(Feb. 22, 2013) Despite the federal government’s granting of a seasonal leniency for short-term employers, local agents say most of the resort area’s more sizeable businesses will still meet the dreaded “large employer” threshold under the national Affordable Care Act, which will put them into the “pay or play” system for health insurance provisions.
“We’re looking at their numbers, and they’re obviously over in June, July, and August, but they also have a lot of people on in May or September,” said local insurance agent Chris Keen. “A lot of places depend on the shoulder season and that’s what puts them over.”
Although the full effect of the Affordable Care Act, popularly known as “Obamacare,” won’t go into effect until January of 2014, the employment numbers used to determine what regulations apply to businesses will be drawn from 2013.
“You should be doing this calculation now,” Keen told local business representatives at last week’s Greater Ocean City Chamber of Commerce breakfast meeting at the Carousel Hotel.
“2013 is the calculation year for whether or not you’re a ‘large employer,’ which means you’ll have to ‘pay or play’ when January of 2014 comes around.”
Together with Atlantic/Smith, Cropper & Deeley Vice President Chris Carroll, Keen, who owns West Ocean City’s Keen Insurance, has been working to help resort businesses hash out their 2014 insurance obligations in a new system that often has very slim margins.
“That’s one of the most unusual parts of this subsidy system and this law, is that there are a series of cliffs built into it,” Carroll said.
The first cliff comes with the determination of whether or not one is a “large employer” under the law’s definition. The ACA specifies such a business as one that has 51 or more full-time employees, or the equivalent in part-time employees.
A full-time employee is someone, according to the law, who is either salaried or a waged worker clocking 130 hours or more in a given month.
In the case of part-time employees, the law requires that all their hours in a month be added and divided by 120 to determine the number of full-time equivalent employees the business has in a given month.
Businesses that only go over 50 employees for four or less months will be exempt from the “large employer” classification. But given that most Ocean City businesses begin hiring in the spring and retain employees through September and October, they are sized out of the seasonal exemption.
For those who are “large employers,” the ACA institutes a so-called “pay or play” system, whereby businesses can either provide a qualifying health insurance plan, or pay an annual penalty of $2,000 per employee.
Although every employee counts for the purpose of calculating penalties to “large employers,” every employee does not have to be insured if said employer provides a health plan. Only those “reasonably expected” to work 30 or more hours per week must be offered insurance – and that insurance does not have to kick in for up to 90 days after employment, a grace period that eliminates short-term workers from the
“You don’t have to provide them insurance, but you do have to include them in the calculation,” Carroll said.
On the other hand, the ACA also stipulates that any health plans provided by employers must meet criteria of coverage and affordability by having premiums of no more than 9.5 percent of an employee’s annual household income, and being able to pay for at least 60 percent of average annual health costs.
In cases of employees on the edge, it may be cheaper to increase their pay so that their insurance costs stay below the 9.5 percent threshold, instead of not offering a plan and paying the penalty.
For those who do not have health insurance the ACA mandates the establishment of group health exchanges in order to pool the purchasing of insurance and bring premium costs down.
Such exchanges are organized by state, although some, such as Virginia, are defaulting to the federal government to administer their programs. But with a detailed, online insurance interface set to go live this fall, Maryland is “leading the country in insurance exchange programs,” Carroll said.
Under federal statute, anyone making up to 400 percent of the federal poverty level will have their insurance exchange purchase subsidized on a graded scale, limiting their costs to a certain percentage of their income. But this also presents another cliff, as those making more than 400 percent abruptly lose the subsidy, forcing them to pay full market rate in a climate where rates may have risen drastically.
Those making 133 percent or less of the poverty level will be eligible to go on Medicaid, and Maryland has elected to bump this level up to 138 percent. According to Carroll and Keen, this will put an additional 160,000 to 170,000 Marylanders on Medicaid beginning in 2014.
In order to control rate disparity between insurance demographic groups – particularly between the young and the old – Maryland had placed a three-to-one ratio cap on the lowest and highest rates offered on the exchange. But this is now proposed to be widened to five-to-one.
“The states don’t believe that the young and invincible are going to enroll in the exchange if their rates are that much higher,” Keen said.