Bloomberg BNA: Health-Care Law Business Aggregation Rules Cause Confusion for Small Businesses
December 04, 2013
By Sara Hansard
(BNA) -- Affordable Care Act rules that determine whether a business must provide health insurance to employees or make large “shared responsibility” payments are too complicated for most small companies and should be changed, a panel of witnesses testified Dec. 4 at a House Small Business Committee hearing.
Employers with the equivalent of at least 50 full-time employees are subject to the employer coverage requirements under the ACA. Under the law's business aggregation rules, a business is determined by common ownership. But many small businesses are owned by more than one owner, and many small business owners own multiple businesses, making it difficult to determine what is the commonly owned entity.
Thirty-nine percent of small businesses with 20 or more employees own at least 10 percent of one or more other businesses, said Rep. Chris Collins (R-N.Y.), who presided over the hearing.
“Despite the administration's promises that the health-care law would help small businesses, each week seems to bring entrepreneurs more bad news, more costly regulations, more uncertainty and less incentive to grow their business and create jobs,” Collins said.
The goal of the rules is “to discourage employers from dropping coverage and leaving employees on their own to find insurance,” Committee ranking member Nydia Velazquez (D-N.Y.) said. But, she said, “I remain concerned about how these very complex rules will impact small firms.”
Change to ‘Facts and Circumstances’ Test
Deborah Walker, national director of compensation and benefits with the Cherry Bekaert LLP accounting firm in Northern Virginia, and other witnesses said the rules should be changed to a “facts and circumstances” test. That would mean ownership would be based on who controls a business in terms of hiring, firing, making purchasing decisions and setting prices in determining whether a company is subject to the so-called employer mandate.
The ACA rules require businesses to make detailed determinations of ownership and services that are provided between commonly owned businesses, Walker said. The ACA rules are the same as rules used for determining whether retirement plan benefits are provided on a nondiscriminatory basis to a cross-section of employees, she said. But retirement plans are voluntary, not mandatory as the ACA employer mandate is, Walker said.
“In the health-care context,” she said, “it's a complicated test for the few taxpayers that are nearing the 50-employee limit,” she said. “It will lead to inefficient and unwarranted economic behavior.”
Business Denied Small Group Coverage
Sibyl Bogardus, chief compliance officer, western region employee benefits, in the Salt Lake City office of insurance brokerage company Hub International Insurance Services Inc., said the issue is already causing confusion with health insurers. The Obama administration has delayed implementation of the employer mandate by a year until 2015.
Insurance carriers base decisions on whether to issue small group or large group policies based on employers' size, Bogardus said. She said she was contacted this week about a small employer in California that was refused a small group health insurance policy because it was considered to be part of a larger control group by the insurance carrier. That resulted in the company having to pay higher premiums for a plan, she said. However, the same group had a small employer in Arizona that was able to get a small group policy, she said.
Bogardus said the law is leading businesses to cut employee hours to below 30 hours per week, the threshold at which at an employee is considered to be a full-time worker for whom health insurance must be provided in firms with at least 50 full-time employees under the ACA.
In addition, the law is causing premiums to rise, she said. “We are seeing people not enroll in the coverage that maybe in the past they would have enrolled in because the costs are just higher,” she said. It has always been difficult to get young people to enroll in coverage even if they only have to pay low premiums, she said. “They're looking at the coverage and they're saying ‘I would rather have the money.’ And in the bigger picture, in the context of wages, if people would rather have the money, the Affordable Care Act takes that off the table if they have to be offered the insurance,” she said.
Compliance Challenges
Ellis Winstanley, chief executive officer of Tradelogic Corp. of Austin, Texas, said he, his family and other partners own a variety of small businesses. He testified on behalf of the National Restaurant Association. The company owns eight restaurants, printing and promotional businesses, as well as software development companies.
“The health-care law presents compliance challenges for all of our small businesses, but particularly for the restaurant and food service operations due to the unique characteristics of our work force,” Winstanley said.
Due to the structure of many restaurant companies, “determining the employer is more complicated than many may expect,” he said. Like many restaurant operators, his company participates in multiple restaurant entities with various partners, often with family members.
Most of the company's businesses each have less than 50 full-time equivalent employees and independently wouldn't be required to provide health insurance under the ACA, Winstanley said. Under the health-care law, all of the businesses must be aggregated as one large employer and health coverage must be provided, Winstanley said. “The effect of this is that the cost of doing business for each of our companies will go up.”
Donna Baker, a certified public accountant with Donna Baker & Associates in Adrian, Mich., said she will attempt to keep her businesses below 50 employees due to health insurance premium increases of 40 percent to 44 percent. “It would be much easier for me to put my employees out on the exchange,” she said.
Winstanley and Bogardus said the ACA has had a negative impact on small and large businesses' ability to hire. “It's draining resources from the companies that would otherwise be going to use to grow the businesses,” Winstanley said.
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