Sept. 18, 2013 – Implementation of the Affordable Care Act (ACA) is here. So far, lawyers have largely focused on what this means for their clients. But how will the ACA impact law firms as employers, lawyers as employees, and solo practitioners?
InsideTrack caught up with Madison lawyer Barbara Zabawa, who leads the health care team at Whyte Hirschboeck Dudek S.C. and is former chair of the State Bar of Wisconsin’s Health Law Section.
In August, Zabawa participated in a “Health Care Forum” at the state Capitol with U.S. Sen. Tammy Baldwin, Wisconsin lawmakers, health care agency representatives, and other health care industry stakeholders.1
Forum panelists discussed Wisconsin’s transition to the federally operated health exchange and other implementation processes. Below, Zabawa answers some questions about the ACA and its impact on law firms and lawyers specifically.
Q: In general, how will the ACA impact law firms with 50 or more employees?
Law firms with 50 or more full-time equivalent employees, like any other employer that employs higher-income employees, will eventually face a penalty if the firm does not offer coverage at all, or the coverage offered is inadequate.
That penalty will be $2,000 per full-time employee per year for failing to offer health insurance coverage at all (minus the first 30 full-time employees), and $3,000 per full-time employee if the firm’s coverage is unaffordable (i.e., exceeds 9.5 percent of the employees income) or fails to meet a minimum value test (i.e., the coverage covers at least 60 percent of expected claims costs). The later penalty goes to the health care exchange and qualifies for a premium tax credit.
The federal government has postponed this penalty until 2015. Thus, for 2014, the biggest impact the ACA will have on law firms is a likely increase in health insurance premiums. The ACA imposes numerous fees and restrictions on insurance companies – such as the annual fee on health insurers, the contributions health plans must make under the transitional reinsurance program, the medical loss ratio restrictions, and the underwriting restrictions – to name a few.
The Wisconsin Office of Commissioner of Insurance (OCI) believes that the cost of these fees and restrictions will be passed along to insureds in the form of increased premiums. Another impact that law firm employees may experience, regardless of the law firm size, is a limit on out-of-pocket expenses for in-network services.2 The limit is tied to the limit in high-deductible plans that are eligible to be paired with a Health Savings Account, which is currently about $6,000 for self-only coverage and about $12,000 for family coverage.
Q: In general, how will the ACA impact law firms with less than 50 employees?
Firms with fewer than 50 employees are not subject to the federal “pay or play mandate,” so there is no penalty for smaller firms that do not offer employee health coverage. For those small firms that choose to offer coverage, there will be two options available: 1) the Small Business Health Options Program (SHOP) Exchange; or 2) the private marketplace.
Barbara J. Zabawa (U.W. 2001), leads the Health Care Team as Whyte Hirschboeck Dudek S.C., where she practices health law and litigation. She can be reached at (608) 255-4440 or by email.
Starting Oct. 1, 2013, small firms may buy coverage on the SHOP Exchange for coverage beginning Jan. 1, 2014. The SHOP will enable small firms in Wisconsin to compare the costs and quality for approximately nine different health plans who have applied to be on the SHOP and select one of those plans for its employees.
Starting in 2015, small firms will be able to define a dollar amount it would like to contribute towards its employee's monthly health insurance premium and a “metal tier” from which each employee may purchase a plan. The metal tier relates to the percent of health care expenses for which the plan pays for the average individual.
In Platinum plans, the plan pays 90 percent of expenses, Gold 80 percent, Silver 70 percent, and Bronze 60 percent. Employees will then use the SHOP to compare and select a plan in the metal tier authorized by their employer. Employers interested in purchasing coverage through the SHOP must have at least 70 percent of its employees participate, however.
Small firms are not limited to the SHOP. They can also purchase coverage through the private marketplace. Thus, even though only nine plans in Wisconsin applied to participate in the SHOP, there are likely to be many more plan options available in the private marketplace in Wisconsin. The same state law with regard to employee participation rates applies. For example, small employers with more than 10 eligible employees must have at least 70 percent of the group to participate in the insurance plan under.3 The federal small business tax credits to help small firms purchase coverage will not be available outside the SHOP, however.4
The employees of small firms that choose not to offer health coverage will be able to meet their “individual mandate” obligation by purchasing coverage either on or off the Individual Exchange. Enrollment for the Individual Exchange begins Oct. 1, 2013. Thirteen plans in Wisconsin have applied to offer coverage on the Individual Exchange.
