CPAs Doubt Affordable Care Act Will Benefit Business
YOUNGSTOWN, Ohio -- How to comply with the Affordable Care Act -- or whether it’s to their advantage to drop health insurance coverage and pay the penalty -- is on the minds of small-business owners who employ 50 and more.
“Business owners are very much concerned,” says Gregory L. Gett, principal and president of Packer Thomas, a public accounting firm headquartered in Canfield. “There’s so much uncertainty. Even insurance providers don’t know the answers. … The worst thing [for a business owner] is uncertainty.”
Gett knows firsthand of what he speaks.
“We’re [Packer Thomas] in a hiring freeze because of the Affordable Care Act. We don’t know what our health insurance rates will be next year.” So much of what has been said about the effects of the Affordable Care Act, he elaborated, “have turned out not to be true.”
The employer mandate has been delayed a year, Jim Rosa notes, but when it takes effect in 2015, the “huge new reporting requirements,” that is, the regulatory burden for employers to comply, have simply been postponed 12 months as companies seek to renew their existing coverage at comparable rates.
Rosa, principal in Hill, Barth & King LLC, a public accounting firm headquartered in Boardman, heads its tax practice. He’s spent considerable time following the Affordable Care Act since its passage so he can advise HBK clients on how to prepare for its requirements.
He doesn’t believe what the U.S. Department of Health and Human Services’ asserted last Sept. 30 – that once the program is up and running, employers will pay less for health insurance.
“That’s absolutely wrong from what I’ve been told,” he says, and already he sees “employers cutting hours, even Youngstown State University, in an attempt to manage costs.
“We’re made a real effort to stay up with this,” Rosa says, “and I’ve given six to seven presentations [to small groups of clients] on what to expect.”
CPAs at both firms agree that questions about complying with ACA are among the most frequent their clients ask. Employers are afraid their premiums will rise, perhaps prohibitively, and they might have to either lay off employees or convert some who work full-time to part-time. Based on his more than 30 years as a CPA, Rosa ventures, “I think costs [for employers of 50 and more] are going to go up. And with everything the law addresses, it’s hard to see how they won’t go up.”
In their efforts to keep health insurance expenses under control, Rosa sees some owners “cutting employees’ hours” so that full-time employees are reduced to part-time status. That might save money, Rosa says, but at what cost to morale? Will such employees accept their new status and seek an additional part-time job or look for full-time employment elsewhere?
The Internal Revenue Service will be looking even more closely at who’s an employee and who’s a contract worker, Rosa says. “There’s more room for abuse,” he suggests.
Moreover, employers cannot discriminate in determining levels of coverage and who to include and exclude. “An employer cannot discriminate in favor of highly compensated employees,” Rosa points out. “I can see how an owner would want to say, ‘[Coverage for] just me and my top employees. Everybody else is on their own [to join health exchanges]. The penalties are huge, $100 a day per employee.”
Gett anticipates the 50-employee cutoff is only the beginning. “In 2015,” he says, “they will expand 50 up to 99. … In my 37 years in public accounting, this is absolutely the worst piece of legislation I’ve seen for small businesses. It won’t lower health-care costs for business owners. Health-care costs have been rising faster than inflation the last 20 years” and he sees no letup.
Rosa and Gett think many small-business owners will find it’s less costly to pay the penalty for not offering health insurance and then recommend their employees to join exchanges.
“What the prudent business owner will do is ask, ‘Do I want the [increased] annual expense?’ Then they’ll tell their employees, “I’ll pay you a higher wage so you can go out and get coverage.’ When you do that, you’ve converted a tax-free benefit to a taxable event,” Gett points out.
“There’s nothing in the Affordable Care Act legislation to stop an employer from doing that,” Rosa agrees. And he expects employers “to explore that option. … It could cost an employer less” to pay the penalty and reimburse their workforce.”
The employer could claim it as a deduction, Rosa says. The business owner would have to provide the IRS with documentation, of course.
The director of Packer Thomas’ tax practice, John Donchess, offers the possibility that the Affordable Care Act could allow some small businesses to either reduce or eliminate their human resources staff if they directed their employees to buy health insurance through an exchange. Administering health insurance is a big part of human resources administration, he notes.
In some instances, Rosa says, the employer of 50 or more might find it less expensive to pay the penalty and reimburse his employees’ premiums.
Regardless, Rosa, Gett and Donchess strongly advise their clients to work closely with their health-care insurers.
“We’re not health insurance experts,” Rosa says, “so we recommend clients to work with their health insurance providers. … There are so many questions, so many variables.”
EDITOR'S NOTE: This story appears in the MidDecember edition of The Business Journal, published Dec. 17.
Copyright 2013 The Business Journal, Youngstown, Ohio.
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