Affordable Care Act Is Being

Affordable Care Act is being rolled out at this time and will have been completely rolled-out by sometime in 2014. Under this Act, employers over 50 FTEs will be forced to either provide adequate and affordable health care coverage for their employees or pay a responsibility fee. The company needs to examine our options, both from a financial perspective and from a recruitment and retention perspective when weighing which of these options is best for our company. Other issues include the creation of health care exchanges - something from which we might benefit, and the ways that the ACA will affect the industry. The way that insurance companies respond to the Act could affect us, in terms of either the premiums we are asked to pay or our bargaining power, and the U.S. economy in general will also be affected by the Act -- most sources argue this will be adverse. This paper will outline these different issues and make recommendations to deal with them. The recommendations include lowering demand forecasts, conducting a capital budgeting analysis on the responsibility fee, and re-evaluating our recruitment and retention practices.

Introduction

The Affordable Care Act is just now beginning to be enacted. The implementation of the Act is occurring piecemeal, and will be spread over the course of the coming years. It is important to understand from our business perspective what the Act entails and what it does not. There is a significant amount of misinformation published about the Act, which does nobody in the real world good service, so this report will clearly mark when a predication is an opinion.

Data Collection Methodology

The Affordable Care Act is still in the implementation stages, which makes it difficult to determine specific outcomes for American business. There are, however, a number of projections available, taking into account different perspectives. In general, these will be taken from governmental and neutral sources, but also the work of think tanks (of different political stripes) will be taken into account. Thus, the evidence collected will be a combination of primary source research relating to the nature of the Act, and secondary source research to assist with the interpretation of how the Affordable Care Act will affect American businesses.

There has been a tremendous amount of material written about the Affordable Care Act, some of it focused on nuts-and-bolts factual information for businesses, and some of it more rhetorical in nature. Both types of sources are valid for this discussion, because there are two components to the paper. The first component will describe the Act, and the specific provisions that it has for business. The second component of the paper will attempt to interpret the Act to make a determination as to its impacts on our theoretical medium-sized enterprise. The final recommendations will therefore reflect specific recommendations for the firm as to how to approach the rolling out of the ACA, and how to deal with the indirect consequences that the Act is going to have on the American economy, and on the key human resources management issues that the Act impacts.

Data Analysis

At this point in the rollout of the ACA, there is no significant quantitative data. The analysis therefore will rely on interpreting the effects of the Act using both economic theory and the work of third-party bodies who have conducted similar analysis. No one body will relied upon, so as to reduce bias, but instead a meta-analysis of the different sources will be conducted. This will include gathering testimony, news articles and conducting analysis using economic theories to estimate how the ACA will affect American business, and our business in particular.

Key Opportunities & Issues

The text of the Act contains a number of elements that are relevant to business. The first issue is that of the so-called "employer mandate." Beginning in 2014, large employers, defined as those with 50 or more employees, will be required to "pay a shared responsibility fee only if they don't provide affordable coverage and taxpayers are supporting the cost of health insurance for their workers through premium tax credits for middle- to low-income families" (White House, 2013). Firms are exempt if they have fewer than 50 employees, and the White House notes that 96% of firms already offer health insurance to their employees. White House estimates hold that around 10,000 firms will face employer responsibility requirements. Large businesses that do not currently provide health care for their employees will need to choose either to pay the "responsibility fee" or to offer what the government classifies as 'affordable coverage' to their employees.

The criteria for 'affordable coverage' are as follows. The insurance the employer offers must cover at least 60% of health care expenses for "a typical population" and employees are to pay no more than 9.5% of the cost of this insurance. If those standards are met, then the employer does not pay any penalty (Kaiser, 2013). The penalty -- the "responsibility fee" -- is calculated at $2,000 multiplied by the number of full-time employees minus 30, and will grow each year as insurance premiums grow. The penalty is actually $3,000 per employee, but maxes out at $2,000 per employee minus 30 (Kaiser, 2013).

Another element of the Act is a small business tax credit. This credit will help to defray the cost of providing health care for their employees. The credit would only last for two years beginning in 2014, would be no more than 50% of their contribution, and only applies to small businesses under 50 employees (White House, 2013). There is no tax credit available for businesses over 50 employees. The 50 employee limit is based on FTEs (full-time equivalents) which the Act defines as 120 hours per month. The amount of credit is determined by variables such as the size of the company and the average annual wages paid by the company. These credits are intended to offset the differential cost of health care insurance paid by small companies due to their lower degree of purchasing power relative to large companies.

