Sorting out the requirements

Richmond-area businessman Gary Glover is sure that, one way or another, meeting the requirements of the new federal health-care law is going to cost his dry-cleaning company money. He’s also sure that he still has a lot of work ahead in figuring out what his company has to do.

“We know it’s going to be a big impact. We just don’t know what we’re required to do,” says Glover, president of Puritan Cleaners, which has 13 locations in the Richmond area. “That’s our biggest problem.”

Plenty of businesses are in the same fix. As the Patient Protection and Affordable Care Act of 2010 (ACA) moves to roll out new requirements for businesses next year, executives like Glover are trying to figure out what it will mean and how to comply. There are a lot of variables to sort out and a lot of numbers still missing from the equation, he says. “We’re spending days and days going to seminars, and nobody really has any answers.”

The goal of the health reform law is to make affordable health insurance available to more of the uninsured. In Virginia there are approximately 1 million uninsured people, equal to 15 percent of those between 19 and 65, according to the Virginia Health Care Foundation.

Employers are part of the law’s formula for closing the gap.  It provides tax credits to help lessen the cost that businesses would pay if they decide to provide health insurance to employees. Smaller companies — those with 50 or fewer full-time workers — get incentives encouraging them to provide insurance, but they don’t face the penalties that bigger companies will face if they don’t offer insurance.

Some provisions of the ACA took effect in 2010 when it was signed into law. Right now, companies are trying to prepare for what comes in 2014, when the insurance mandate rules take effect.
Expand coverage or pay penalty?

Glover’s business is a good example of what companies have to do to navigate the law’s requirements. He has 180 employees, about 50 of whom now are offered health insurance. Next year he may need to offer insurance to everyone. Or, he can end his company’s group policy and pay a penalty instead. The exact amount of the penalty depends on whether any employee takes advantage of other parts of the ACA, including buying health insurance through the newly created insurance exchanges.

Right now, Glover’s business splits the premium costs with the employees at an annual cost to the company of more than $470,000. “The fine looks almost like an attractive alternative,” he says. “That might be just a couple hundred thousand dollars. But then … those fines are only for a year or two, and then they go up. There’s just no good answer as far as I’ve heard.”

Plus, the option of putting some of the costs on employees’ backs has its own risks. The law limits their share to 9.5 percent of household income; Glover isn’t sure that his low-wage employees will want to pay that. “It’s going to cause them to quit,” he says. “We can’t double the cost of dry cleaning, so we’re kind of stuck.”

Adding to the complexity is the challenge that companies near the 50 full-time-employee mark face in figuring out the impact of hiring more people and triggering a new set of requirements, and potentially, costs. “Do you dare grow your business over 50?” asks George Peyton, vice president of government relations for the Virginia Retail Merchants Association, which has organized events to help its members understand the rules.

In contrast to Glover’s worries about the ACA’s costs, Tammy Rostov, owner of Rostov’s Coffee & Tea in Richmond, says the law has already helped her financially. Her business has a mix of full-time and part-time employees and isn’t required under the new law to offer health insurance. But she does anyway, and because she does, she’s eligible for a 35 percent tax credit for those costs. That credit increases to 50 percent next year.

Rostov says the law also has helped slow the annual increase in insurance premiums. She doesn’t agree with the widespread perception that the law is unreasonably complex. “They’ve made it seem like a bad thing, but it’s not,” she says. “Like figuring out if you’re eligible for the tax credit, it’s a no-brainer. Even my accountant has said, ‘Oh, it’s hard to calculate.’ But it’s not.”

Dividing company won’t work
The law’s requirements are not easily avoided. John Dedon is an attorney specializing in trust, estate and tax planning for the Fairfax County firm Odin, Feldman & Pittleman. He says some business clients have looked at the option of dividing their businesses so they can stay below the 50-employee threshold.

“It’s of such concern that they don’t feel they’re going to be able to compete like they used to with companies that have under 50 employees,” he says. “I have clients who are in the landscaping business, the restaurant business. These are the bulk of companies that provide jobs, and they’re kind of the lifeblood of this economy.”

Dedon says the reality is that dividing a company won’t work. You’d have to give up control completely. “At the end of the day, the answer was no, it really doesn’t” protect you from the new law’s requirements, he says.
Adding to the uncertainty is the continued political opposition to the law. Republicans in Congress have tried more than three dozen times to repeal the law. Also, 26 states, including Virginia, have declined to set up their own health insurance exchanges, choosing instead to let the federal government handle that task.

In coming months insurance brokers will have better numbers to show to their business clients, and those without health insurance will have had a chance to shop around. The relative lack of public awareness about how the ACA will work “is a little unnerving,” Rostov says.

“You hope that the government is going to get it right. And we won’t know until 2014, when the [insurance] exchanges come out,” she says.

But she agrees with the law’s premise, that requiring people to pay into health insurance will make it more available to those who need it. “More people in the pool is better for everyone,” she says.