Focus on Small Businesses & Agencies

Is Your Shop Ready for Health-Care Reform?

What the Coming Coverage Changes Will Mean for Small and Midsize Agencies

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A centerpiece of health reform -- the "play-or-pay" mandate for employers -- takes effect in January 2014 (if the U.S. Supreme Court, which heard oral arguments last week, doesn't find it unconstitutional). How ready are smaller ad agencies for the changes in store?

Health mandates will create new administrative burdens for employers.
Health mandates will create new administrative burdens for employers.
Very few small and midsize employers are planning ahead, according to Jay Kirschbaum, national legal and research group practice leader for Willis Human Capital Practice, in St. Louis, a unit of global insurance broker Willis Group Holdings. "They're kind of overwhelmed," he said.

The health-plan administration and payroll teams at Click Here, a Dallas-based digital marketing and advertising firm, are taking steps to implement some imminent requirements, according to Scooter Heath, director-operations and finance. For example, beginning Sept. 23, group health plans must provide members with an easy-to-read summary of benefits and coverage and a glossary of common terms.

But because several of the law's key provisions have yet to be clearly defined in regulatory language, the 100-employee agency hasn't determined what changes it will have to make to its health plan -- and thus has no idea of the costs involved, Mr. Heath said. But one thing is certain, he said: The law is creating an extra administrative burden.

To find out what preparations agencies must make for the next wave of reform, Ad Age scoured government advisories and spoke with health-benefits experts to address the most common questions surrounding the issue.

How does the play-or-pay mandate affect my business?
Beginning in 2014, companies with 50 or more full-time or full-time-equivalent (FTE) employees must offer health coverage that meets minimum requirements. Part-timers who work less than 30 hours a week are included in the FTE calculation; seasonal workers who log fewer than 120 days are not.

We don't provide health coverage.
You may owe a penalty. Penalties kick in when at least one employee takes advantage of federal tax credits aimed at helping lower-income people buy health insurance. Because reform compels those without coverage to purchase it (or pay a penalty), employees who qualify would likely seek out those subsidies, forcing employers that don't offer a health plan to ante up.

What are the potential penalties?
Employers that don't offer coverage could pay a $2,000 penalty per FTE after the first 30. Businesses that offer coverage could also face fines if, for example, it is deemed unaffordable. That penalty is $3,000 for every employee that receives a tax credit or $2,000 per FTE after the first 30, whichever is less.

Will my company have to redesign its health-benefits plan to meet federal standards?
If your plan is affordable (meaning premiums do not exceed 9.5% of an employee's household income) and meets minimum value (meaning the company pays at least 60% of covered expenses), you can keep doing what you're doing. Most employer health plans are not required to cover the package of "essential health services" outlined in the law. The typical employer plan already provides a broad scope of benefits.

Is there another option?
A small (up to 100 employees) agency can buy coverage through a State Business Health Options Program Exchange. (Until 2017, some states are allowed to limit participation in the exchanges to employers with 50 or fewer workers.)

Is dropping coverage an option?
Yes, but you'll not only pay a penalty but lose the corporate tax deduction for offering coverage, said Ed Bray, director-compliance at Burnham Benefits Insurance Services, an Irvine, Calif.-based brokerage. And as medical benefits are a chunk of employees' total compensation, you'll have to "gross up" salaries to compensate for the loss, he said.

How does the law affect hiring practices?
It prevents most employers from discriminating in favor of highly paid senior managers. For instance, when you're wooing top talent, you can no longer sweeten the pot by waiving the 90-day waiting period for health benefits, according to Mr. Kirschbaum.

Do companies have to report the value of health benefits on the W-2?
Yes, but employers that filed fewer than 250 W-2s last year aren't required to comply with that requirement until January 2014 (for 2013 W-2s).

Must very small agencies play or pay?
Businesses with fewer than 50 full-time employees are exempt from the coverage mandate and penalties. But "many are offering coverage and will continue to offer it," said Marie Chalmers, a principal in the Boston office of global human resource consulting firm Mercer LLC. The challenge for such companies will be finding creative ways to reduce costs. "They feel like they've already passed a lot on to their employees," she said.

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