Following the July 2014 final rules implementation of the Affordable Care Act, my company Technical.ly was impacted more severely than we expected. This is not a political article — I am not opposed to Obamacare — this is a small business owner’s experience.
With just eight full-time team members (excluding, of course, our part-time independent contractors), I am solely responsible for managing our healthcare coverage plan, and while I tried to prepare for what the change might be, I wasn’t ready for our costs to more than double, and, for some plans, almost triple. Here’s what I learned and what we did.
I understood that given our relatively young, single and healthy team, our prices were going to increase more than other companies in this round of open enrollment as we in part helped support relatively older and relatively less healthy people joining the nationally-mandated healthcare network. I just didn’t expect (and we didn’t budget) for this large an increase.
We have coverage by Independence Blue Cross through the brokerage CBDI which is managed by the Greater Philadelphia Chamber of Commerce, of which we are members — I sure wish my Chamber benefits team had really stressed this ahead of time to me, since I managed to miss all of the concern last fall that should have made me realize it would impact us.
Let me interject here quickly because the ‘Obamacare’ issue has become so politicized. For my short-term rational self-interest, of course I’m frustrated by the thousands of dollars this change is going to cost me. But I do, generally speaking, understand and believe the idea that there is a longer-term societal benefit for getting more Americans insured.
I also want to say that I have absolutely NO formal training in human resources, healthcare or benefits management. There is nuance and legal impact that is completely lost on me. I am a small business owner dealing with new territory and trying to share that experience. Please take this as nothing more than some guidance and seek official and trained support. Start with this SBA page.
That said, this is a pretty dispassionate assessment here.
In May, I received a letter that, for our July round of open enrollment, the healthcare insurance package we had would no longer exist — this was happening nationwide. It wasn’t cut-rate but as I understand it, since our prices were going to go up so much, IBX, like other healthcare providers, saw value in offering an entirely new product (to help ease my pain in my costs going up so much for pretty much the same product). Later, I came to find that we could take two paths: a Gold Premier plan that was roughly the same coverage level (for more than double the cost) or a Silver level, which would on the whole mark a decline in the level of our coverage and still be at least a third more expensive than what we were doing.
Previously, as a company, we were fully covering individual plans for our staff members. Given that either plan we chose would mark a big enough a jump that I would need to ask staff to begin contributing to the cost, I decided that I’d rather at least offer the same (and in some ways, a slightly better plan) than a worse plan. (Who wants to pay more for a worse product? I’m looking at you, newspapers).
This is everything I did in response to this change:
- Capped healthcare employer contribution — Perhaps one of the most important, if minor, decisions I made as a fledgling, de facto HR manager was in every single staff role description and hiring negotiation, I always listed the maximum that the company would contribute toward a healthcare premium. Previously, everyone was always under that total. Suddenly, though, every staff member’s monthly premium exceeded it. Though this presented a problem, I felt comfortable navigating this conversation because I wasn’t going back on any promise. I can’t stress enough the importance of setting maximums, minimums, limits or the like in agreements: even if you don’t think you will, if you ever reach them, you start in a place of being fair.
- Decided on a “Defined contribution strategy“ — One of the core tenets of the ACA is the idea of ‘choice,’ offering a more competitive marketplace for healthcare options. There is no reason healthcare will forever be tied to employment. In that transition from employer-plans to individual-plans, more and more of the healthcare costs are being passed onto the individual. Most employees now contribute at least something to their employer-backed healthcare, and costs for employees are rising in 2014 nationwide. For now, employer-offered healthcare plans are broadly taking one of two approaches: covering a percentage of anyone’s plan (often with some maximum) or offering a flat-fee that is standard for all employees (sometimes tiered between individual and family options). The former is a win for those with families because they get considerably more employer compensation (i.e. 60% of an individual plan is less than 60% of a family-worth of individual plans); the latter is a win for single individuals because all staff are getting the same compensation, regardless of age, family situation or smoking habit. (Why should a smoker get more compensation by way of healthcare coverage than a non-smoker, goes the logic.) In the end, we took the aforementioned healthcare coverage cap that we had in place and made that the max we would contribute toward staff healthcare. Staff contribute what comes beyond that (our younger, non-smoking staff have close to 80 percent coverage, our older, smoker staff have closer to 55 percent coverage, and anyone with a family plan has less.) It is worth saying the obvious: people criticize the defined contribution movement.
- Sent an all-team email with basic details — I still didn’t have the confirmed cost changes yet because in open enrollment, we would be seeing any staff changes we might have, but looking at the plan we were going with, I knew staff costs were going to go up. This was news for our budget process, so I knew it would also be news to our staff. Once I was sure, I sent an all-team email detailing that with open enrollment would come the first time we’d ask staff to contribute to healthcare. I also attached our new plan and made clear that it was at least as comparable and in some ways stronger than our previous plan, so there was value being added with the additional cost. There was clearly questions and concern, but I did allow staff to start preparing and ask me initial questions. (I had previously warned of Obamacare-inspired changes because I was legally required to do so.)
- Scheduled an all-team healthcare meeting — I invited everyone to a meeting once I had greater clarity on our process. I explained as best I could that this change was coming because of the ACA and that it was impacting our budget too — it changed a modest profit to a loss for our company, so we had to find new sponsorship goals to reverse that. The company was contributing more to healthcare, just like each individual, including myself, is.
- Send a thorough, all-team email — Then I shared a far more comprehensive email that also tried to make everything as clear and documented as possible. This was an enormous email.
- We added a dental offering — It was something I had been wanting to do but there was staff time involved to get it done. I used this opportunity to add a dental offering if staff wanted it. Of course, the cost came from the staff themselves but given the price point we were able to get through the Chamber affiliation, nearly everyone took advantage of it.
- The financial impact was minimal on staff with individual plans — I am still working to understand the IRS implications here, so be most wary of this thought, but this move had an impact in other ways. Previously, we were paying healthcare costs right from the company (which it turns out wasn’t the smartest way but was the simplest and therefore the way I got it done). With staff now contributing to healthcare, I made the move to get all of these details into our payroll processor (we use Paychex): so the healthcare premium and our defined contribution reimbursement (which requires a Section 125) were added as pre-tax line items. This reduced staff taxable income enough that the reduction in (mostly city) tax covered a good portion — for some staff, they actually saw a net increase in take-home pay.
- Two staff members took the defined contribution and got healthcare elsewhere — In an interesting sign of the Obamacare ‘choice model,’ two of our younger, still 25-year-old staff members decided to remain under their parents’s healthcare plan via COBRA and take our company contribution as payment toward that, rather than use our healthcare. As a company, that was fine with us.
- Budgeting smarter around benefits — They say healthcare costs should increase roughly eight percent every year or it’s a cost shift to the employee. That’s a more manageable increase than, say, the doubling we experienced this year. We’re trying to get smarter about this process, and I clearly learned a lot as a result.
This is one of the most complicated business and administrative service projects I’ve taken on at work — more than choosing a payroll processor! — but on the whole, I am satisfied by the result. I believe we found a path that took the employee’s interests first. This is going to impact our business. We still have not fully overcome this budget impact, but we were able to work through a complicated, mid-year change