Health Care Scramble

Gray Davis was speaking with a client in the food-service business recently who was debating whether to close a location or cut salaries.

But the reason for the cutback wasn't the poor economy. It's the looming health care law that will force employers to pay more for their employees' health-insurance premiums or face government penalties if they don't comply.

Davis, agency executive with insurance broker BB&T - Oswald Trippe and Co. in Fort Myers, says some businesses in labor-intensive industries such as hospitality are facing tough choices as the government implements the Patient Protection and Affordable Care Act.

Better known as Obamacare, the 2,400-page legislation will spawn a myriad of rules and regulations, many which have yet to be written. Insurance brokers, accountants and lawyers are poring over the details and helping their clients make decisions that at this point are sometimes little better than educated guesses.

“Everybody seemed to have waited to see if this was really going to happen,” says Guy King, president of M.E. Wilson, an insurance brokerage firm in Tampa. He says his clients want to know how to comply. “They don't want to hear about statutes or politics anymore,” he says.

So far, experts on the Gulf Coast say there aren't ways to circumvent the legislation beyond cutting employees, something few employers plan to do in a recovering economy. Lawmakers made sure there are no loopholes. “There's actually a lot of thought that went into it,” says Bill Becker, tax partner with Cherry, Bekaert & Holland, an accounting firm in Tampa.

Fifty is the magic number
If you have 50 full-time-equivalent employees in 2013, then your company will be subject to penalties ranging from $2,000 to $3,000 annually per employee starting in 2014 if you don't provide health insurance the government considers adequate.

The problem is no one knows whether to scratch health care coverage for employees or pay the penalty because it's not clear how the health care exchange will work. The state exchanges are the government-run marketplaces for people to buy insurance.

“On March 1, you're supposed to let your employees know about the exchange, but now it's been pushed back to summer or fall,” says Steve Hall, a benefits consultant at Alltrust Insurance in Sarasota. He helps clients evaluate different scenarios using a 24-page workbook.

Large companies that don't offer health insurance or only offer it to select employees are especially at risk. Hall's working with one company with 1,000 employees that only offers health insurance to 170 management employees. That company will either have to cover everyone or pay a fine estimated to be in the $4 million range. “They're in line for a huge, maybe crippling financial sting,” says Hall, who estimates that providing health insurance to all employees would cost about $2.7 million.

For growing companies nearing that 50-employee mark, the question becomes whether to hire more people and cross that threshold. Part-time workers count toward the full-time-equivalent threshold under the law, so you can't hire a crew of part-timers and think it doesn't cross the line.

Davis of BB&T says his client in the food industry measures his employees' time electronically in real time so he won't land over that threshold. “They know at all times who's getting close to 30 hours,” he says.

For small firms, there is a federal tax credit of up to 35% of premiums available for companies that cover their employees with health insurance. But it's only available for companies with low-wage employees. “If you have an engineering firm, you don't qualify because the wage limit phases you out,” says Matt Shell, senior tax accountant with Markham Norton Mosteller Wright & Co. in Fort Myers.

For larger clients, Davis says he brings a small army of experts, including human-resource experts, labor attorneys and others. “It could be six to 10 people I bring to a large client,” Davis says. “We think it's absolutely necessary to get it right.”

It's not clear yet if transforming all your full-time workers to part-time is an appropriate strategy, says Roberta Watson, chairwoman of the employee benefits practice at law firm Trenam Kemker in Tampa. Retailers, for example, might want some workers to work longer during busy seasons such as the holidays and less during the slower summer months. “There are some people who've done it to a science,” Watson says.

Another question is how staffing companies might be treated under the new law. If you have fewer than 50 employees but contract with a staffing company with many more people, it's not clear whether your company falls above or below the threshold. “They don't know exactly what the rules will be,” says Watson. “That's causing a number of employers real problems.”

