For business owners, the health care ruling means this: If you haven't acted yet, it's time to do so.
"Employee benefits really historically have not changed very often" or very much, said Eric Athey, an attorney with Harrisburg-based McNees, Wallace & Nurick LLC. He pointed to COBRA and HIPAA as landmark examples.
In contrast, he said, the Patient Protection and Affordable Care Act is "just sweeping — it's like a Yellow Pages full of new changes. The changes that have gone into effect just since 2010 in combination are probably more than all other changes combined in the past."
Furthermore, he said, the changes are not simple or easily comprehended. Although the Internal Revenue Service, Department of Labor, and Health and Human Services websites contain helpful information, he stressed that the law itself is inches thick printed out and has occasioned reams of additional regulatory guidance, some of which has been adjusted midstream.
Athey and his colleague, attorney Steve Kern, said that, while the stated penalties for noncompliance are steep, people should also know that the government has indicated a yearlong grace period in which the standard for compliance will be good-faith efforts.
The changes required by the law are beyond the complexity one article can communicate, but here's a snapshot. For help in knowing exactly what you need to do to stay legal, turn to professionals such as insurance carriers and brokers, benefits administrators, actuaries and attorneys.
"I have a number of clients that I believe were really banking on the act being struck down, and for the last year and a half have sort of tuned out what comes into play in 2012 and 2013," Kern said.
Although much attention has been paid to the big changes slated for 2014, Kern said there are a slew of smaller requirements that business owners might not be aware of but should be dealing with this summer.
"Procrastination is no longer an option," Kern said.
Athey agreed, saying, "The next three months are going to be absolutely critical, with open enrollment approaching in the fall."
According to Athey and Kern, the immediate requirements include providing employees with a summary of health care benefits and coverages, including the cost of health care insurance on 2012 W-2s, and planning for the fact that next year there will be a $2,500 cap on flexible spending accounts.
Robert Glus, a partner and actuary with Conrad Siegel Actuaries in Harrisburg, noted that, while the summaries were originally limited to four pages, they have been interpreted as double-sided pages and accompanied by a glossary of terms.
A provision that requires certain women's preventative health services without cost sharing goes into effect for nongrandfathered plans beginning on or after Aug. 1. A grandfathered plan is one that has been in existence continuously since before the act was passed and is not required to comply with select provisions of the Affordable Care Act as long as it meets certain requirements.
Also, the small-business health insurance tax credit for qualifying employers who provide health insurance for up to 25 full-time workers continues to be available.
"My message is, devote your energy to the small piecemeal requirements that are going to be taking effect in 2012 and 2013," Athey said.
He added that things could change before 2012, either because of the election or because of delays or other adjustments coming from the current administration.
One little-known provision of the law is a new 3.8 percent tax on some investment income for individuals with an adjusted gross income of more than $200,000 and couples filing a joint return with an adjusted gross income of more than $250,000.
Art Campbell, owner and president of Campbell Commercial Real Estate Inc., said he was teaching a class some months ago and only 10 to 20 percent of the Realtors attending were aware of that tax.
The tax is on interest, dividends, rents less expenses and capital gains less capital losses. It will apply to the lesser of investment income or the excess of adjusted gross income of more than $200,000 or $250,000.
A pamphlet from the National Association of Realtors about the tax says proceeds are to be dedicated to the Medicare Trust Fund and are expected to total more than $210 billion over 10 years.
Also in 2013, employees must be notified of the upcoming availability of Affordable Insurance Exchanges.
This is the big year. Most individuals will be required to have health insurance or pay a tax for not having it. Businesses with 50 or more full-time employees must provide health insurance for them or pay a tax for not doing so. Affordable Care Insurance Exchanges are to be available to individuals and businesses with up to 100 full-time employees.
The chart "Major business benchmarks in health care reform" (see below) provides a basic overview of the largest changes employers will face in 2014.
The gradual phasing out of most annual dollar limits on essential health care services will be complete in 2014. Also, insurance companies will be prohibited from refusing to sell coverage or renew policies because of an individual's pre-existing conditions; and for individuals and small groups, insurance companies will be prohibited from charging higher rates because of gender or health status.
Glus said that beginning in 2014 deductible limits will be $2,000 per individual and $4,000 per family.
"Many smaller employers (and also larger employers) use high-deductible plans," he said. "Plan benefits may need to be tweaked to satisfy these kinds of limits."
States can allow employers with more than 100 employees to purchase on the state Affordable Insurance Exchanges.
Expensive health insurance plans, dubbed "Cadillac" plans, that exceed certain federal benchmarks will be subject to a 40 percent excise tax.
Athey said the Cadillac tax hasn't gotten much attention, possibly because it's so far away. He called it "an extreme incentive for employers to find a way to keep their expenses down." Based on some number-crunching, he and Kern believe it may subject many employers to "just an enormous tax."
