Like it or not, the Affordable Care Act (ACA) is here and the first deadlines for employers are knocking at the door. The ACA raises serious concerns about the ability of SMBs to be able to meet its looming government mandates while staying competitive -- aka attractive to top talent.
We’ve already seen many businesses cut staff or hours to try to maintain compliance. But cutting staff isn’t always the only option; if you are an employer there may be other ways to put the ACA to work for you—or at least stay one step ahead of your competition while the new policy rolls out and after its implementation is in full effect.
Of course, it won’t be easy. Despite public controversy about the treatment of part-time employees at large companies, it seems that most major enterprises have found ways to meet the requirements of the ACA—and some have even used the opportunity to become leaner and more competitive. It is important to recognize that some small business owners have an uphill battle to meet the requirements of the ACA. SMBs need to arm themselves with knowledge about the ACA to fully comply, while creatively seeking alternatives for themselves and their employees, increasing competitive advantage.
Caught in the Middle: Unique Challenge for SMBs
Small “mom and pop” businesses—particularly those with fewer than 25 full-time employees—are the darlings of political narrative and have been shielded in part from the ACA. While these businesses face many challenges, they have also been offered significant subsidies to their health plans that might actually make them more competitive with larger businesses. Traditionally, small companies (in the 1-25 employees range) had difficulty finding affordable group health coverage because insurers were reluctant to take on such a small insurance pool. The ACA creates a “SHOP Marketplace” for these small businesses, and offers many small businesses up to a 50% subsidy on coverage purchased through the SHOP.
For the first year, however, employers will only be able to offer a one-size-fits-all plan, so the decision process is critical. You -- and therefore your employees, as well -- will not be able to choose from a few different plans, but instead will be limited to the one plan you pick. And the plans aren’t all great, and some groups (particularly young and healthy ones) will likely end up paying higher premiums than they would otherwise.
But from the perspective of a very small employer, it may become easier to compete for talent against larger enterprises (which would be able to offer much better insurance options to employees at better prices anyway). These subsidies often come in the form of tax credits, which any profit-making business can utilize immediately. If the business does not operate at a profit, the credit can be carried forward to future years—not helpful for today’s cash flow, but valuable in the future.
But there is a whole range of “small business” beyond 25 employees – these are the companies who face the biggest challenges presented by the ACA. The Small Business Administration defines “small business” to include some categories of manufacturers with up to 1,500 employees—and other categories with up to 1,000 employees. These businesses don’t get the ACA subsidies, but also don’t have the leverage of larger enterprises. When compared to behemoths like Wal-Mart (WMT), IBM (IBM) and General Motors (GM), even a moderately successful company with a few hundred employees can’t compete with the leverage that the largest employers have to negotiate health plans.
Shake Up Your Coverage
First, employers can use the opportunity to review their health benefits and bring them up to modern standards. Many companies, especially those offering “mini-med” (low-cost plans with a low annual coverage limit) will be forced to change their health-care offerings. These plans have been largely prohibited by the ACA, so employees will need to be transitioned to more comprehensive plans. In the process, the total coverage picture should be reviewed—is it time to add an HMO or an uncapped high-deductible plan? Or time to remove an under-performing plan?
Employees often prefer to keep their current insurance—which understandable given that they have developed relationships with their physicians and have figured out how to “work” their current insurer’s billing system. But with so many plans changing due to the ACA, all plans will face changes and many facilities are being dropped from major insurance plans due to cost concerns. If you change your health coverage mix now, complaints are certain, but you’ll hear complaints even if you don’t change. If people are going to be unhappy with the impact of the ACA anyway, it’s worth taking the plunge and investing in the most ideal health-care mix now.
Internalize Health-Care Savings
For employers in the “SMB squeeze zone”—too large for the “mom and pop” tax credits and too small for special attention from carriers—simply changing the coverage mix will not be enough. Another option that is becoming increasingly popular for smaller businesses is “self-funding.” Most enterprises actually pay their own health-care costs dollar for dollar, even if a carrier (like a Blue affiliate) handles claims. Every dollar in health-care spending comes out of the enterprise’s bottom line—which also means every dollar of health-care savings is saved from the bottom line.
An increasing range of carriers (including Aetna and Cigna) are extending the ability for employers to self-fund their health-care costs down to as few as 50-100 employees, and the carriers are also offering stop-loss insurance above an annual cap (mixing the best of self-funded and fully-insured plans). If you think you can drive better health in your workforce, you can profit from self-funding by internalizing those gains. Everything from improving workplace safety to simply improving happiness among employees (many studies link decreased stress with improved health) can lead to an increased bottom line in a world of self-funding.
Be Open to Innovation
One surprising truth about health-care costs for employers is that a few rare cases drive costs up much more than dozens of routine cases. A few broken bones won’t put any insurer in the red, and even a Marx Brothers series of slapstick accidents won’t dramatically change annual health-care expenditures unless they lead to chronic care. Instead, long-term treatments of conditions like cancer and heart disease drive a disproportionate amount of spending.
Large self-funded employers have known this for years, and have targeted programs to reduce the burden of complex care without sacrificing quality. Wal-Mart has even gone so far as to set up a special deal for employees with cardiac conditions to see the experts at the Mayo Clinic, no matter where in the country the employee might be. The program exists because seeing world-leading specialists early can actually reduce total health-care costs, by eliminating needless testing and ineffective treatments.
Until today, there was no way an SMB could compete with these enterprises with custom deals for seemingly access to word-leading specialist care that keeps top talent in place and cut costs. The good news? Times are changing, and an increasing number of small businesses are taking advantage of the incredible innovation in health-care IT. These advances in technology are providing employees with benefits they need in an uncertain time, while cutting costs for employers.
There’s no doubt that the ACA is bringing serious challenges to business, especially in the SMB community, and it can often feel like a losing situation; however, there are alternatives, and small business need to do what they’ve always done, pick themselves up by their bootstraps and keep moving forward.