Full steam ahead

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With uncertainty gone about the future of health care reform, employers must forge ahead with ObamaCare compliance

Story by Lee Reinsch

If you woke up in a sweat the day after the U.S. Presidential election realizing that “ObamaCare” wasn’t Dorothy’s somnambulant trip to Oz, you’re not alone.

The federal Patient Protection and Affordable Care Act of 2010 seems to have stirred up more jitters among employers than the Wicked Witch of the West did among the munchkins. Many business people assumed Mitt Romney would win, Republicans would take back the U.S. Senate, and they’d wake up back in Kansas with Toto at their side.

“With the election behind them, suddenly people are taking it (the ACA) very seriously,” said Kelly Kuglitsch, employee benefits attorney with the law firm of Davis & Kuelthau in Green Bay and Oshkosh.

Employers of all shapes and sizes want to know how the ACA is going to affect them, but it’s the smaller ones that seem to have the most questions, Kuglitsch said.

“The larger employers with human resources staffs have been preparing for implementation for a longer period of time and are more familiar with the requirements, but it’s with the smaller employers that I am seeing lots of questions and, of course, anxiety and concern because of the remaining uncertainty,” Kuglitsch said.

Ignorance isn’t bliss

To some extent, small employers have been somewhat ignorant of the provisions of the law because not a lot of components of the Affordable Care Act apply to them, said Terri Lillesand, principal with the Appleton-based accounting and business consulting firm Schenck, S.C.

Lillesand said she’s received panicked emails from people saying things like, ‘We’re a small nonprofit, and if we have to provide insurance, it will put us out of business.’

“I say ‘How many employees do you have?’ and they say ‘Four,’” Lillesand said.

One of the biggest myths out there is that employers are going to be required to offer insurance or pay a penalty, and that’s not true for employers with fewer than 50 employees. A small business that doesn’t offer health insurance now won’t be required to do so going forward.

However, the law states that every individual is required to have their own health insurance, meaning those employees who aren’t insured will have to find their own insurance coverage somehow or pay a penalty.

“50-plus” isn’t just for AARP anymore

It means ACA. And QHP (qualified health plan). And EHB (Essential Health Benefits). And SHOP (Small Business Health Options Program). And a slew of other alphabet sandwiches that can unnerve you when you read them in fine print.

Starting Jan. 1, 2014, almost everyone needs to have at least a bare-bones plan or they face an IRS penalty. Those employers with 50 or more employees will be required to provide such plans, or pay the penalty to the IRS.

Beginning in 2014, most health insurance plans will be required to cover essential health benefits (EHB) in 10 categories. They include:

• Ambulatory patient services;

• Emergency services;

• Hospitalization;

• Maternity and newborn care;

• Mental health and substance-use disorder services,

including behavioral health treatment;

• Prescription drugs;

• Rehabilitative and habilitative services and devices;

• Laboratory services;

• Preventive and wellness services and chronic disease management; and

• Pediatric services, including oral and vision care.

Whether people get their insurance from a private broker, through their employer or spouse’s employer, or via the insurance exchanges isn’t important. Just so they have it.

Health insurance exchanges are scheduled to be up and running by Jan. 1, 2014. Open enrollment is in fall of 2013.

If you’re an employer with more than 50 employees who work at least 30 hours a week, you need to offer at least a bare-bones health insurance plan, or you could end up forking over a tax of $2,000 per employee less the first 30 employees. In other words, if you have 51 employees, you would pay $2,000 x 21 employees – since 51 minus 30 equals 21 – for a total penalty of $42,000. In many cases, that’ll prove less expensive than providing the bare-bones health insurance plan to 51 employees.

If your plan is too expensive – as defined by premiums costing more than 9.5 percent of an employee’s wages – your employee can choose between sucking it up and taking your pricey plan, or going to the insurance exchange to find insurance. But this alone doesn’t mean you’ll be taxed $2,000. If the employee meets certain income guidelines, they could qualify for a government subsidy to help pay for their insurance, and if they take the subsidy, then your business will hear from the IRS.

Businesses that employ fewer than 50 employees don’t have to worry about much of the healthcare reform act’s details.

“For a lot of small businesses, they don’t have to offer insurance, and they don’t get a penalty for not offering it,” Lillesand said.

Are we there yet?

