How Might Healthcare Reform Affect Your Construction Clients?

1/6/2014 - By Suzanne Cox, CPA

After more than three years of uncertainty, including a Supreme Court decision upholding its constitutionality, the implementation date for the Patient Protection and Affordable Care Act (the ACA) is almost here. Most provisions of the ACA will become effective on January 1, 2014. A few key ACA provisions will become effective after this date. Most notable is the Employer Mandate requiring employers of a certain size to provide affordable health insurance to their full-time employees or pay a fine, which was delayed until January 1, 2015. However, the individual mandate, which will require most Americans to purchase health insurance, was not delayed — it will still become effective in 2014. With the implementation of most of the ACA’s major provisions right around the corner, contractors and construction firms should be finalizing plans for how they will comply with the law. Following is an overview of the most important provisions of the ACA.

The Employer Mandate

Even though implementation of the Employer Mandate has been delayed for a year, this is still the place where most construction firms should start their preparations for the ACA. Most of their strategies going forward will be dictated by whether or not they will eventually be subject to the Employer Mandate (also sometimes referred to as Shared Responsibility and Play or Pay). In short, any business that employs at least 50 full-time equivalent (FTE) employees will be subject to the Employer Mandate starting in 2015. Full-time equivalent employees are not the same thing as full-time employees — FTEs are determined by adding both full-time employees (defined as those working more than 30 hours per week) and part-time employees converted to full-time equivalents.

For example, 100 part-time employees could be considered 50 FTEs. If a company employs at least 50 FTEs, they will be required to either offer affordable health insurance to all full-time (but not part-time) employees in 2015, or pay an annual non-deductible penalty tax (i.e., the Employer Shared Responsibility) of $2,000 per FTE after the first 30 employees (indexed going forward at the rate of medical inflation). Insurance is considered to be “affordable” if the employee’s portion of the premium for single (not family or dependent) coverage is less than 9.5 percent of his or her household income. IRS Notice 2012-58 provides more details on determining full-time vs. part-time worker status.

This includes safe harbors that allow companies to lock in employees’ full-time or part-time status so it isn’t constantly changing every month as their hours change. Increased Health Insurance Costs for Employers If a company is not subject to the Employer Mandate, then the ACA should not require significant changes to your client’s construction business. If they currently offer health insurance, they may continue offering it but won’t be required by law to do so.

However, insurance reforms under the ACA will likely increase the cost of health insurance. These reforms include but aren’t limited to:

The addition of 10 categories of essential health benefits that must now be included in all health insurance policies (i.e., they can’t be carved out to save premium dollars).
The removal of annual and lifetime caps on insurance benefits.
Guaranteed issue and renewal (i.e., no one can be denied health insurance due to pre-existing conditions).
The elimination of rating discrimination by insurers for policyholders’ health-related issues

In addition, the ACA imposes a number of new fees that will also likely increase the cost of health insurance. These include an insurance industry fee, a Patient Centered Outcomes Research Institute (PCORI) fee, a Transitional Reinsurance Program Fee, and a Cadillac Plan tax on high-cost health insurance plans starting in 2018. Companies will also be required to provide various employee notices starting with the 2013 plan year. These include a Summary of Benefits and Coverage (SBC) and a written notice explaining health insurance options available to employees on the state exchange and federal tax credits that might be available to help them pay premiums (go to www.healthcare.gov for a sample notice).

Play — or Pay?

If a company is subject to the Employer Mandate, then they must decide whether to “play or pay.” There are three primary options:

Maintain the health insurance coverage currently offered, or start offering affordable coverage to full-time employees. If coverage is currently offered, plans will likely have to be redesigned to better manage healthcare costs going forward.
Offer insurance coverage via the SHOP program, which has been specially designed for smaller employers (fewer than 100 employees). SHOP program options will be limited in 2014.
Drop health insurance coverage and pay a penalty of $2,000 per full-time employee after the first 30 employees.

Many factors beyond just dollars and cents go into whether a company should play or pay. For example, what effect would dropping existing insurance coverage have on employee morale? Would companies be able to attract skilled labor if they don’t offer coverage? Most provisions of the Patient Protection and Affordable Care Act (the ACA) will become effective on January 1, 2014, so construction firms should be finalizing plans now for how they will comply with the law. Determining whether they will be subject to the Employer Mandate is the first step they should take: If they are, they will be required to offer affordable health insurance to their full-time employees starting in 2015. If they aren’t, the ACA should not require significant changes to their business — although insurance reforms under the ACA will likely increase their cost of providing health insurance if they choose to do so.