OBJECTIVITY AND CLARITYResearching the necessary information to compile an objective perspective for this month’s newsletter was no small task. The quality, clarity and availability of credible, unbiased, unprejudiced sources on the subject was scant to say the least. As such, there are some elements of this issue that I was able to elaborate upon more expansively while others had to remain thinly interpreted. On occasion, to preserve information integrity I have broken down the legal jargon on more complicated insinuations of the law so that they are more simply put, but did not tackle the task of interpreting dual meanings. I have done my best to bring you fair, objective and credible insights into the impacts of this law on your businesses without clouding the waters with personal sentiment. I hope you find this information useful in charting your course ahead.TIMELINEConsider this, in 2009, the average cost of a family healthcare plan offered by employers was $13,375. Conversely, employees paid about 20% of the premiums (approximately $2,675) while the employer made up the difference (approximately $10,700 per employee). As the employer, if your employees elect coverage under the “Exchange,” you will still be obligated to cover at least a portion of their premiums on two levels, as an employer and as an individual taxpayer. While the actual amount of obligation is still unclear we can take this real example:The average household income for a family of 3 is $50,303. Costs for individuals entering into the “Exchange” would be capped at 9.5% of their income or $4,779 per family, $2,100 more than they have previously paid into coverage.So even if you, the employer, can save costs on premiums, you, the individual will still have to pay the difference one way or another while your employees end up paying more for coverage on average.The following effects of the law will take place immediately:i) Employers with no more than 25 full time employees and pay an average wage of $50,000 or less are eligible for phase one tax credits of up to 50% of the premium cost for 2 years if the employer contributes at least 50% of the total premium.
ii) Employers who provide Medicare part D subsidies to retirees will have to immediately revise their accounting practices to account for the future loss of that deductible item.
iii) Medicare payroll tax will be increased by.9% in addition to a new 2.9% Medicare tax on non-wage income such as dividends, interest and capital gains.
iv) Temporary re-insurance programs for employers providing retiree health care coverage to persons over the age of 55 will begin 90 days from March 23rd, 2010.
v) Pre-existing condition coverage begins 90 days from March 23rd employers are prohibited from sending individuals to high-risk pools and can be subject to stiff fines.
vi) Group plans can no longer favor highly compensated individuals starting 6 months from March 23rd.
vii) All self-insured plans within six months will have to cover dependents up to age 26.Business Impact 2011:i) All employers must include the aggregate cost of employer sponsored health benefits on their employees’ W2s excluding contributions to HSAs, Archer MSAs and salary reduction FSA contributions. This law goes into effect on benefits beginning after Dec. 31st, 2010.
ii) Tax on distributions for health savings accounts increases to 20% from 10% if distributions are not used for qualified medical expenses.
iii) Employers seeking to insure less than 100 lives can adopt “simple cafeteria plans.”
iv) All employers will be required to enroll their employees in a “national public long term care program,” unless the employee opts out.
v) All business owners will be subject to “expanded federal tax requirements,” on payments of fixed or determinable income or compensation.Business Impact 2013:i) Those who itemize their federal income tax returns can see their allowed deductions for unreimbursed medical expenses rise to 10% AGI from 7.5% AGI. This is waived for individuals over the age of 65 until 2016.
ii) All employers will be expected to notify their employees of the existence of state-based exchanges.
iii) “Cadillac Tax,” goes into effect. In case of a fully insured group, excise tax can be as much as 40% on plans with a value in excess of $8,500 per individual and $23,000 per family. This cost can be expected to pass fully to the employer.Business Impact 2014:i) An employer with more than 50 employees (either full-time, part-time or seasonal) that does not offer coverage but has at least one full time employee who receives a premium assistance tax credit to buy coverage through “the exchange,” must pay a fine of between $750 and $3,000 on each full time employee per year. Coverage must meet “required essential benefits” to be considered compliant.
ii) Construction industry must provide coverage for all employees if employing more than 5 persons and carries a payroll of more than $250,000.
iii) Employers with a waiting period for coverage of more than 60 days must pay a $600 per employee fine.
iv) The “employee free choice voucher program,” takes effect and requires employers who contribute into health care programs for their employees to give them vouchers toward the cost of coverage if said employee’s household income is less than 400% of the federal poverty level (about $60,000) and does not enroll in employer sponsored health care programs.
v) Employers of 200 or more employees will have to auto-enroll all new employees into any available employer-sponsored health insurance plan. Actual effective date is unclear and may be sooner but can be anticipated in 2014.Business Impact 2017:i) States may elect to allow employers with more than 100 employees to purchase coverage through their exchanges.CLOSING THOUGHTSAs you can see, the way we have done business in the past has changed dramatically. Whether or not the plan is good or bad is impossible to decide at this point. I have my ideas but this April edition is neither the forum nor the platform in which they are to be discussed. We can however point to history as a potential indicator of how things will turn out. Compare the contrasting policies of 1931 and 1981. Programs that were implemented to reverse the 1981-82 recession took on quite a different skin then programs we have committed to today and similarly to those implemented in 1931. As a result of 1981 policies and programs, inflation dropped from 13.5% in 1980 to 4.1% in 1988. Interest rates dropped from 18% on a thirty-year fixed mortgage in 1981 to 8% in 1987; and unemployment dropped from 10% in 1981 (today’s rate is 10.6%) to 5.5% in 1989. The programs of 1981 were rooted in an exact anti-thetical foundation than the one we have taken today. Accordingly, these programs created over 43 Million jobs and $30 Trillion in wealth over the course of 25 years. In contrast, glean the results of the 1931 initiatives in this journal entry from Henry Morgenthau, Jr., Franklin Roosevelt’s treasury secretary, “We have tried spending money. We have spent more than we have ever spent before and it does not work. I say after eight years of this administration we have just as much unemployment as when we started, and now an enormous debt to boot.”Will today’s programs follow the fate of those similar programs from over 80 years ago? One will of course hope that they will not but we cannot say definitively. We do know that today’s radically different business environment supplants traditional business practice and will require some considerable adaptations to our day to day operations.As always I welcome your comments and feedback to (305) 720 2932 or email me at [email protected]