The Affordable Care Act has so many facets – it makes 91 provisions – that it’s being eased into the American mainstream gradually, over a period of eight years between 2010 and 2018.

More than half the steps – a total of 53 provisions – are already in place. Some of them have received a considerable amount of media attention:

• Some 3 million adults under age 27 have been able to get insurance under their parents’ insurance plan;

• Insurance companies can’t reject you or kick you off their plan because you have a pre-existing condition or get sick;

• Insurance companies are limited as to how much rates can differ between people of different ages. For example, a 63-year-old won’t pay more than three times what a person one-third his age will pay.

Another facet of ACA that’s been well-received, albeit underused, according to Lillesand: the small business health insurance tax credit. Small employers with 10 or fewer employees whose average wage is under $25,000 that provide insurance can get a tax credit of 35 percent of their cost of the employee’s insurance premiums.

“A tax credit is a dollar-for-dollar reduction in tax, way better than a tax deduction,” Lillesand said. “It’s pretty substantial.”

Lillesand said she doesn’t have a lot of clients that take the credit, but those who do can save a lot of money.

Changes for the year ahead

Two new taxes kicking in for 2013 could affect owners of businesses whose earnings exceed certain thresholds.

On wages exceeding $250,000 for a married couple filing jointly – or $200,000 for singles – a new 0.9 percent Medicare tax kicks in on Jan. 1, 2013.

For example, if you and your spouse earn $280,000, you would owe $270, or 0.9 percent of the $30,000, which is the amount over that $250,000 threshold.

“Normally Medicare and Social Security taxes are withheld from a person’s pay and it doesn’t show up on a person’s returns. This will be a new schedule and a new line item,” Lillesand said.

Another new Medicare tax starts on Jan. 1, 2013 as well – this one at 3.8 percent – on investment income over $250,000 for a married couple filing jointly or $200,000 for single filers. Investment income is generally referred to as interest, capital gains, dividends and rental income.

This is a brand new tax to be reported on a person’s personal tax return, according to Lillesand.

Also beginning Jan. 1, flexible savings accounts (FSAs) for employees will be limited to $2,500. FSAs are stashes of pre-tax wages employees can elect to take out of their paycheck for qualifying medical expenses.

Starting in January 2013 – and for the 2012 payroll year – employers offering health insurance must report the value of the insurance premium contribution on the employee’s W-2 form, although employees don’t have to pay income tax on their plans.

‘Travelocity’ for health insurance

Starting in 2014, anyone can go online to choose an insurance plan from an insurance marketplace called an exchange. Small businesses with less than 50 fulltime employees will also be able to buy insurance from exchanges called Small Business Health Options Program. Large companies won’t be able to buy via exchanges until 2017.

What does this mean? Supporters of the health care reform law argue such exchanges will offer freedom from having to rely on a job for health care, freedom to change jobs and keep the same insurance plan, and freedom to leave a job to start a new enterprise without fearing loss of coverage.

Davis & Kuelthau’s Kuglitsch thinks the exchanges will shake up the way people view health insurance.

“I predict health care reform is going to bring with it a paradigm shift,” she said. “A number of individuals may no longer be choosing to get their insurance from their employer if they can find better options elsewhere.”

The exchanges have been described as a sort of Travelocity for health insurance. Consumers will plug in their vital statistics online or via telephone and compare coverage and prices among plans.

Since Gov. Scott Walker opted for Wisconsin to not create its own exchange, the state will use the federal model designed by the U.S. Department of Health & Human Services.

It’s not certain yet what role local and regional insurance providers will play in the health insurance exchanges, although the DHHS has reported it will model the exchanges based upon the most popular plans in each state.

No matter what happens with so-called “ObamaCare,” one thing is certain: It’s encouraging insurers to think outside the box and consider audiences they may have paid little attention to before.

Menasha-based Network Health recently expanded its offerings to include individual and family plan offerings, including one plan suited for young adults no longer eligible to stay on their parents’ policy, as well as for individuals and families whose employers don’t offer health insurance or retirees not yet eligible for Medicare, said Sheila Jenkins, president of Network Health.

“We launched this new plan because we knew there were a lot of people living throughout northeast Wisconsin who currently don’t have the health plan options available to them that will best meet their specific needs,” Jenkins said.

Lee Reinsch writes and edits from Green Bay.