When Congress in 2010 enacted the Patient Protection and Affordable Care Act (ACA), one pillar of the law’s sweeping objective was fostering a wide span of health plans to empower smaller employers.
Traditionally, health insurance for small and mid-sized U.S. businesses has been expensive because there are fewer employees to pool the costs when a colleague falls ill or is injured. More and more, it’s harder for smaller business owners to provide employees with insurance due to meteoric health costs in the U.S.
To try and address the issue, the ACA requires all health coverage provided by a large employer to be “affordable,” defining affordability as meeting the minimum value and maximum percentage standards. If employers don’t offer reasonable coverage, their employees are also eligible to join a public exchange.
There are various tools available to help c-stores and other employers to mine an effective strategy that meets the requirements of the ACA. However, the complexity, fluidity and uncertainty of the healthcare reform law have some retailers looking into an abyss with mounds of federal red tape and potentially higher costs staring back. Still others, like Tony Huppert, CEO of Team Oil Inc. and the Team Oil Travel Center in Spring Valley, Wis. see the healthcare law and its stipulations as the ongoing price of doing business.
“I look at Obamacare mandates the same as our ancestors did when Social Security, workman’s comp, unemployment insurance, etc. were mandated,” Huppert said. “It is all labor expense. No different than the other mandates. I think the (hype of) the Affordable Health Care—or Obamacare—is completely blown way out of proportion.”
In fact, worrying that the law is being forced on them, bearing possible penalties, should be the least of retailers’ concerns,” he explained.
“If as much time spent trying to fight healthcare was instead devoted to perfecting and improving it, we would all be better off.” Huppert said.
BREAKING IT DOWN
Perfection and improvement are noteworthy goals, but understanding how the ACA works and how the evolving law might impact a retailer’s operation is still a critical consideration this year.
To begin with, in 2015, an employer that employs at least 100 full-time employees or full-time equivalent (FTE) employees during 2014 will become subject to the shared responsibility—employer mandate—provisions of the ACA. The employer mandate generally imposes penalties on a “large” employer if the employer fails to offer affordable, minimum-value group health plan coverage to its “full-time employees,” generally defined under the ACA as employees working 30 hours or more per week.
Though computing FTE hours is straight forward, like most retailers, c-stores must develop best practices when it comes to effective scheduling and interpreting ACA requirements regarding FTE.
Holt Oil Co. is a third generation, family-owned business based in Fayetteville, N.C. and currently operates 10 retail convenience stores and leases 11 other stores under the Holt c-store name.
“The only changes we have made concerning the ACA is to get our employees off the bubble of full time and part time,” said Louis Cox, president of Holt Oil Co. “Some fluctuate monthly between full and part time, and we have tried to limit that as much as possible. We have offered our insurance plan to around 40 employees as a result of the ACA and have had about 10 take the plan. We pay for about 80% of the plan.”
In 2014, the Obama administration delayed the employer mandate until 2016 for companies with 50 to 99 workers. (Employers with fewer than 50 workers have always been exempt.) Companies with 100 or more workers will have to cover 70% of their full-time workers beginning next year, according to a rule published by the Internal Revenue Service.
David Fialkov is an associate at the international law firm Steptoe & Johnson LLP, where he practices in the government affairs and public policy group. He also is legislative counsel to the National Association of Convenience Stores (NACS). The attorney has studied the ins and outs of the law, tracking changes along the way.
Of course, minimizing the risk of exposure to penalties outlined in the ACA is a chief concern of employers. Fialkov said a recent development that retailers should be aware of is that large-employer medical plans lacking hospital coverage will not qualify under the ACA. The decision passed down this past November affects only plans that claim to pass the “minimum-value test.”
Certain vendors have been marketing such plans to employers for 2015—the first year that large companies are liable for fines if they don’t provide minimum health coverage. Penalties are only triggered in the event an employee received a subsidy for exchange coverage.
To pass the minimal-value test, plans must pay for 60% of covered services for standard population. If a plan does not pass the minimum value test, lower-income employees—those earning up to 400% of the federal poverty level—can go to public insurance exchanges to obtain coverage—with the federal government subsidizing their premiums.
In that situation, employers are liable for each employee who obtains subsidized coverage.
Fialkov explained that there are two penalties under the employer mandate as it relates when at least one FTE receives a premium tax credit or cost-sharing reduction to purchase coverage on the Health Insurance Marketplace. Essentially:
1The employer fails to offer health coverage to a certain threshold (70% in 2015, 95% thereafter) of its full-time employees and their dependents, thus facing a no-offer penalty. The no-offer penalty is $2,000 per year multiplied by all of an employer’s FTE or;
2The employer offers health coverage to its full-time employees and their dependents, but the coverage is either unaffordable or does not provide minimum value, which can earn a company a deficient-coverage penalty. The deficient-coverage penalty is $3,000 per year multiplied by each FTE who receives a premium tax credit or cost-sharing reduction to purchase coverage on a health insurance exchange.
