Affordable Care Act
As a small business owner, you may be confused about which parts of the (ACA), informally known as “Obamacare,” apply to your enterprise. You’re not alone; figuring out the 1,600- page law is causing a lot of people’s heads to spin.
We’re going to try to relieve some of the dizziness. Here are how some of your fellow green industry entrepreneurs plan to deal with this landmark legislation. However, please understand that even though this is supposed to begin January 1, 2014, everything is still in a state of flux and the rules keep changing daily, if not hourly.
Although there are a number of parts to the Affordable Care Act, its main intent is to make health insurance coverage affordable and accessible for everyone. Only time will tell if it will meet that goal.
One area of concern is whether your company pays part of it, or all of it. If you choose not to take advantage of the insurance, then you will be fined by the government. The other area of concern is, if you employ more than 50 people, it is mandatory that you offer health care insurance; if under 50, it’s not. Also, if you have part-time employees, you do not have to offer them insurance. Just what constitutes ‘part-time’ is one of the questions people have.
Virtually everyone agrees that the ACA is very complicated—maybe too complicated. Roger Myers, owner of American Beauty Landscaping in Youngstown, Ohio, says that he personally has spent “hundreds of hours” over the last two or three months “doing research, talking to people, surfing the Internet and reading articles, trying to glean what I can to see how this is going to impact us and what our alternatives are.”
“It’s been painful for us to figure out,” says Neil Bales, vice president of sales and marketing for Dallas, Texas-based Lawns of Dallas, “but I’d be lying if I told you that I’ve endured most of those pains. We’ve had a good insurance agent go out and do a lot of the legwork.”
“Those in charge of the ACA implementation are very unclear as to what information employers need to provide in order to be compliant,” says Chris Angelo, president of Stay Green, Inc., in Valencia, California. “Here we are in early November, and we’re just now finding out what the true costs of the ACA will be for individual plans.”
Angelo cites, as a for-instance, the fact that “we still don’t understand what a ‘qualified plan’ is.” In other words, what the interpretation is of the rule that states what coverage is necessary in a ‘qualified plan’ under the ACA, because exactly what a qualified plan looks like is still being debated.
Jean L. Seawright is a human resources (HR) consultant and the owner of Seawright & Associates in Winter Park, Florida. As the HR consultant to PLANET, she agrees that the ACA is confusing. “Essentially, the ACA has changed the way people access health care and the costs associated with it.”
She says, “This is a tremendous undertaking based on a complex law, with voluminous regulations to enforce the law. To implement the ACA, it was necessary to involve multiple government agencies, namely the Department of Treasury, the Department of Health and Human Services, and the Department of Labor.”
“Although implementation of the law has begun, many of these agencies are still in the process of writing the regulations and defining ACA enforcement practices,” Seawright continues. “Needless to say, the lack of complete information resulting from a continued stream of new enforcement provisions from a variety of government agencies has added to the confusion. Even the lawmakers are confused, so it’s no surprise that both large and small business owners are also confused.”
It’s tough to hit a moving target. Not knowing what the law is ultimately going to require makes both short- and long-range planning very difficult.
“It’s very fluid, changing on a daily basis,” says Joe Kujawa, executive vice president of KEI in Oak Creek, Wisconsin. “I’ve sat in on a lot of webinars and seminars and been to conferences with law firms and state landscape associations. When you ask, ‘What about this?’ You get the answer, ‘Well, we don’t know yet’, or ‘The ruling hasn’t come down yet.’ Other answers are, ‘We’re still waiting on guidance,’ or ‘We haven’t gotten the clarification.’ And so it makes planning—I don’t want to say it’s a fruitless exercise, but you really don’t know what’s ahead.”
“‘This is the answer as of 3:05 today;’ that’s what I tell every one of my clients,” said Steve Todaro, vice president of Lake Resources, Inc., in Matawan, New Jersey. It’s an insurance brokerage firm that specializes in employee benefits, such as group health, dental and long-term disability plans.
As for Myers, he admits that he “hasn’t read the complete ACA yet; it’s only 1,600 pages. I’ll get the Cliff Notes.”
Over 50, under 50, and 120 days
One of the most confusing aspects of the ACA is determining exactly who or what is considered a ‘full time equivalent (FTE).’ This is especially troublesome in the context of the green industry, because it’s a seasonal business.
Here’s why it’s important. The law is different for employers with less than 50 FTEs and those with more than 50 FTEs. Another important number is 120. If an employee works less than 120 days, he can be considered seasonal; if he works more than that number, he’s considered to be full time.
“This, obviously, is the biggest thing for the landscape industry, the 120 days,” says Todaro. “From the latest that I’ve seen, they’re still holding tight to that.” However, there is some legislation being proposed that may change that rule, precisely because of industries like ours.
“Landscape companies are saying, ‘We’ve got some people at 130 days a year, and some at 150 days a year, but they’re still seasonal; they’re not full time to us,’” said Todaro.
“As a first step, we are recommending that contractors determine if their business is subject to the ‘pay or play’ provisions of the ACA; that is, if they have 50 FTE employees,” says Seawright. “Employers should work with a knowledgeable insurance broker and/or CPA to determine the most cost-effective way to comply with this provision by January 1, 2015.” This clause was just recently pushed back a year.
Seawright continues: “To comply, employers with 50 FTEs must either offer an ‘affordable’ group health insurance plan (based on ACA requirements and definitions), or pay the penalty for not providing acceptable coverage. The regulations associated with the ‘pay or play’ mandate are enforced by the IRS, and the calculations involved with assessing the options are complex. For this reason, we recommend that employers with 50 or more FTEs work with professional advisors experienced with IRS enforcement and compliance.”
