Healthcare reform worries many contractors. Here’s how three companies are preparing for the delayed – but still looming – Affordable Care Act.
Editor’s note: The deadline for the employer mandate for the Affordable Care Act has been pushed back to 2015, which gives landscapers more time to prepare. But even with the extension, changes to health care are coming, and the final form of the new regulations weigh heavily on the minds of contractors across the country. We talked with three companies to see how they were preparing.
Lawn and landscape companies offer a microcosm of the effects of the Affordable Care Act on small businesses. The industry is diverse, ranging from mom-and-pop shops to big companies with thousands of employees across multiple states. Many are young males who decline coverage when it’s offered, yet they’ll soon be required to have it.
No matter the size of the company, the effects of the healthcare law will be far-reaching and complex. To begin with, any company offering insurance must meet new, federally mandated levels of coverage. Beyond that, what you are required to do hinges on whether you have more or less than 50 full-time equivalent (FTE) employees.
Those with less than 50 FTE’s are not required to offer health insurance to their full-time employees under the new law, while firms with more than 50 FTE’s must offer coverage to all full-time workers – and pay for much of it – or face penalties of $2,000 per worker.
That’s a huge distinction that not only affects how companies prepare for the law, but also impacts their bottom line. Many large company owners are crying foul, saying they’ll be at a competitive disadvantage if they have to offer healthcare to their employees but smaller companies do not. Nonetheless, that’s how it works. Recently, Lawn & Landscape caught up with several companies whose owners are wrestling with the impact of this still-unfolding law on their businesses.
Current plans. While it’s fair to say that the type of healthcare that’s offered across the industry varies widely, plenty of employees don’t enroll. Yet that’s something that is very likely to change as the law is rolled out in the coming years. Like many landscape companies, Senske Lawn and Tree Care offers healthcare to its full-time employees, yet only about 20 percent sign up for the plan. That’s partially because many employees are young and healthy and don’t consider it a priority. Another reason is that the plan is costly, even though the company pays half.
“They’re typically young, healthy males that don’t feel like they want to spend money on healthcare,” says Chris Senske, whose family-owned company employs 350 people in Washington, Idaho, Utah and Nevada. His father, Bill Senske, founded the firm in Spokane, Wash., in 1947. “They want to spend their money on fun things,” he says.
Senske has already begun planning for how the healthcare law will impact his company, and he says the increased costs are steep. He expects that his healthcare expenses will rise about 10 percent because more of his workers will sign up once the mandate kicks in and the amount he’s required to pay towards workers’ healthcare plans will be higher.
Dean Murphy of Terracare Associates, a landscape maintenance company with more than 400 employees in Colorado and northern California, says that his company will also alter its plans. The firm will “adjust different levels of coverage in order to meet the requirements of the act while working to remain competitive in the marketplace,” he says.
Chatham Landscape Services of Atlanta, began offering healthcare to all employees several years ago (offering to pay half), but only 25 percent signed up, says president Scott Chatham.
This factor caused Chatham’s rates to skyrocket as its insurance company assumed only the sickest workers were enrolling, so it narrowed the program to full-time, salaried workers. Now the company is examining how to offer healthcare to all its full-time workers while keeping costs down – it estimates the ACA will cost $150,000 per year.
Determining head count. Every lawn and landscape company must determine how many FTE employees it has on the payroll in order to comply with the new healthcare law.
It’s often more complicated than conducting a simple headcount, since it doesn’t matter how many employees you have, but rather how many full-time equivalent workers you have.
Although all companies with more than 50 FTE employees are required to offer healthcare coverage to employees, determining who is considered a full-time worker – and total FTEs – is far from simple.
The IRS is requiring contractors to document employee hours in 2013 in order to determine how many FTEs they currently have on staff.
“Every company should know that if they have more than 50 FTE employees, they’re in a measurement period right now,” says Senske, noting that conducting a head count for landscape contractors can be difficult due to the seasonal nature of the workforce. The IRS considers employees who work 30 hours per week on average to be full-time.
Senske estimates that about half of its 350 employees are now considered full-time. Yet a number of employees are on the cusp of full-time status, a factor that could heavily affect the company’s healthcare costs once the law is fully rolled out. “We have guidance from the IRS, but still don’t know the total measurement process,” he says.
