What’s Next for Obamacare and Employers?
Consumer Power Report #313
In the wake of President Barack Obama’s re-election, I explained the fallout for governors and the states. The chief issues to keep in mind are questions over the implementation of exchanges, the expansion of Medicaid, and the ramifications of continued legal fights against key aspects of the law.
But, you may ask, what about the impact of Obamacare on employers, who face significant new issues in light of Obama’s re-election and will be feeling the first effects this coming year? Let’s sort through that.
You may have heard of the reports about Papa John’s CEO discussing the impact of Obamacare on the price of pizza, raising it by 11 to 14 cents per pie. He estimates the new law will cost Papa John’s between $5 million and $8 million annually. But that’s not all:
Under the Affordable Care Act, full-time employees – those working 30 hours or more per week – would have to be provided with insurance at companies with more than 50 workers. Schnatter said it was likely that some franchise owners would reduce employees’ hours in order to avoid having to cover them.
“That’s probably what’s going to happen,” he said. “It’s common sense. That’s what I call lose-lose.”
Indeed, he’s not alone in this. Low-wage workers are going to continue to see a major push from employers to shift them on to part-time work in reaction to Obamacare’s hourly threshold:
Several restaurants, hotels and retailers have started or are preparing to limit schedules of hourly workers to below 30 hours a week. That is the threshold at which large employers in 2014 would have to offer workers a minimum level of insurance or pay a penalty starting at $2,000 for each worker …
CKE Restaurants Inc., parent of the Carl’s Jr. and Hardee’s burger chains, began two months ago to hire part-time workers to replace full-time employees who left, said Andy Puzder, CEO of the Carpinteria, Calif., company. CKE, which is owned by private-equity firm Apollo Management LP, offers limited-benefit plans to all restaurant employees, but the federal government won’t allow those policies to be sold starting in 2014 because of low caps on payouts. Mr. Puzder said he has advised Mr. Romney’s campaign on economic issues in an unpaid capacity.
Home retailer Anna’s Linens Inc. is considering cutting hours for some full-time employees to avoid the insurance mandate if the health-care law isn’t repealed, said CEO Alan Gladstone. Mr. Gladstone said the costs of providing coverage to all 1,100 sales associates who work at least 30 hours a week would be prohibitive, although he was weighing alternative options, such as raising prices.
Employers of any significant size are going to have to deal with these issues. They also will see employees hit by new taxes thanks to the restrictions on FSAs and HSAs, making these plans less appealing. That’s not good for the employees, who may have to take up an additional part time job to make ends meet, and it’s bad for the employers, who will have to choose between raising prices and passing costs along to the customer or cutting back on hours to try to avoid the new costs.
-- Benjamin Domenech
IN THIS ISSUE:
A key point from Michael Cannon for any governors going wobbly:
Section 21 of the Ohio Constitution provides: “No federal, state, or local law or rule shall compel, directly or indirectly, any person, employer, or health care provider to participate in a health care system … ‘Compel’ includes the levying of penalties or fines.”
In order to operate an exchange, Ohio employees would have to determine eligibility for ObamaCare’s “premium assistance tax credits.” Those tax credits trigger penalties against employers (under the employer mandate) and residents (under the individual mandate). In addition, Ohio employees would have to determine whether employers’ health benefits are “affordable.” A negative determination results in fines against the employer. These are key functions of an exchange.
Ergo, if Ohio passes a law establishing an exchange, then that law would violate the state’s constitution by indirectly compelling employers and individual residents to participate in a health care system. That sort of law seems precisely what Section 21 exists to prevent.
As I explain in a recent column, 13 other states have passed statutes or constitutional amendments (Alabama, Arizona, Georgia, Idaho, Indiana, Kansas, Louisiana, Missouri, Montana, Oklahoma, Tennessee, Utah, and Virginia) that bar state employees from carrying out these essential functions of an ObamaCare exchange.
And let the feds own the process of implementation.
Americans for Prosperity (AFP) ... pushed governors ahead of the Nov. 16 deadline to make a decision on their exchanges.
“States can and do have the power to reject federal attempts to compel their action. Governors should use that power to tell the federal government no,” AFP State Policy Manager Nicole Kaeding said in a statement Friday. “By creating an exchange, states will serve as de-facto administrators of the federal government implementing its rules, regulations and mandates.”
The Nov. 16 deadline isn’t written into law – it’s simply the benchmark by which the Health and Human Services Department has asked states to make a decision. Forgoing an exchange is a way to show resistance to “ObamaCare,” but the strategy comes with risks.
The federal government can run a fallback exchange in states that don’t set up their own – meaning that, by digging in against the healthcare law, governors would actually be giving the federal government more control over their states’ healthcare markets.
AFP said all exchanges are bound by too many rules for the distinction to make much of a difference. Although states have the ability to make key decisions – for example, whether to accept all insurance plans that meet certain federal standards, or negotiate directly with a more selective group of carriers – there are some federal standards for all exchanges.
HHS has bent over backward to get states to set up their own exchanges, and can spend without limit on grants to help states set up the necessary infrastructure.
“Federal funds are flowing freely to buy state compliance, but state budgets will take the hit in two short years,” Kaeding said. “Creating an exchange puts state taxpayers on the hook for millions of dollars every year. States should reject these bloated bureaucracies.”
