‘Obamacare’ and you

Steve Cesare

The Patient Protection and Affordable Care Act, or “Obamacare,” was legislated by Congress, affirmed by the Supreme Court and validated by the voters. This government program affects all companies through numerous regulations, taxes and indirect costs. In preparation for its formal implementation in 2014, landscapers must fully understand its immediate and inevitable business implications and make sage decisions regarding their adaptive response.

Overview. While companies with 50 or fewer full-time equivalents (FTEs) are not directly affected by Obamacare, businesses which employed more than 50 FTEs during 2013 are faced with the choice of providing “affordable” healthcare insurance to its FTEs or paying significant penalties for not offering such coverage. Employers who offer insurance coverage must provide “essential” health benefits to FTEs worth at least 60 percent of covered benefits paid by the insurance carrier, or otherwise the employer will have to pay a penalty to the government. Thus, to maintain legal compliance, the employee must pay no more than 40 percent of the healthcare benefits value offered by the employer.

Employers who are unable to offer that “essential” degree of “affordable” coverage to all of its FTEs will be forced to pay a penalty for each FTE who secures coverage from a state insurance exchange.

FTE calculation. Full-time employees are those who worked more than 30 hours per week during the preceding year. Full-time seasonal employees who worked less than 120 days during the preceding year are not included in the FTE calculation. Part-time employees who worked less than 30 hours per week during the preceding year are included in the FTE calculation by taking their total hours worked and dividing it by 120.

For example, consider a landscaping company that had 35 full-time employees last year who worked at least 30 hours per week and 20 part-time employees who worked less than 30 hours per week. The conversion of part-time employees into FTEs is as follows: Multiply the number of part-time employees by their monthly hours, and then divide the total of those hours by 120. Hypothetically, if those 20 part-time employees worked a total of 1,920 hours, that total would be divided by 120, equaling 16 FTEs. This example would yield 51 FTEs.

Employer penalties. Companies that don’t offer health insurance to their FTEs must pay a $2,000 for all FTEs on their payroll during the preceding year after subtracting 30. Thus, a company with 55 FTEs will pay a $50,000 penalty for that year (i.e., 55 FTEs minus 30 equals 25 FTEs, multiplied by $2,000).

The $2,000 penalty per FTE is expected to increase significantly with the passage of time.

Companies offering health insurance to their FTEs must also pay a $3,000 fine for every subsidized employee who opts out of employer-sponsored coverage, goes to the health insurance exchange and is eligible for a subsidy, or pay a $2,000 fine for every FTE after subtracting 30, whichever is less. A subsidized employee is one whose annual household income is less than 400 percent of the federal poverty level (i.e., $89,400 for a family of four and $43,560 for an individual in 2011) and whose portion of the insurance premium on the employer’s plan exceeds 9.5% of the employee’s household income.

Individual penalties. Beyond employer penalties, individuals who do not obtain government-approved insurance must also pay a tax. In 2014, individuals without government-approved insurance will be forced to pay either a $95 per-person fine, up to three per family, or 1 percent of their household income to the government, whichever is greater. Those numbers increase to $325 per person, up to three per family, or 2 percent of their household income in 2015, and $695 per person, up to three per family, or 2.5 percent of their household income (to a maximum of $2,085) in 2016.

Action Items. Looking ahead, landscapers must consider the following items to mitigate the financial impact that will permanently affect their companies:

• Meet with a benefits broker to identify plan options.
• Meet with a tax attorney to quantify all personal and organizational fiscal impact.
• Review cost proposals to determine if the company will “pay or play” in 2014.
• If the company decides to “play,” ensure all 2014 benefits packages satisfy the “minimum essential coverage” requirements.
• Conduct a cost-benefit study of all company growth plans that raise the number of FTEs to 51.
• Consider using more independent contractors and part-time employees.
• Accrue financial resources this year to offset some of the 2014 penalties.

Summary. The financial costs of ObamaCare represent an existential challenge to many landscapers. They must act quickly, improve their gross margin to offset likely penalties, and reframe their fundamental business model immediately. Failure to do so will place their company at fatal risk.

Steve Cesare is an industrial psychologist with the Harvest Group, a landscape consulting group. Send your HR questions to cesare@gie.net.