Health care reform will add to employers’ costs and complicate their business when regulations take effect next year. But, attorney Sheldon Blumling says agricultural employers need to face reality and start working now on analyzing and minimizing the impact.
Blumling, a health benefits lawyer with Fisher and Phillips LLP in Irvine, California, said many employers were hoping that the U.S. Supreme Court would rule the Affordable Care Act unconstitutional, or that the last general election would derail health care reform so they would not have to deal with it.
“Employers in the agriculture industry are in shock,” he said. “They really haven’t come to grips with the fact that they have to deal with it and how it’s going to affect their business.”
Although not all the regulations are finalized, and some will be refined, most of the guidance is there already, he said. “There’s no excuse to put it off at this point. We have all the information we’re going to get in advance of 2014. We know how the mandate’s going to work.”
As of January 1, 2014, everyone in the country will have to obtain health insurance or pay fines. Basically, large employers (with more than 50 employees) must either offer their employees a health insurance plan or pay penalties. The plan must be affordable to an employee, which is defined as a premium that costs the employee no more than 9.5 percent of his or her household income, and must provide a minimum value, which means it must pay for at least 60 percent of covered health care expenses.
Smaller employees are not required to offer health insurance. Their employees can obtain insurance through an exchange, such as the Washington Health Benefit Exchange. An exchange is an online marketplace—similar to an online travel agency—where people can compare private health plans and buy insurance.
Blumling said the health care reform regulations are extremely complex, and agricultural employers face unique challenges because much of their work force is made up of seasonal workers, and they have not needed to provide health benefits before.
Figuring out if you need to provide health benefits, and for whom, is a two-step process.
First, you need to determine if you have more than 50 full-time equivalent employees. This involves counting your full-time employees and then adding up the hours worked by part-time or seasonal employees over the past year to calculate the average full-time equivalents (see “Are you over 50?”).
If your calculations show you have fewer than 50 full-time equivalent employees, you are off the hook. If you have 50 or more full-time equivalent employees, you need to move on to step two to figure out which of your employees are full time and thus qualify for health benefits.
Employers whose count goes just slightly over the trigger point for the 50 full-time equivalents may want to examine their work assignments in order to get below that threshold, Blumling said.
“If it’s close, figure out if you want to manage your business differently for the rest of the year to be under the threshold,” he said. “You need to sit down today and start mapping out what you think 2013 is going to look like. You know what your employee counts are now. If you’re going to average 52 employees for the year, you might want to think if you can get away with less than 50 employees for the rest of the year. You aren’t going to be able to do that unless you sit down now and start projecting.
“If you are over 50, you know the mandate’s going to apply starting January 1, 2014. Sit down and project how much this is going to cost you,” he urged. “You’re going to have to either figure out a way to manage it down or work it into your budget.
“It’s shocking to me how many employers have yet to do that,” he added, pointing out that they only have the rest of this year to figure it out.
If a company does cross the threshold as a large company, it is mandated to provide health coverage not for all employees, just those regarded as full-time employees. That is, workers averaging 30 or more hours a week. A company is not required to provide coverage for part-time employees.
This is why some large restaurant chains are scaling back the hours of their wait and kitchen staff so they each work fewer than 30 hours a week, Bumbling said.
“It doesn’t matter how big you are—you can be IBM—if they are all part-time,” he said. “There’s flexibility in the rules that agricultural employers can take advantage of, but you have to know your way around the rules to figure it out.”
To determine which hourly employees will be considered full-time and qualify for health insurance when the law goes into effect in January, employers must look back for a period of 3 to 12 months to determine whether each employee worked an average of 30 or more hours per week during that period (see “Figuring out who qualifies”).
The employer can choose a look-back period of 3 to 12 months. Blumling said agricultural employees will probably want to use the longest possible period to minimize the effects of seasonal variations in employment.
“You have a seasonal work force of people who are not working the entire year, and by creative use of these measurement periods, that’s how you’re going to manage how many people are full-time and thereby manage what your obligations are going to be,” he explained. “There’s enough room in all these rules that if you manage your business properly, you can probably manage down this potential obligation so very few of your seasonal workers are going to end up qualifying.
“For most employers in agriculture with high turnover, it could well be that it doesn’t matter how many hours they worked while they were working for you because very few will make the 30-hour weekly average over that 12-month period,” he said. “And if that’s true, it may be that the mandate is going to be less of a burden for agriculture than a lot of employers think.”
However, this will not help large employers or those with year-round operations.
Play or pay
Blumling said employers who pass the over-50 test and have never provided a health plan in the past may be reluctant to begin because it involves a lot of administrative work as well as cost. The new regulations require employers to “play” (provide a health plan for full-time employees) or “pay” a fine instead. Coverage for dependents must be offered but not necessarily subsidized.
Some employers might prefer to just go ahead and pay the tax because it could be cheaper and less hassle than subsidizing the employees’ health care coverage, Blumbling said.
The fine (known as the shared responsibility penalty) is $2,000 per employee annually, or $166.67 per month, though the first 30 full-time employees are excluded. For example, if you have 50 employees, you will pay a fine for only 20 of them. For larger operations with hundreds of employees, the 30-employee exclusion becomes less significant, and the play-or-pay decision becomes more difficult, Blumling noted.
On the one hand, if you pay the fine, you know how much it will cost. On the other hand, if you put a health plan in place, the odds are that a certain percentage of the employees will not take it, perhaps because they have insurance through their spouse or they are young and healthy and feel they don’t need it.
“If you look at it that way, it may be that if you put a bare-minimum plan in place that meets the obligation, only half the work force will take it anyway,” Blumling said. “You have to factor in that variable, whereas if you pay the tax, you’re going to pay for everyone but the first 30 employees.”
Shawn Sicilia, benefits consultant with the insurance broker Maloney & O’Neill in Spokane, Washington, said employers should take into account that the health benefit premiums they pay are tax deductible but penalties are not.
Employers will also pay a second type of penalty of $3,000 a year for each employee who obtains insurance through an exchange and receives a federal subsidy in the event that the employer’s health plan is not affordable or doesn’t provide minimum value. Employees whose household income is less than four times the federal poverty level, which amounts to about $88,000 for a family of four, may qualify for a subsidy.