Major Obamacare Provision Delayed; Reactions
On July 2 the Treasury Department announced a one-year delay of a key requirement in the Patient Protection and Affordable Care Act (PPACA, “The Act”). With the announcement, companies employing 50 or more full-time workers (working more than 30 hours a week) and not providing employee health insurance will not be penalized as of January 1, 2014 and instead will have until 2015 to provide health care insurance coverage. The announcement allows affected employers to avoid for one year potential fines of $2,000 or more per employee for noncompliance.
The Treasury Department announcement will not affect other essential health care plan provisions of the Act that become effective in 2014, including requiring plans to not allow more than a 90-day waiting period, prohibit coverage for pre-existing medical conditions and limiting lifetime benefits, use health status to determine eligibility, prohibit participation in clinical trials for life-threatening diseases, and additional provisions. The announcement does not reverse the PPACA requirement that every U.S. citizen be required to have health care in 2014; accordingly, Medicaid will be expanded to include more people covered and eligible and subsidies and tax credits will be offered for those people who will find it hard to afford insurance.
Employers evaluating the PPACA should consider the total number of full-time employees; health insurance in place; premium, co-pay, and deductible amounts; benefits offered and the content of Summary Plan Descriptions (SPDs); applicability of employer tax credits; adoption of a Flexible Spending Plan and Premium Conversion Plan to take advantage of income tax savings; and additional matters. More broadly, the PPACA provides the opportunity for employers to review total employee benefit plan offerings and efficiencies and costs, for example reviewing retirement plans offered and investment options and participant information (including the number of employees eligible, number of employees participating, age, and compensation of participants), dental and long-term disability plans, employee life insurance offerings, child care, and total compensation measured against benchmarks.
Reviewing the impact of the PPACA combined with a total employee benefits plan review could be a cost effective endeavor, especially to take advantage of meaningful benefit plan and tax savings, for employers and employees and business owners. Under the Act, for 2013 and unchanged is the additional Medicare payroll tax of .9% which applies to earned income (in excess of $200,000 for single persons, and $250,000 for marries persons. There is also a 3.8% income tax imposed on individuals’ investment/portfolio income. In addition to the Medicare and investment income tax, the top individual income tax rate has increased to 39.6%, from 35% in 2012. According to the National Federation of Independent Business, there are almost 120 million private sector workers in the U.S.; slightly more than 60 million of these workers work for small businesses, and half of small business owners fall into the 39.6% income tax bracket; as a result, more than 30 million workers are impacted by the above higher tax rates.
Businesses that rely heavily on lower income workers, for example restaurants and hotels, are especially evaluating how they do business. When it costs an average of nearly $6,000 for an individual health care plan, this expense can have a significant impact on a business paying workers $24,000 a year or less. The U.S. Chamber of Commerce, in a 2013 Small Business Survey, found that the requirements of PPACA are now the biggest concern for small businesses, bumping economic uncertainty from the top spot. Of small business owners, 71% say PPACA makes it hard to hire more employees, 32% plan to reduce hiring as a result of the employer mandate, and 31% say they will reduce hours to reduce their ranks of full-time employees.
Entering the week of July 8, investors in hospital companies were a hit today with the Treasury’s news, as shares fell at least 2% for most of the major players in the sector. The biggest decreases were Tenet Healthcare Corp. and Universal Health Services; both fell more than 3%. Tenet is the only hospital company in the S&P 500. The nation’s biggest hospital operators, HCA Inc. and Community Health Systems Inc. each fell more than 2%. Health Management Associates also fell more than 2%, though LifePoint Hospitals Inc. managed to keep its losses just under 1.8% loss. Health care providers could be the hardest hit from the Treasury announcement, as they were perceived to be the biggest beneficiaries of the PPACA.