Even if you have fewer than 50 employees, there are premium increases to worry about because the government will require extensive coverage. “The cost of affordable health care is going to be placed on them, and they're already fighting to pay the premiums,” says Christy Cardillo, tax manager at accounting firm Shinn & Co. in Bradenton.

Cardillo says she knows older owners of one firm who decided not to participate in the employer health plan because their age made it more expensive for their younger employees. “They took themselves out of the pool so it's affordable for employees,” she says.

But even if your firm has fewer than 50 employees, the health care law still requires owners to pay fees and file a form with the Internal Revenue Service, says Gina Shubert, life and health department manage with Lutgert Insurance in Naples. That means more accounting work for business owners.

For example, companies with group health plans starting will have to pay a $1 fee per employee to pay for evaluating the outcomes of medical treatments. The IRS has created a form just for that fee that will have to be filed next year.

Another annual fee of $63 per person covered in a plan will be assessed on insurance carriers to operate the exchanges. “It's going to be billed into the renewal rate, I'm sure,” says Shubert.

Some companies are helping employees change poor personal behavior, such as smoking and obesity. “One of the few ways [premium increases] can be mitigated is with a well-thought-out wellness program,” says Davis.

Many hospitals sponsor such programs, for example. After a time, companies can use lower claims from healthier clients to negotiate for lower rates, Davis says.

Seasonal changes
Some industries in Florida are particularly vulnerable to health care insurance costs, especially those that operate on thin margins or have seasonal labor.

The construction industry is so competitive that a boost in health care insurance could make a firm lose its competitive edge. In particular, this will affect the subcontractor trades such as plumbers and electricians.

“They're going to have a tough time bidding jobs if they're over the 50-employee threshold,” says Al Abraham, a principal with accounting firm Hill Barth & King in Naples.

Like the staffing companies, the government hasn't figured out how to calculate the formula for seasonal employees. This affects the agriculture, retail and hospitality businesses especially.

Even how to treat teachers is an issue. That's because teachers work hours outside school grading and preparing and have three months off, but it's not clear how to count that.

However government bureaucrats decide to craft the rules, they won't be immediate. “They'll probably give a transition rule that will allow people a good-faith approach,” Watson says.

An alternative: Employee leasing
Leasing employees from a professional employer organization (PEO) can reduce administrative headaches when it comes to health care and other programs.

Jack McCollum, principal at Synergy, a Hillsborough County employer consulting service, has found that many companies are so put off by the burdens and changing requirements of employee health care and other administrative programs, that they simply hand over their employees to another firm — and lease them back.

Employee leasing is handled through a professional employer organization (PEO), which can manage insurance programs, payroll, benefits, and other programs. In effect, the PEO becomes the employer, as it leases the employees back to the original company. The PEO puts the outsourced employees under its identification number, says McCollum. “So he becomes the employer of record.”

Nationally, firms like Oasis Outsourcing Holdings Inc., based in West Palm Beach, which oversees more than 125,000 employees for 4,500 clients, and TriNet, based in San Leandro, Calif., have become big players in employee outsourcing. McCollum estimates that 9% of all U.S. employees now are paid through PEOs, although other estimates put the market share at 3% to 5%.

Proponents say outsourcing lets a firm focus on its core industry. But some firms that have tried PEOs have asked for their employees back when outsourcing costs rise, he says.

Employee leasing companies charge a fee for services rendered. Some companies may outsource insurance, but not payroll, or workmen's comp but not pensions. “If you're doing the whole package, the average cost is about $700 per employee, per year,” notes McCollum.

Smaller companies that don't have health care specialists to ensure compliance may find outsourcing a good alternative to hiring new insurance specialists or losing valuable time studying regulations, says McCollum.

In Tampa Bay, certain Beef O'Brady restaurant franchises and World of Beers locations, as well as the Barry Cohen law group use PEOs, says McCollum. That means the law firm need not concern itself with the new health care rules. “We take care of all that,” he says. “That's what employee leasing firms do. We shift the burden from the employer to us. We're on the front line.”
-Denise Kalette