The U.S. Supreme Court’s decision last week to uphold nearly all of the provisions in the Patient Protection and Affordable Care Act, including the constitutionality of the government-imposed individual mandate, will have widespread effects on HR departments across the country.
“This is a once-in-a-lifetime opportunity for HR to earn that seat at the table that we’ve talked about for years that they feel eluded them,” said Richard Wald, a director at Deloitte who focuses on employer-facing health and benefit consulting. “There are a lot of choices, but it starts with: How can HR make the business understand that it’s a new day with a new math equation?”
For employers, the individual mandate requires that companies with more than 50 employees pay a $2,000 penalty for each employee the company does not cover under a health insurance plan. Similarly, on the employee side, U.S. residents without employer- or government-provided health care must enter into state or privately-run health care exchanges or pay a government-imposed penalty.
Many businesses and even states have “treaded water” to wait to see how the Supreme Court ruled before making any large-scale changes, said Mark Schmidtke, a lawyer and shareholder at Ogletree, Deakins, Nash, Smoak & Stewart, P.C. based in Chicago and Valparaiso, Ind.
“Nobody wanted to invest a lot of time and capital into something that might not take effect,” he said. “But if I’m an employer now, I’m not going to wait around. The bulk of this law takes effect Jan. 1, 2014, and for employers who haven’t done anything or have done very little, it’s time to get going.”
Most HR departments have begun to make changes in compliance with the law — changes in plan eligibility to include dependent children up to age 26 and a removal of lifetime maximums on health care plans.
Now, it’s time to shift into phase two: strategic thinking about how to address benefits in the future, what it means to be an employer of choice and how HR can align its strategy with a company’s corporate strategy, Wald said.
Pay or Play
Phase two manifests in the pay or play debate. Starting in 2014, companies will have the decision to provide health insurance coverage in compliance with the Affordable Care Act or pay $2,000 for each full-time employee without health care. With national health care costs averaging between $8,000 and $9,000 per employee, the option to opt out and pay the $2,000 penalty might seem attractive.
But the decision to pay the penalty or to provide employer health care (otherwise known as “to play”) is more nuanced than an evaluation of the basic costs.
Industry experts such as J.D. Piro, a senior vice president at human resources consulting and outsourcing company Aon Hewitt, cites numerous hidden costs. Take, for example, the potential for the opt-out penalty to increase. The current $2,000 penalty is based on an assumption that the majority of the 160 million Americans currently insured in the United States will remain insured under employer-provided plans. If that number changes dramatically, the employer penalty could increase, Piro said.
Then, employers need to factor in what Wald calls the morale factor.
“Some employers will say, ‘We want to be an employer of choice and in order to do that we need to offer a benefit plan,’” Wald said. “They think, ‘We won’t be competitive, our employees will think less of us, so we’re going to stay in the game and continue to offer benefits.’”
After taking all of these hidden costs into account, Piro said the decision between pay or play is not as easy as one might think. “When you finally do the math, when you don’t just look at the penalty, employers are looking at this saying, ‘Where are the savings?’” he said.
Talent retention is another factor that comes into play here.
“If the guy down the street is offering a health care plan in order to entice employees and you’re not, you’re at somewhat of a competitive disadvantage,” Piro said.
An October 2011 survey by the Urban Institute showed that the vast majority of employers who provided employees health care before the Affordable Care Act will continue to provide similar levels of health care.
For Mark Fahleson, a partner at Rembolt Ludtke LLP in Lincoln, Neb., and chairman of the employment and labor law committee at DRI, an organization of defense attorneys, the pay-or-play scenario becomes most important for companies with 50 to 200 employees.
“The statistics show the companies in that size range have discontinued health benefits at a disproportionate rate to larger companies,” Wald said. “They may actually look at those exchanges and say, ‘You know what, given what we have to charge our employees to give them a health care plan that we can still afford as a company, it may be advantageous to let them go to the state exchange.’”
Aside from the pay-or-play debate, HR departments should be concerned about the new definitions of part- and full-time employees. The Affordable Care Act considers any employee who works an average of 30 hours or more each week to be a full-time employee. With that status, he or she must be offered employer-provided health care or a company must pay the opt-out fee.
Wald said this has the potential to have major impacts on retailers and restaurants, two industries that include large numbers of part-time employees. This could mean businesses structure their workforce with a handful of full-time employees rather than peak-time employees who may now fall under the auspices of the Affordable Care Act.
HR departments need to focus on properly communicating the new definitions of part- and full-time employees to individuals on the operations side of the company, so they don’t encounter steep fines from the government, Wald said.
Jeffrey Cattel is an editorial intern at Talent Management magazine. He can be reached at firstname.lastname@example.org.