Chatham says that 100 of his 130 employees will be considered full-time under the law. He says he doesn’t believe that companies will get anywhere by trying to skirt the law, which has complex provisions that determine whether a worker is full-time.
“If you think you can work a guy 60 hours a week for three months and then lay him off and call him part time, that doesn’t work,” he says. “The IRS has hired 6,000 extra agents to make sure if any company is getting shady, they’re right on top of it.”
Changing plans. Even companies that offer healthcare to their full-time employees will have to make changes. The PPACA says large companies must offer full-time employees a plan that doesn’t require them to pay more than 9.5 percent of wages to healthcare. Additionally, the plan must meet levels of coverage defined by the government.
For example, while Senske offers a benefits-rich plan and pays half, it doesn’t meet federal guidelines. “Right now, we could still face penalties,” he says, because the worker contribution of 50 percent of the total premium exceeds the ACA mandate.
To comply with the law, Senske plans to offer a “bronze” level plan to full-time workers. Even though the new plan offers a more modest set of benefits than his current plan – which is considered “gold” under the terms outlined by the Affordable Care Act – Senske says that the annual cost per worker will be around $3,600 to $4,000.
Murphy says that in addition to Terracare’s administrative costs going up as it complies with the new law, the firm’s healthcare costs are going up, too – a double-whammy that many companies are struggling with. “There are a limited number of levers available to pull,” he says. “You can increase your portion of ‘self-insurance,’ adjust the level of out of pocket costs relative to co-pays and other coverage, or adjust the overall quality of the coverage. The overall goal being to provide our employees with a benefit they find valuable.”
Chatham plans to begin offering tiered levels of healthcare to all full-time employees in January. “There will be different tiers based on the different types of employees – salaried are at the more expensive tier,” Chatham says.
Employee enrollment. Given that many young, healthy employees don’t sign up for health coverage because they don’t want to pay for it, how will the new law change this?
The law tries to address this issue by levying fines on individuals that don’t sign up for some form of healthcare. Although initially modest, the fines grow substantial by 2017. Senske predicts that the law’s impact will be fairly negligible within the next two years. However, he expects full-time employees will rush to sign up for his firm’s plan before April 15, 2017, when the federal government will begin penalizing people lacking coverage (undetermined fines will be deducted from returns at that time). “In the 2016 tax year, the stuff hits the fan when people who haven’t bought healthcare find out that they’re getting these fines and they won’t get their tax refund back.” Chatham says he believes his enrollment will skyrocket from 30 employees to 100 or more once the law is rolled out. “I’m anticipating that most of my full-time workers will sign up.”
Bottom line changes. For lawn and landscape companies, the financial impact of the Affordable Care Act is a moving target. That’s because the costs of complying with the law will depend upon whether or not a company has 50 or more FTE employees, how many of those employees are considered full-time and how many sign up for coverage.
Senske says the 10 percent rise in his costs stem in part from low participation in his existing healthcare plan, which has kept costs down. “Assuming that we have a substantial increase, this will have a big impact.” he says.
Because Senske competes with smaller companies that do not have to offer healthcare to their employees under the new law, he says he will have to absorb cost increases rather than raising prices. “It’s an irritant – smaller companies will have an advantage at the front door, because they just won’t have the costs larger companies have,” he says. Chatham and Murphy both say they fear that large companies forced to pass on price increases to their customers will make it harder for them to compete.
Yet there may be a few silver linings in the ACA, after all. “Larger companies should be able to compete for employees by offering healthcare plans that might not be available at smaller companies,” Chatham says, who also adds that prices could level out once large companies implement the law. “That could put us at a competitive advantage.”
He also argues that there are major upsides to the law for employees and employers. “They can’t deny you for pre-existing conditions,” he says. “A 21-year-old kid should have healthcare – he should not use the emergency room as a healthcare provider.”
Regardless of how lawn and landscape owners feel about the new law, it’s time to get ready for it. Companies that plan ahead will be rewarded because they’ll understand how the law impacts them and be able to plan their finances around it.
“We’re going to have to tiptoe through the Affordable Care Act and figure out how to make it work,” says Senske, who has spent the past few months consulting with tax advisers and others. “We’ve been studying it a while – it won’t be a surprise.”
The author is a freelance writer based in Cleveland.