The clock is ticking for Tommy Cain and thousands of other U.S. employers facing deadlines to make changes to the health insurance they offer their employees under the Affordable Care Act.
Mr. Cain has already met one of the law’s key requirements: offer health insurance to at least 70% of full-time staffers by 2015, or face penalties.
Back in January, he put a no-frills plan in place for his 250 employees. His Gulf Coast grocery chain offers to pay 60% of premiums costs, deducting $25 weekly from the paychecks of those who opt for the coverage.
But his dilemma now is figuring out whether that plan is affordable to those employees, as required under the law. The cost cannot exceed more than 9.5% of employees’ annual salaries, the law says.
With just three months to go before 2015, Mr. Cain is worried that he will be penalized next year if the plan doesn’t meet the technical standard.
As part of its “Faces of the Affordable Care Act” multimedia series, the Journal has been following two small businesses—T. Cain Grocery chain, based in Fairhope, Ala., and Ovenly LLC, a Brooklyn, N.Y., retail and wholesale bakery, to see how they are dealing with the changes they face under the law.
A minority of business owners are considering trimming their head counts below the 50 full-time-worker cutoff or reducing their workers’ hours rather than comply with the requirement, which begins in January for companies with 100 or more employees.
Others have run the numbers and concluded that their best financial move is simply to skip the requirement and instead pay penalties, $2,000 for each full-time worker after the first 30.
Tommy Cain in the produce section of one of his Piggly Wiggly grocery stores. He faces tough decisions in light of the looming deadline. William Widmer for The Wall Street Journal
But most business owners, including Mr. Cain, are expected to comply or already do, consultants say.
Owners should “fish or cut bait,” maintains Andy Birol, a small-business consultant in Pittsburgh, Pa. He thinks many owners are spending too much time and money contemplating how to deal with the law when they should be focused on running their business.
“You must make a decision as soon as possible,” he says. “The moment of truth is coming right around the corner.”Mr. Cain set up a low-cost employee health plan in January at his five Piggly Wiggly grocery stores, which employ 250 people. At that time, his biggest concern was that too many cashiers, deli clerks and other workers would sign up, inflating his costs and forcing him to raise prices.
Like other employers with more than 100 workers, he doesn’t have to show that 70% have enrolled in the company’s plan. Rather, under the law, he merely must show that he offered the plan to that portion of his workforce and that the option is affordable for them.
The total monthly premiums charged are roughly $500 for family coverage and $233 for individuals. That compares with an average of $1,439 monthly premiums for family plans, and $511 for individual plans at firms with 200 or more workers, according to figures from the nonprofit Kaiser Family Foundation.
Mr. Cain’s chain has high turnover, and store workers’ hours can fluctuate greatly from week to week, making it difficult for Mr. Cain to calculate today whether it will meet the affordability standard. Many of his employees are working just over 30 hours a week for $8 an hour.
Mr. Cain says he is nervous because, so far, fewer than a third of his firm’s 250 employees have enrolled. A mere two of six new hires said at an employee briefing last week that they would even consider signing up.
“The feedback I’m getting is that it’s just not affordable,” says Tara Wicker, the store’s director of human resources, who has held weekly information sessions with employees over the past two months to try to increase the number that will sign on during the official enrollment period next month. Roughly 40% of the stores’ workers are under 30 years old, and many are healthy.
Mr. Cain now worries that many of the employees who aren’t on the employer plan may opt to purchase individual coverage on the federal health insurance exchange, indicating that their employer’s plan wasn’t affordable. Should that happen, he fears he could face penalties under the law equal to $3,000 for each of those employees that receive a subsidy. (Even if his employees perceive the plan to be unaffordable, whether it meets the technical standard would determine his exposure to penalties in the end.)
Others say Mr. Cain is overreacting: “The employer is responsible for offering the insurance, not responsible for ensuring that employees actually enroll,” says Tony Novak, a benefits consultant in Newport, N.J. If the plan is deemed affordable and offers “minimum essential coverage,” then “there is no penalty to the employer if employees do not take the coverage.”
The chain also offers a “gold” planthat is mostly used by its front-office staff, with a $400 monthly premium and a $500 deductible if it’s used. The store pays 50% for that plan. For both plans, its health-insurance costs are about $290,000 at the current enrollment rate for 2014.
Tremesha Peoples, a 40-year-old cashier, says she couldn’t sign up for the plan. She currently works a second job, at an Old Navy in nearby Spanish Fort, that provides discounts on clothes for her seven children ”I could never give that up,” she says. Juggling two work schedules makes it difficult to rack up the 30 hours a week required to be eligible for the grocery chain’s low-cost plan, she adds.
“I want to live a long and healthy life for my kids,” who are all currently covered under Medicaid, she says, “but it’s been about four years since I’ve been to a doctor.”
Jon Robitaille, the store’s 49-year-old beer and wine buyer, says he grudgingly signed up for the plan earlier this year “because it was mandated.” But given a choice, he says, he would prefer to spend the cash on his time off. “I haven’t been on vacation in a while,” he adds.
Smaller businesses, those with 50 to 99 workers, have until 2016 to comply with the law. Companies with fewer than 50 workers are exempt from the employer mandates.
That includes four-year-old Ovenly, which has 26 employees, about half of whom work full time, many as bakers and managers. Its co-owners would like to open two new locations next year, bringing their total head count to more than 50 employees. But they are daunted by the prospect of providing health insurance to a larger staff.
Indeed, the premiums for the Aetna and Oxford plans they now offer will go up by 36% and 14%, respectively, Nov. 1. Half of the monthly cost is paid by the company. Lea Faminiano, who helps manage Ovenly’s 90 wholesale accounts and is one of two employees on its Aetna plan, says that paying higher premiums would be “kind of annoying.”
Ovenly co-owner Erin Patinkin says that she and her partner, who use Oxford, are now scrambling to find comparable but less expensive coverage for themselves and their employees.