end health coverage would still have access to affordable insurance through state exchanges, which are intended to let users easily compare health plans' coverage and costs. But while the PPACA calls for the exchanges to be operational by 2014, many states have not yet applied for federal subsidies, let alone started building exchanges. The law does provide for the federal government to operate an exchange for residents of states that don't create their own, but "many of [the states] won't want to defer to the government," says Doble.
Adds Corporate Synergies's Lupin, "How the elections come out may ultimately affect pay or play, but now that you at least know the law is constitutional, it's time to take a look at it. Planning for 2014 is key now."