As states discuss what to do next, HHS has extended the deadline on the exchange decision until February.
SOURCE: The Hill
Even the Bay State is prepared to struggle to adapt:
Among the changes that employees are starting to see now and into next year: a limit on contributions to flexible spending accounts, a more detailed explanation of health care benefits, and a payroll tax increase of about 1 percent on wages above $200,000 a year ($250,000 for couples filing jointly) to help fund Medicare.
Flexible spending accounts are a way to save for medical expenses without paying taxes on that money. Previously, there was no federal cap on the amount of tax-free money employees could put aside to cover health care costs, although employers could impose a limit.
The new federal law caps tax-free contributions at $2,500 a year in order to generate additional taxes to help pay for universal health care.
This has not been popular with the workers at Limited to Endodontics Inc., a Wellesley-based dental practice specializing in root canals. About one-third of the company’s 49 employees have flexible spending accounts.
“The employees didn’t like [the cap] because [the account] was a tax shelter for them,” said practice administrator Kristan Piselli. “Twenty-five hundred dollars you can do in the blink of an eye.”
Employees are also getting more detailed explanations of copayments, deductibles, and other health plan provisions from employers. Those who work at companies with more than 250 employees will see the value of their health benefits reported on W-2 tax forms that they will receive early next year. (Smaller companies are likely to be required to do the same in 2014.)
These and other requirements of the new law mean additional paperwork and administrative costs for businesses. Limited to Endodontics, for instance, has to purchase a new software system to print insurance costs on W-2 forms.
One of the biggest changes facing employers is a penalty of $2,000 per employee – excluding the first 30 employees – if they don’t offer insurance. They could also face fines of up to $3,000 per infraction if they offer insurance that doesn’t meet federal standards.
The penalties kick in only if an employee receives subsidized coverage through a state or federal exchange, a clearinghouse for private insurance plans. The smallest businesses would be exempt from the penalties; the requirement applies only to firms with 50 or more full-time workers.
In Massachusetts, the penalty for not contributing enough to employees’ health insurance – or not getting enough of them to sign up – is $295 per employee. The employer mandate, however, is broader than in the federal law, affecting companies with the equivalent of 11 or more full-time employees.
Benefits specialists are unsure how the state and federal laws will be reconciled. But if the federal mandate prevails, local companies could be hit with bigger fines if they don’t comply.
One likely issue to be discussed in the course of the debate over the fiscal cliff:
The option to raise Medicare’s retirement age gains new resonance with the advent of Obamacare’s subsidized insurance exchanges, and the necessity of fiscal reform. The Budget Control Act of 2011 mandates $1.1 trillion in spending cuts from 2013 to 2022, half falling on the Department of Defense. Those cuts automatically kick in if Congress fails to find an alternative.
The predominant liberal critique of raising the retirement age is that it disproportionately affects those with lower incomes, because people with lower incomes often also have lower life expectancies. “It’s regressive, it’s unfair, it’s blunt, and it’s stupid,” says Mother Jones’ Kevin Drum.
But Obamacare provides near-universal coverage to Americans below 400 percent of the federal poverty level. Low-income Americans who aren’t eligible for Medicare will have access to Obamacare’s various programs. The law’s subsidized insurance exchanges provide coverage to those between 100 and 400 percent of the federal poverty level, and its Medicaid expansion provides coverage to those below 133 percent of FPL.
If it makes fiscal sense, raising Medicare’s retirement age could be combined with migrating low-income seniors onto the exchanges, so as to avoid adding more retirees onto the rolls of Medicaid, a program with serious problems of access and quality.
Studies consistently show Medicaid recipients get the short end:
A 2004 study published in Pediatrics examined children’s access to specialty surgeons in Southern California. The researchers surveyed specialty surgeons throughout southern California and found that the surgeons are generally less inclined to accept patients enrolled in Medi-Cal (California’s version of the Medicaid program). The surgeons cited difficult paperwork, administrative burdens, and poor reimbursement rates as reasons for not wanting to take on these patients. The authors consequently caution policymakers about expanding this program, noting that coverage through Medi-Cal does not necessarily signify meaningful access to health care. The authors also suggest that expanding Medi-Cal may in fact exacerbate the existing problems of limited access to care.
Another study published in 2005 in Urology found similar problems with boys’ access to urologic care. The authors surveyed a simple random sample of urologic offices located throughout California in order to determine the offices’ attitudes toward Medi-Cal recipients. Of the offices they found that were willing to see pediatric patients, the authors found that 96 percent of these offices would accept privately insured patients. They also found that only 41 percent of these offices would accept Medi-Cal patients. Three-quarters of the offices that refused to accept Medi-Cal patients were unable to even recommend offices that would.
Furthermore, a recent study published in the New England Journal of Medicine examined pediatric access to specialty clinics in Cook County, Illinois. Sending out research assistants posing as mothers and making phone calls to a random sample of specialty clinics, the study found a significant disparity between access to specialty care for privately insured children and children on Medicaid as well as the publicly funded Children’s Health Insurance Program (CHIP). Specifically, the researchers noted more denials of appointments as well as longer waiting times for Medicaid and CHIP patients than for privately insured patients.
These studies suggest that children on Medicaid lack access to the kind of care that privately insured patients enjoy. As long as the program in its current form remains in place, these problems will persist.
SOURCE: Heritage Foundation