Kern also noted that the Cadillac test is based on W-2 income — which means that the more people contribute to pretax accounts such as
401(k)s, the lower their income will be and, therefore, the greater the chance that their health insurance will be characterized as a Cadillac and subject to the tax.
A closer look: Affordable Insurance Exchanges
A key provision of the Affordable Care Act is the formation of state-based Affordable Insurance Exchanges for the use of individuals and small businesses.
The exchanges are supposed to be operational by 2014. So far, Pennsylvania doesn't have one.
"It's simply an online marketplace," is how David Vassilairos, director of health care reform and regulatory affairs at Capital BlueCross, explains exchanges. He said some insurance exchanges already exist, but they're not run by the government. So far, he said, Pennsylvania has not yet passed legislation authorizing its own exchange, and meeting the deadline will be tough if only because of the difficulty of connecting the network of information systems.
"If the state fails to set up its own exchange, the federal government will do it for them," he said. "We anticipate there being some sort of exchange in the state regardless of who runs it."
Robert Glus, an actuary and partner at Conrad Siegel Actuaries, agreed that a lot remains to be seen with how each state decides to implement the health exchanges.
"It is one thing to propose health care exchanges, market reforms, federal subsidies and Medicaid expansion, it is quite another to practically implement in a year and a half," he said. With the health care system, he said, "everything is interconnected."
Kim Bathgate, a spokesperson for the Pennsylvania Insurance Department, said research last summer established that Pennsylvania preferred to develop its own exchange rather than join a federal one. The state has received
$33 million in development grants from the U.S. Department of Health and Human Services (HHS) for an exchange but has not yet used any of that funding, she said.
Bathgate said the department has been performing stakeholder outreach and preliminary planning but is still awaiting guidance from HHS "on several critical areas" and does not yet have a complete understanding of what implementation may mean for Pennsylvanians.
"We want to get this done right, not necessarily quickly," Bathgate said. "At this point, the governor has directed the department to continue to move forward to ensure that the formation of a state-based exchange is still one of the options we can consider. All parties realize that the 2014 deadlines are going to be very difficult for states to meet, even states that are committed to building a state-based exchange. Recognizing that the current timelines may be unrealistic, exploring a partnership may be an option as a possible interim step. HHS has made it clear that states will have opportunities beyond 2014 to move to a state exchange."
A national map on www.healthcare.gov indicates that just over half of the states, including Pennsylvania, have received planning and Level 1 grants to establish exchanges. Only Washington and Rhode Island have received planning, Level 1 and Level 2 grants, and the remainder of the states have received only planning grants.
Last August, the Pennsylvania Insurance Department conducted an online survey of 204 small-business owners and health insurance decision makers or influencers; 401 workers ages 18-29; and 412 workers ages 30-65.
The department reported that 45 percent of the businesses felt their current health insurance plan provided excellent value, and only 15 percent felt the information currently provided them was easy to understand.
"Costs (premium, deductible, co-pay) and beneﬁts information are a must for an exchange. In addition, businesses also expect to see a list of doctors and facilities available for the plans," the survey reported. It said they also listed increasing competition as a top priority for an exchange site.
Major business benchmarks in health care reform
All businesses with fewer than 100 employees:
Starting in 2014 can shop in Affordable Insurance Exchanges.
Big businesses: 50 or more full-time employees (at least 30 hours a week; two half-time employees count as one full-time)
Starting in 2014 must:
• Offer full-time employees and their dependents the opportunity to enroll in minimum essential coverage in an eligible employer-sponsored plan.
• Pay employer responsibility penalty of $2,000 per full-time employee beyond the first 30 workers IF
• You don't offer coverage OR
• You offer coverage but it is unaffordable (costs more than a specified percentage of the employee's household income) or does not provide minimum value (the plan's share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs).
• Give vouchers equal to your part of the premium contribution to employees who can't afford the premiums, so they can use it to purchase insurance in the Affordable Insurance Exchanges.
Small businesses: Fewer than 50 full-time employees
• Not required to provide employee insurance.
Smaller businesses: Up to 25 full-time employees; provide qualifying insurance coverage and pay at least half of single employee (not family) health insurance premiums; and pay average annual wages of less than $50,000
• Tax years 2010-2013: May qualify for small-business tax credit of up to 35 percent of the cost of insurance premiums. The smaller the business, the bigger the credit; highest rates for business with 10 or fewer employees and average wages of $25,000 or less.
• Tax year 2014: The top rate of the credit increases to 50 percent. Details still pending.
Responses to the ruling
On one point, responses to the health care ruling agree: It's a lot of change in a relatively short time.
There is much less unity on the question of what those changes will mean for America as a whole, for the business community and for any specific group or entity.
