Surviving health care reform: what businesses need to know

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It’s been nearly a year since President Obama signed the Patient Protection and Affordable Care Act into law. Whether or not you wish to engage in the ongoing argument over the pros and cons of health care reform, the fact is, the process for coverage has started and businesses large and small are affected.

For many of us on the outside of the political process looking in, the new law seems like a large, unorganized juggernaut.

Unfortunately, that’s a sentiment shared by many people closer to the situation. When U.S. Representative Nancy Pelosi of California said: “We have to pass the bill so that you can find out what is in it,” she wasn’t kidding. The final version only laid the basic foundation for the system. To be added is the actual structure, with the architects still battling over its final design. And yet, the builders are still working, and step by step, the process is moving along. Rural Builder went looking for ways to help businesses understand the process.

Focus on the present
The one piece of advice consistently given breaks down to taking it one step at a time, focusing on the manageable hill in front of you as opposed to the giant mountain of which it is a part. Thomas Henke, an attorney for Mackall, Crounse & Moore PLC, Minneapolis, Minn., does not give specific health care advice, but counsels his clients on employee benefits and executive compensation. He has first hand experience with how Washington works and has been following the details of the health care law closely. His advice: “There’s going to be a lot of uncertainty over the next few years and the important things for businesses to remember is to take the steps they need to comply as they come along … More than anything ask: what do I need to do this year; what major changes do I need to make?’”

For 2011, the rules are fairly cut-and-dried and by now existing businesses should have already laid their groundwork. “Money Talk” columnist Mark Battersby offers more specifics in a related article regarding the tax credit process for small businesses that offer insurance.

Tax credits for small businesses
Michelle N. Dimarob, senior manager of legislative affairs for the National Federation of Independent Businesses, has been watching the evolving law closely from the front lines in Washington, D.C., and says the tax credit is the most well defined provision so far because it was first to be crafted into the new law. “The one thing that came early, almost immediately, was the tax credit,” she says, “so we’ve seen a lot more about that than about things that take effect later.” The credit was designed to help smaller businesses manage the expense of premiums.

NFIB and other organizations have estimated that between 1.8 and 2 million firms are eligible to take advantage of the credit. The IRS will be collecting data this year from credit claims to help better define the actual impact.

The credit does have a shelf life and the next big leap takes place in 2014 with the evolution of insurance exchanges.

Exchanges
Beginning in 2014, if you want to access the credit as a small employer, you will be required to purchase that health coverage in the new exchanges. The National Association of Insurance Commissions is currently designing those exchanges. “It is their responsibility to develop what a model exchange would look like,” Dimarob says. Insurance companies are trying to decide now whether they will be part of the exchanges and some smaller insurance companies have already closed up shop because they don’t see a future for their products or don’t feel they can meet the government’s criteria.

The idea of exchanges is nothing new and in fact has had bi-partisan support in the past. For that reason, Henke sees the new law as “fairly conservative … These were all things that were proposed by Republicans in Congress years ago; the basic idea of health care exchanges.”

Dimarob cautions, however that, “The exchanges hold a lot of potential, but the devil really is in the details. How accessible those are depends a lot on how they are designed … and that’s really the challenge they’re facing with the exchanges. If they make it too overly intrusive, they a have too many government regulations, if they make the product too expensive, you probably won’t see small businesses taking advantage of it much.”

Not offering insurance at all will remain an option for small companies in 2014, given the present set-up, when individuals will be able to use the exchanges. “And frankly that’s a far more realistic option for small businesses when they get to 2014 and you’ll have the individual exchanges where people can go out and supposedly get health care coverage at a market rate that isn’t exorbitantly high,” Henke speculates. “And if those things work — and nobody knows if these things are really going to work — but if they do, it’s an entirely different calculus. If I was counseling an employer at that stage, they should seriously consider dropping health coverage; maybe helping their employees through the process but not actually offering the health coverage itself.”

The big rub comes for larger companies who will face penalties if they don’t provide coverage for those employees. “This is where you see a very interesting intersection between what individuals will decide and what effect it will have on the employer,” Dimarob says. Employees will have an option of going through the exchanges or using their company’s insurance, but large companies could face fines ranging from $2,000 – $3,000 per employee depending on what just one employee decides.
1099 reporting

The next big challenge for businesses comes in 2012 under a new requirement that has nothing to do directly with insurance, but of a way of collecting money to help pay for it. It includes changes to 1099 reporting.

Whereas in the current system, businesses only need to file a 1099-MISC for services in excess of $600 provided by non-incorporated businesses and providers, starting in 2012, 1099s will be needed for tangible goods as well: everything literally from nuts to bolts to telephone service. It is certain to cause a paperwork nightmare for contractors who routinely do business with multiple suppliers.

There have been attempts to repeal the provision. “It has now been voted on three times and it has now become the political football for both Republicans and Democrats,” Dimarob says. “They can’t get it done.”