One advantage of obtaining coverage from plans offered on the Individual Exchange is that the employee may be eligible for premium tax credits and cost-sharing subsidies to assist with defraying the costs of coverage. Premium tax credits will be available to consumers whose income ranges from 100 percent to 400 percent of the Federal Poverty Level, or roughly $11,490 to $45,960 for individuals and $23,550 to $94,200 for a family of four. This government assistance will not be available for plans offered in the private marketplace and may prove to be very helpful in light of the recent data released by the OCI showing premium rate increases for 2014.5
According to the OCI, insurance rates will vary based on a consumer’s age and where they live. The highest percent increase will be experienced by younger insureds in Madison. For example, a 21-year-old person in Madison will see a 124.85 percent increase in premiums from 2013 to 2014, whereas a 63-year-old person in Kenosha will only see a 9.72 percent increase in premium.
Whether it makes sense for a small firm to offer coverage to its employees will depend upon the characteristics of its employees and the number of options available in their service area. Firms that employ mostly older workers who desire employer-based coverage may find offering coverage more affordable under the ACA because insurers will be prohibited from underwriting based on pre-existing conditions and will be more restricted in age-based underwriting.
Firms that employ a younger workforce may find small group coverage more expensive for the same reasons. Younger employees may find coverage options on the Individual Exchange more affordable, particularly those employees under age 30 who may purchase catastrophic plans to fulfill their obligation to obtain coverage. Small firms should consult with their insurance agents and brokers to determine what makes most sense for their firm.
Q: If I’m a solo practitioner, does the ACA impact me?
Yes, in a number of ways. First, solo practitioners will be unable to purchase small group coverage through the SHOP or private small group market (a business must have at least two employees for SHOP eligibility). Thus, solo practitioners may seek coverage from plans offered in the Individual Exchange or the private individual market.
For solo practitioners who had difficulty obtaining coverage in the past because of pre-existing conditions, insurers will no longer be able to deny coverage on that basis. As noted above, the OCI predicts a substantial increase in premiums, but some solo practitioners may qualify for premium tax credits in the Individual Exchange to help offset the premium cost. Furthermore, because the ACA requires all plans in the individual and small group markets, both on and off the Exchange, to offer "Essential Health Benefits" (10 categories of basic benefits), solo practitioners may find the plans available more rich in benefits.
Q: Are there specific things employers must do to comply with the ACA this year?
Yes. A number of those requirements have already occurred, such as the flexible spending account limitations, the Medicare tax increase and the W-2 reporting requirement that apprises employees of the total cost of employer-based health coverage. By Oct. 1, 2013, firms that generate at least $500,000 annual dollar volume of business must provide written notice to all employees, regardless of benefit enrollment status or full- or part-time status, about the Exchanges.
A model notice is available on the Department of Labor website. After Oct. 1, 2013, firms will be required to provide the notice to new employees within 14 days of hire.
Q: What is a good source for understanding the ACA?
There are a number of websites that contain very good information. For tax-related questions, I recommend the IRS website’s Affordable Care Act page.
For employer-related questions, I suggest consulting the Department of Labor website. In addition, the Kaiser Family Foundation has useful information on its website.
Finally, interested parties can access the Individual and SHOP Exchanges through the government’s primary website, which includes other information about the ACA.
1 The Health Care Forum is available on Wisconsin Eye, at http://www.wiseye.org/Programming/VideoArchive/EventDetail.aspx?evhdid=7908.
2 It should be noted that the limit on out-of-pocket expenses has been effectively delayed for 2014 for those plans that use more than one administrator for different benefits, such as major medical and prescription drug benefits. See e.g., http://www.dol.gov/ebsa/faqs/faq-aca12.html. For those plans, the out-of-pocket limit may apply to each type of benefit.
3 Wis. Admin. Code section INS 8.78.
4 See http://www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-for-Small-Employers.
5 See http://oci.wi.gov/pressrel/0913rateinfo.htm.