A third element of the Act is the creation of exchanges. Beginning in 2014, companies with fewer than 100 employees will be able to shop for insurance in an Affordable Insurance Exchange, a mechanism that is designed to facilitate small companies finding insurance. Providers would enter the exchange to gain new business, and the overall price of insurance for these companies would theoretically be lower due to competition among insurance companies (HealthCare.gov, 2013).

The Act's explicit elements will affect the way human resources departments manage health care benefits, and also how they manager their workforces as well. In addition to the direct impact of the Act, our company should also be aware of the indirect consequences of the Act, pertaining to labor markets, the state of the economy and the cost of health care for companies that already offer insurance to their employees.

Findings & Impacts on the Organization

For a medium-sized company with 50-1000 employees, there are a number of decisions that must be made. Regardless of whether the company already had provided health coverage to its employees, it now faces a choice of either providing this coverage or not. If not, the company will find itself subject to the so-called responsibility fee. From a strictly financial perspective, the company can simply approach this choice as it would any other capital budgeting problem, by calculating the two options to determine which is cheaper. It could opt for its existing plan, shop around for a new one, or omit health care insurance altogether, opting to pay the responsibility fee. From a strictly financial perspective, the company should opt for the lowest-cost option of the three. The average cost of health care insurance is higher than $2,000 per employee for most companies, so from a financial perspective it might make more sense to cancel the health insurance benefit and simply pay the fee. This would also result in cost savings, as it is likely to be easier to pay the fee than to deal with the insurance company anyway. The burden for health care coverage would fall to the American taxpayer. This is similar to the model already in place in many parts of the Western world.

However, benefits are a form of competitive advantage for companies seeking workers. While today there is a buyer's market for low-wage, unskilled workers, there is still a seller's market (low to medium unemployment) for higher-skilled workers. Thus, companies are usually compelled to offer health care coverage in order to attract workers. For the most part, that is not expected to change with the ACA, because companies will be expected to offer insurance superior to the ACA-mandated minimum in order to attract the best workers. Companies on the threshold, who do not feel the need to offer superior health coverage benefits, might choose to opt out of providing health care at all, or might offshore more of their work. For most companies of the 96% that currently offer health care coverage, that coverage is part of the package that they use to attract quality workers, and those companies would not necessarily opt to pay the responsibility fee, because they would lose that key competitive advantage in recruitment and retention.

Critics of the ACA highlight several concerns, however, with the way that the law affects their businesses. For the 10,000 or so employers over 50 people who do not offer insurance, the cost per worker increases immediately. For companies just under 50 employees, this cost could even result in delayed expansion -- though arguably if their numbers are that tight they probably shouldn't expand anyway. That said, some surveys indicate that 90% of employers feel their health care costs are going to increase with the law. Those costs will largely be passed onto customers. Other employers have threatened to convert full-time employers to part-time, or otherwise reduce their FTEs (full-time equivalents) in order to lower their burdens under the law. The Congressional Budget Office, a politically-neutral entity -- has estimated that the Act might cost the U.S. economy up to 800,000 jobs by 2020 (House Oversight Committee, 2012). Libertarian think tanks like the Heritage Institute also raise ideological objections to the Act, noting that it increases government involvement in the health care system, to the detriment of millions of Americans; some benefit, they argue, but at costs paid by others (Heritage Foundation, 2013).

Recommendations

For businesses, it is recommended that they analyze the role that health care coverage plays in their recruitment strategies. Some companies might benefit from no longer offering health care coverage to their employees, but it is important for the company to understand that decision not only from a financial viewpoint but from a recruitment and retention viewpoints as well. It should be a priority of Human Resources departments to study how the Act will affect their company specifically, and to make recommendations to their executive teams based on that careful analysis of the different costs and issues.

In a more general sense, there appears to be significant risk that the Act will stifle hiring, at least in the short run, and could also have a negative impact on the U.S. economy as a whole (NFIB, 2012). Any broad-based economic impacts will need to be accounted for when firms are making demand projections and when they are performing capital budgeting analysis of proposed projects.

To this end, the firm will probably want to revise its domestic demand forecasts downward. If the Act does indeed begin to cost the American economy thousands of jobs, the combination of this and the Budget Control Act could dramatically weaken existing projections for the health of the American economy going forward. The Affordable Care Act is unlikely to affect foreign operations.