Why not? “Because they [legislators] needed a way to pay for the health care law, so they looked for lots of ways they could pull revenue,” Dimarob explains, noting that tangible goods often fall between the cracks of reported income and the new provision attempts to rectify that. “And this particular provision raises $17 billion over 10 years. A billion here and a billion there in Washington and you have real money.”

Dimarob expects a bill for repeal to be reintroduced again in 2011. In the meantime, you might want to prepare this year by requesting your vendors complete IRS Form W-9 for your records. This will give you their legal business name, address and Tax Identification Number you will need in 2012. 

Lawsuit

Although the NFIB continues to follow closely the final design and construction of the health care law, it is simultaneously involved in one of several lawsuits to overturn it. “We would like to see the law totally go away,” Dimarob says. They have joined with 20 states in their lawsuit. Oral arguments were heard by a Pensecola, Fla., judge in December. He was expected to issue his opinion early this year.

Why did the NFIB become party to the lawsuit? Routinely, the organization surveys its members and at the top of their list of concerns is health care. “This has been the number one issue since 1986,” Dimarob says. “Cost and accessibility of health care.”

The NFIB believes the new law does not adequately address those concerns, especially pertaining to the cost of care, and it is because politics got in the way of its design. “From the politics came very bad policy,” Dimarob believes. “And now that policy has become bad law … In order to get the votes they needed they had to appease certain constituents.” Given exemptions from some of the requirements were unions and large companies with self-insured plans.

Dimarob foresees 2014 as a pivotal year because a new health care insurance tax is set to go into effect. She says it penalizes 80% of small businesses.

“If you are in the two marketplaces where small businesses tend to buy — they tend to buy in the individual market and they tend to buy in the small group market. According to the Congressional Budget Office, at best small businesses, at full implementation [of health care reform], would see a 2% decrease and up to a 1% increase [in costs]. In the individual marketplace you’re going to see a 10-13% increase after implementation,” Dimarob says. “One study suggests there will be a $500 a year per family increase in 2014.”

There is universal agreement that the court case, which argues that the U.S. Constitution does not give Congress the authority to pass the individual mandate, will eventually be joined with other cases and work its way up to the U.S. Supreme Court where a decision is not likely for several years.

In the meantime, the NFIB keeps its focus on the present, as it asks its members to do as well. “We want to be sure we are very realistic in what could happen. We could be successful in the lawsuit; we could not be successful in the lawsuit. If we are not successful and this law moves forward, we want everybody to be prepared and we want to protect the interests of independent businesses at the regulatory level.”

At the time this article went to press, attempts were also being made in Congress to repeal the law through legislation. It succeeded in the House but was not expected to succeed in the Senate.

Even with lawsuits and attempts to repeal the law taken into consideration, major changes are not expected in the near future. “Health care is not going to go anywhere in the short term,” Henke predicts. “So you still have to comply with the law. That is really the major choice to do right now and don’t get caught up into ‘is this fair or not fair or are the insurance companies gouging us or is health care reform causing this to happen?’ Keep your head down and try to meet the deadlines as necessary. And then if things change — which I’m sure they will at some point — then you can deal with it at that point.” RB

SOME HELPFUL ADVICE AND ADDITIONAL RESOURCES

www.healthcare.gov: This U.S. Government website is exclusively devoted to the health care law, broken down by easily navigable categories, with timelines and common Q&As.

www.nfib.com/business-resources/healthcare: The National Federation of Independent Business goes beyond the politics and offers a helpful “Healthcare Playbook” and calculator for determining small business eligibility for the credits.

From Attorney Thomas Henke:

• “If you think the cost [of premiums] has gone up too much one year, just ask [your insurer] to take a look at it. Sometimes they’ll change their mind. That’s just good business sense, that’s not from a strictly legal standpoint. With all this there is a certain amount of haggling involved.”

• Take the law in steps. “Don’t worry about health care reform and … just do your steps and make sure you’re in compliance until everything is done. And then you can make those larger steps: do I need to have health insurance [for my employees]? If I don’t, am I big enough for a penalty to apply or is it going to be meaningless and my employees will just go out into the market and do their own thing?”

From Michelle Dimarob, NFIB:
• Consult with your accountant, who should understand your business best.

• Count your vendors. The healthcare law mandates businesses to report all business-to-business transactions of $600 or more annually beginning in 2012. Small business owners will have to obtain tax ID numbers for all vendors to whom they will be issuing a Form 1099. Take time now to make a list of the vendors for whom you will need to obtain tax identification — before the record keeping begins in 2012.

• Consult with your insurance agent or broker regarding new rules for health care coverage that have already taken effect, as well as new rules for health savings accounts, medical savings accounts and flexible savings accounts.  Also discuss with your agent how changes may affect your plan’s grandfathered status.

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