Minn. businesses struggle with ACA employer mandate

A while back, D. Brian's All Natural Deli and Catering owner Doug Sams grappled with a tough decision.

Under the Affordable Care Act, Sams has to offer his 80 full-time employees in the Twin Cities health insurance coverage. If he doesn't, he faces hefty fines.

At first, Sams thought he would pay the penalty, which would have cost him well over $100,000 a year. But he decided that was too much.

Next, he considered cutting back his employees' hours. The law's "employer mandate" only applies to businesses with more than 50 employees who work more than 30 hours a week. So, if he cut workers' hours to fewer than 30, he wouldn't have to insure them.

But trimming schedules would have been unpopular and unfair to his staff, Sams said.

For executives in the retail and hospitality sectors who don't offer insurance, the coverage requirement represents a major shift in how they do business. They're doing the same calculus Sams did: pay more or risk alienating workers.

Sams settled on giving all his workers insurance through Blue Cross Blue Shield -- and he hopes they don't take him up on the offer. Sams predicts his employees will still view his plan's $90 monthly premiums and annual deductibles as too expensive, even though, as a matter of law, they'll be considered "affordable." That's because his employees generally pass up the 401(k) retirement plan he offers.

"They're paycheck to paycheck, their kids need new shoes, there's never enough money ... to pay the bills," said Sams. "They look at me and say 'Doug, sounds great. I can't afford it.' "

Sams estimates seven new people will enroll in the company health plan, which will cost him about $17,000. In the meantime, he has asked U.S. Sens. Amy Klobuchar and Al Franken to consider legislation that would define full-time workers as people who work 40 hours or more each week.

THE COMPLEXITY

The employer mandate is complicated stuff -- so complicated that last month, the Obama administration announced it would delay requiring employers to offer health insurance until 2015.

As Sams discovered, employers who run afoul of the law's requirements face steep penalties. Employers with 50 or more full-time employees have to provide insurance that is "affordable" within the definition in law.

Let's say you have 50 or more full-time employees but don't offer them insurance. If they work at least 30 hours a week, the law considers them full-time employees. If just one of them qualifies for a federal subsidy to buy coverage on the state's health insurance exchange, you could be faced with a $2,000 per employee annual fine -- after you subtract the first 30 employees.

Even if you do offer insurance, you could be hit with a penalty if you don't offer a certain minimum coverage to at least 95 percent of your payroll employees.

For Minnesota's large businesses that already offer insurance, the penalties aren't too much of a concern as long as they cover most of their employees.

But the mandate is a particular problem for retail, hospitality and restaurant businesses because they traditionally haven't extended benefits to all their hourly workers; doing so will cost them a lot of money. They're also the most likely to trigger a fine because their relatively low-paid employees will probably qualify for government subsidies on the exchange.

The administration's decision to delay the mandate by a year is a reprieve for some businesses, but that doesn't mean they've stopped mulling their options, said Donn Scroggins, senior vice president of employee benefits for Marsh & McLennan Companies, a human resources consulting firm.

"Most of them are weighing the cost/benefit of 'do I offer coverage, or don't I? Do I reduce hours to less than 30 hours or do we increase it?' " Scroggins said.

WORKING FEWER HOURS

The City of Faribault crunched the numbers and decided to cut a few employees' hours. Starting next summer, four city workers will work less than 30 hours each week so the city doesn't have to offer them insurance, human resources coordinator Kevin Bushard said.

Providing insurance would have cost Faribault $60,000. Working fewer hours will cost the employees a combined $4,000, but the city is looking at ways to make up for the lost wages.

It's not unusual for employers to trim hours to avoid offering benefits. But it's a tactic that companies may use more, Minneapolis attorney Christianna Finnern said.

"I do think you'll probably see increases ... in the number of part-time people who are kept part-time because their employers don't want to be responsible for providing coverage," said Finnern, a specialist in health law at Winthrop and Weinstine.

But the firms that do so may represent a minority of employers. According to a recent survey by the International Foundation for Employee Benefit Plans, 17.8 percent of Midwest businesses, including firms located in Minnesota, have or will cut hours because of the health care law requirements.

That strategy comes with financial trade-offs, Scroggins said. For instance, a restaurant that cuts employee hours may need to hire more part-time workers to make up for the staffing deficit.

PLAY OR PAY

Other companies may choose to eat the fines. But every time insurance broker David Cornell has run the numbers for his clients, the penalties turn out to be too expensive, partly because the expense isn't tax deductible.

That was the case for a construction firm Cornell works with. They plan to offer employees insurance as soon as the mandate kicks in.

"They don't want to pay the penalty and then get nothing for it," said Cornell, president of Cornell Insurance Services in St. Paul. "At least pay something, which is going to be a lot less than the penalty, have it as a business expense, and use it as a tool to keep employees."

As the economy recovers, more businesses may offer coverage to stay competitive, Scroggins said.

But he said Sams' strategy may not get him far. That's because individuals are required to have insurance or pay a penalty.

Next year, that penalty is small -- $95 for an individual or one percent of their income.

"As that penalty increases in 2015 and 2016, I think you may see more people look at their employer plan and jump on," Scroggins said.

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