Affordable Care Act implementation strategies for medium-sized employers

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.

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.

It is also worth making a recommendation with respect to how the health insurance business in general will be affected by the Act. Some provisions of the Act, in particular the mandate banning discriminatory coverage for those with pre-existing conditions, will affect the way that the insurance companies do business. While such coverage will benefit some of our employees who are currently either excluded from the company plan or whose presence on the plan costs the company extra, insurance companies in general are expected to raise rates in response to this mandate. While the Act does set a cap on insurance premiums for individual and family plans for employees, those caps are in excess of $10,200 for an individual plan and $27,500 for family coverage (Klein, 2012). If our plan even comes close to this level, we may be forced to scale back the benefits that the plan offers to something closer to the bare minimum allowable without penalty under the ACA. As noted above, such changes would have to be made in the context of overall recruitment and retention policy.

A final recommendation is to monitor how other organizations are going to react to the Act. We must understand that the ACA changes certain dynamics within American business. It will change the way that insurance companies interact with their customers, and it will change the way that companies compete with each other for talent. So in addition to expecting the worst with respect to the economic impacts of the Act, we should monitor the marketplace with respect to HRM, and ensure that our policies always make sense in light of the changing dynamic. In particular, the balance between what it costs us to provide health care coverage to our employees should be weighed against the cost of the responsibility fee, and the dynamics of recruitment. It is therefore recommended that a team is created within the HRM department to not only implement the ACA in our organization -- a small task since we provide our employees with health coverage -- but also to monitor to way that the businesses around us are dealing with the ACA, so that any issues can be identified and addressed in a proactive manner.

Works Cited:

Health Care.gov (2013). Small businesses and the Affordable Care Act. HealthCare.gov. Retrieved March 5, 2013 from http://www.healthcare.gov/law/information-for-you/small-business.html

Heritage Foundation. (2013). The impact of Obamacare. Heritage Foundation. Retrieved March 5, 2013 from http://www.heritage.org/research/projects/impact-of-obamacare

House Oversight Committee. (2012). Examining the impact of Obamacare on job creators and the economy. Committee on Oversight & Government Reform. Retrieved March 5, 2013 from http://oversight.house.gov/hearing/examining-the-impact-of-obamacare-on-job-creators-and-the-economy/