“Employers with less than 50 FTEs who offer group health insurance should also consult with professional advisors knowledgeable about ACA tax implications, to determine if they qualify for tax credits under the ACA,” says Seawright. “Employers with less than 50 FTEs who do not offer group health insurance may wish to determine the costs and feasibility of adding group health insurance, in light of any applicable tax credits.”
Seawright goes on to say, “I recommend that landscape business owners seek advice from knowledgeable professional advisors, including insurance brokers, CPAs, insurance consultants, attorneys, or others. The key is to identify an advisor who is actively engaged in helping employers comply with the ACA, and one who can accurately assess options and provide both strategic and operational direction.”
“We have an excellent insurance agency,” says Tom Andreola, controller at Jacobsen Landscape Design and Construction, Inc., in Midland Park, New Jersey. “Rather than doing all the work ourselves, we ask their people, who are very knowledgeable and quick with answers. They’ve digested this for us and tell us, ‘You have to follow this, and here’s why.’”
Is the Affordable Care Act really affordable for landscape and irrigation companies?
Bales is afraid not. “It’s very expensive. If you just pay the penalty for 51 employees at $100 per month, that’s still $1,200 dollars a year per employee. That’s a big number, and comes right off the top.
“We did some financial modeling early on,” said Angelo. “It showed that Stay Green’s health care costs would jump from its current level, two percent of revenue, to six percent under the ACA. Or, if you looked at it from a payroll perspective, from fourand-a-half percent of payroll to 12- and-a-half percent, if we covered our entire workforce. If we absorbed that cost (which we would have to do at the beginning, because we obviously would not have time to pass that cost on), it would eat up our entire profit margin.”
“Eventually, our banks and lending institutions would look at us and say, ‘We’re not going to back your company any longer,’” adds Angelo. “We’d have to make some drastic decisions. We’d have to cut other programs or see if we could pass the costs on, and can we do it fast enough? Or, should we simply close our doors in California?” “The cost of insurance used to be tax deductible, but you can’t do that anymore,” said Kujawa. “If we go to the marketplace to buy insurance, then it’s not with pre-tax dollars, it’s with post-tax dollars. Not only are we paying the premium, we’re paying the tax on those dollars to pay the premium, which is raising our costs 20 to 30 percent, depending on what bracket you’re in.”
The program may also be too expensive for most landscape company employees—ironically, the very people it’s intended to benefit.
Many contractors expect their employees to opt out. “We had an insurance man make a great presentation to our 25-plus employees,” said Jerry Tindel, owner of Cutting Edge Lawn Care in Austin, Texas. “Then we took a vote. Just about 75 percent of them said they did not want health insurance. End of story.”
Angelo expects most of Stay Green’s hourly employees to opt out as well. “Based on how it’s written, the employer can deduct from the employee’s paycheck to cover his portion of the health care cost. That adds up to about ten percent of his take-home income. When you’re talking about someone making $38,000 a year, that’s about $3,800 out of pocket; that’s very substantial.”
“Employees have an incentive to opt out of the program, but they will have to pay the penalty of $99, or up to one percent of their take-home pay,” continues Angelo. “The maximum is something like $300. We believe that our employee base will opt out because, economically, it doesn’t make sense for them and their families.”
Of course, that’s the whole point of the Affordable Care Act—making health care affordable. Whether those employees who opt out will be able to go on the government’s website (once it’s fixed) and choose a plan they can afford remains to be seen.
American Beauty Landscaping currently offers health insurance to full-time employees and their families at a premium of $100 per family member, for up to five people. For single employees or families with one child, this works well. “But if they have more than a couple of kids, they’re going to be in the $600, $700, $800 range,” says Myers.
Is the ACA just as baffling to employees as it is to their bosses? “Yes,” says Seawright. “However, as they learn more, business owners have an opportunity to educate employees, provide compliance information, and set the tone for health insurance discussions.”
She suggests some ways to help minimize the confusion. “Business owners could offer ‘lunch-and-learn’ sessions with professional insurance brokers or others who can describe options and share information with employees.”
“What we’re hearing from our employees has been the case all along— most of our employees don’t want health insurance,” said Kujawa. “They don’t see it as a priority. They either take care of their own with their families, or they go to the emergency room. They don’t understand why they’re going to get charged for something they probably don’t think they are going to use.”
One of the biggest fears landscape company owners have is that the ACA is going to make their insurance rates go through the roof. “I spoke to our insurance provider a few days ago,” said Myers. “He said that in the best-case scenario, our policy will go up eight percent this year; in the worst case, 40 percent.” To avoid that higher cost for a year and only pay the eight percent increase, he has to renew early, by December of this year.
Changing the way you do business
One of the unintended consequences of the ACA may be fewer jobs, as some landscape company owners may choose to stay ‘under 50’ employees. “That would probably be the option we would have to look at,” said Bales. Lawns of Dallas currently employs from 55 to 75 people during the months of April through October.
At KEI, Kujawa and his management staff are asking themselves some hard questions about the future. “Are we better off not offering insurance? Or, offering a non-qualified plan and risking the $3,000 penalty? Do we need to separate into an operating company and a management company, so we can put those who want a higher level of insurance in one company, and then offer a more basic plan in the operating company? That’s one tactic we’re looking at.”
And they’re not the only company that’s worried. “Unfortunately, the vast majority of employers have expressed great concern about the ACA, in terms of increased costs and the 30-hour definition of ‘full-time equivalent’ that subjects an employer to coverage,” says Seawright.
“Many employers have also expressed a desire to limit their company’s growth to stay under the 50 FTE threshold. These are very real and serious business concerns with far-reaching implications.”
Whatever the Affordable Care Act is going to ultimately require, it will probably have some impact on your business, especially if you have more than 50 employees. It seems to be a work in progress. All we can say is, “Stay tuned for further developments as they arise.”