Antoinette Kraus, project director for the Pennsylvania Health Access Network, called the ruling "a victory for millions of Pennsylvania families, seniors and small-business owners," lauding "additional consumer protections and a new insurance marketplace that will provide affordable health care options to small businesses and families."
"It's important for small businesses to be able to provide health insurance to be able to attract and retain qualified employees," said attorney Bret Keisling, who recently started a small Harrisburg law firm that consists of himself and a paralegal. "It's also, frankly, the right thing to do."
"I wish the free market would have been able to handle this, but shame on them," Keisling said.
Keisling previously owned a graphic design and advertising company, and he said the cost of health care "was just a huge issue." He expects to provide health benefits for his law firm next year and was excited to learn about the small-business health insurance tax credit a few weeks ago. He has not investigated the details at length, and he's aware that the act as a whole contains a lot of details with consequences that are yet to be seen.
"I'm not a fan of any legislation that mandates how your company operates," said Art Campbell, owner and president of the 28-year-old firm Campbell Commercial Real Estate Inc. However, he said, "To some degree, because of how long I've been in the business, the more complicated things become, the more it might help my personal business."
"For businesses, the most obvious question is, 'How is all this going to save me money?' The answer is very unfortunate, which is, 'We really don't know,'" said Robert Glus, a partner and actuary with Conrad Siegel Actuaries in Harrisburg. "We still have a long road ahead to deal with the cost issue."
For insurance companies, health care providers and hospitals, the ruling came after many had already invested much in extensive compliance efforts. Spokespeople for these groups also stressed that they believe many of the changes will be positive and would have continued even if the act had been struck down. Those include accountable care organizations, health information technology, transparency, medical homes and value-based purchasing.
These organizations also are still waiting to see how the insurance exchanges the law calls for will work, and whether Pennsylvania will choose to expand its Medicaid program and accept the associated federal funding or not.
"Higher rates of coverage improve access to primary and preventive care and, therefore, contribute to better health; assure that more who are hospitalized or need other health care services are covered; and reduce the uncompensated care burden on hospitals," said Carolyn F. Scanlan, president and CEO of The Hospital & Healthsystem Association of Pennsylvania.
Jo Ann Lawer, Lancaster General Health's director of government affairs, said the act will affect LGH in many ways, including an expected surge in patients in 2014 and concerns about having enough physicians "in the context of a law that does not allow us to readily increase our training capacities."
But, she said, LGH "appreciates the impetus that the law is providing to support increased innovation and the opportunity for local health care systems to demonstrate how solutions can be developed and work."
In addition, she said, as Pennsylvania makes the Medicaid decision, it is important that hospitals be in the discussion.
Bryan Peach, spokesman for the Pennsylvania Academy of Family Physicians & Foundation, said some provisions of the act, including tax relief for health professionals with loan repayment and funding to strengthen rural health centers, began in 2010. Reimbursement for primary care of Medicaid patients is increasing, he said, and another provision going into effect in 2015 deals with paying physicians based on value, not volume.
David Vassilairos, director of health care reform and regulatory affairs at Capital BlueCross, said the ruling means the company will continue on the road it has been on for two years. While the Affordable Insurance Exchanges will help people shop in a new way, "that really doesn't get to what matters most to our customers in health care: How do we get the most value for our money? How do we get our costs under control?"
Capital BlueCross' answers to those questions involve partnering with doctors and hospitals in new ways, he said.
Asked about the increased regulation of the insurance industry, Vassilairos said it is already highly regulated and "accustomed to lots of rules, lots of audits, lots of oversight." The act does increase those, he said, and while "we do the best we can," costs related to those also will increase.
"More government intrusion into our health care isn't going to solve our problems, but we certainly know this is going to end up breaking the bank at all levels of government," said Matthew J. Brouillette, president of the Commonwealth Foundation, which describes itself as a free-market think tank.
Brouillette predicted that as the ramifications of the ruling become understood, states will "realize the unsustainable financial burden this will impose." He said he expects that in response proponents of less government in health care will make more reform proposals.
Gene Barr is president and CEO of the Pennsylvania Chamber of Business and Industry, which considers the act "flawed public policy." He said businesses with 50 or more employees must now face the question of whether to provide health insurance or pay a penalty for not doing so.
For smaller employers, he said, the 50-employee benchmark will become a deciding point.
"If you're sitting here in a time when we're trying to create jobs, desperately looking for jobs, and you have 47, 48 employees, are you going to add more?" he said. "You've now put on an additional hurdle that you have to think about.
"I haven't heard people say they're going to lay everyone off," Barr said. "I have heard them say they have to think twice about paying the penalty."
Barr said he expects taxes to go up, which will be another burden on businesses "just fighting to make the next payroll."
The chamber will be offering educational materials and workshops to help its members figure out how to deal with the act's requirements, Barr said.