In most cases, the no-offer penalty will vastly exceed the deficient-coverage penalty because, despite the deficient-coverage penalty being a greater dollar amount, the deficient-coverage penalty applies only to each full-time employee who receives a subsidy to purchase coverage on a health insurance exchange.
SKINNY PLANS AND FAILING THE TEST
Because of the wide scope of the law, and the fact that large employers have more than one strategic option, most employers will naturally seek to minimize their risk from penalties, Fialkov explained. Two potential employer strategies include:
•Minimum-value coverage (Skinny Plan) strategy. Generally, a group health plan provides minimum value if it’s designed to pay for at least 60% of the cost of claims for a standard population. Federal rules offer several options for calculating minimal value.
Most plans will make use of the minimal value calculator, may apply a safe harbor developed by the Department of Health and Human Services and IRS, or might, for nonstandard plans, provide an actuarial certification from a member of the American Academy of Actuaries.
Small group plans also meet minimal value requirements if they provide a Bronze plan, which will cover 60% of costs. (Consumers turning to the new marketplaces created recently by the ACA will find health insurance plans organized by “metal” tiers—bronze, silver, gold and platinum—that signal a new era of comparison shopping.)
Some employers might consider low-cost coverage that would intentionally fail the minimum value test. Called “skinny” plans, this coverage is low cost because they exclude large categories of care. For example, they may only cover preventive care, like vaccines and cancer screenings—without employee cost-sharing—but not major items like hospitalization, X-rays or surgery.
According to Fialkov, because the skinny plan fails the minimum value test, each full-time employee who purchases subsidized coverage on a health insurance exchange would trigger the deficient-coverage penalty. It’s important to note that the penalty only applies if an employee doesn’t accept employer coverage because otherwise, the employee isn’t eligible for a subsidy.
• Failing the affordability test strategy. Some employers are considering offering coverage that, in most cases, would intentionally fail the affordability test. These unaffordable plans are low-cost because employees would be required to pay most or all of the premiums. In a plan that is designed to be unaffordable, the required employee premium would be set at a level that is projected to exceed 9.5% of household income for most employees.
“At the end of the day, most employers still want to provide fulsome coverage to their employees.” You have to look at the economics of different alternatives and determine whether or not you should go one path or another,” Fialkov said. “The difficulty with the healthcare law is that there are a lot of complexities to being able to reach the point where you have a relatively simple path forward. It’s not like you can do this and you’re compliant and it will cost this much money, or you can do that and you’re not compliant and it will cost that much money.”
Again, the ACA was created in part to provide participants coverage options. Some insurance alternatives include self-insurance and catastrophic health insurance plans, which may be attractive to people who want to pay as low a premium as possible, do not expect to need much healthcare, and are ineligible for premium tax credits.
Still another option is health insurance captives. There are a spectrum of captive structures, ranging from the wholly-owned, single-parent captive in which a single entity owns 100% of the risk, through group-owned captives with multiple owners pooling their risk.
For some organizations, captive health insurance arrangements may be able to lower health benefit costs because they eliminate health insurance premium taxes, reduce insurance carrier fixed costs and strip out carrier underwriting gains. Captives can also help minimize the risk for smaller employers who have historically been wary of self-funding their health plans by risk sharing on the stop-loss protection with other similar groups, according to Jeffrey Fitzgerald, vice president of employment benefits of Innovative Captive Strategies, a captive consultation firm based in West Des Moines, Iowa.
Fitzgerald said with a captive, employers see all the components of the premium and play a part in its pricing and delivery. There are also a few monetary advantages when you’re a captive owner.
“Obviously when you own the company, when premiums are greater claims, that profit returns to the captive members rather than the insurance company,” Fitzgerald said.
While captives aren’t a widely seen option in the c-store industry, they do exist. One example of a retailer invested in its own health insurance captive was Rogers Petroleum Inc., which owned and operated 13 Zoomerz and four Exxon sites located in eastern Tennessee until divesting the retail division in late 2013. Like Rogers and other clients of his firm, the health insurance vehicle is one alternative, but requires due diligence in the shadow of the ACA.
A captive, Fitzgerald said, does give a company more control as pertains to insurance coverage for its workforce, and eventually can lead to lower costs because claims tend to decline over time.
And there’s one more key advantage of this insurance option—company communication.
“There’s also a level of (employee) engagement that you wouldn’t have normally,” Fitzgerald said.