For better or for worse, the Affordable Care Act is upon us. As more and more of its details get released and as businesses like yours start to make adjustments to deal with its requirements, some unintended consequences are arising. Here are some of the problems that businesses are dealing with or will soon have to deal with.
Avoiding Applicable Large Employer Status
Not every business is subject to the Affordable Care Act and its provisions. As written for 2014, it only applies to companies with an average of 50 full-time equivalent employees. Furthermore, it defines full-time as an employee that works an average of 30 hours per week. This is leading to two consequences as businesses attempt to skirt its requirements:
- Companies are cutting full-time employee hours back, turning them into part-time employees that aren’t counted towards the Affordable Care Act’s 50 employee threshold.
- Part-time workers are having their hours cut back to ensure that they stay under the 30 hour limit.
It’s not clear yet what the long term consequences are of these cut backs, but this certainly stands out as a trend to watch in the coming year.
Potential Premium Increases Due to Adverse Selection
The nature of the individual insurance provisions and mandates of the Affordable Care Act create an incentive for healthy people to stay uninsured. First, the penalty for being uninsured is in many cases much less than the cost of insurance. Second, the requirement that exchange plans accept anyone at any time means that an uninsured person would only need to sign up at the instant that they need care. This process leads to the phenomenon of adverse selection, which refers to when only people that are bad risks choose to be insured. Since insurers will have a higher proportion of claims to premiums from their private business, they may have to compensate for the additional expenditures by raising premiums on their employer clients who pay all of the time.
Changes in Family and Spousal Coverage
As a result of the costs of complying with the Affordable Care Act, many companies are dropping coverage for spouses. While this, in and of itself, was an unintended consequence, it brings up a second set of challenges. If you employ one of the newly-uninsured spouses, you could find them coming to you, asking to be added to your workplace plan, if you offer one. This could generate more expense for you as an employer to pay the cost of their coverage.
Cancellation of State Small Business Insurance Assistance
Some states offer special plans that help their citizens or small businesses either defray the cost of health insurance or provide a basic level of insurance. If these programs aren’t compatible with the Affordable Care Act’s provisions, they can be cancelled. One example of this is Tennessee’s CoverTN plan, whose $25,000 annual benefit cap made it a perfect adjunct for businesses that offer low-cost, high deductible plans. It will be cancelled effective January 1, 2014.
Given that insurance from the Affordable Care Act exchanges hasn’t come into effect yet and that the mandates that apply to individuals and employers also aren’t fully operational, the true impacts of the bill remain to be seen. As of now, many unintended consequences for business have already been identified but if history is any indicator, more may be coming down the line as the law’s implementation grows.
Dana Rostro is the Director of Employee Benefits Sales and Operations at Texas Associates Insurors. Dana is ACA certified and has helped clients develop the best strategies for their operations within the new healthcare legislation.