The new national healthcare law will affect every resident and every business in New Jersey as well as across the nation, says #b#John Sarno#/b#, president of the Employers Association of New Jersey.
“How people are affected will depend on if and how they get healthcare now,” he says.
Today employers provide health insurance to about three-quarters of New Jersey’s residents. Most of the rest are covered by Medicare (if they are retired) or Medicaid (if they are poor). A few pay for their individual coverage. But that leaves about 1 million, or 11 percent, of the state’s 8.7 million residents without coverage.
The new healthcare law is taking effect in stages through 2018. Some measures are in effect and more will take effect by September 23. “The major changes will occur in 2014,” Sarno says. “Personal mandates will become law, requiring nearly everyone to be insured. States will have to create insurance exchanges that individuals and small businesses can buy into for group coverage.”
Employers, regardless of their size, will not be legally required to provide health insurance to their employees, Sarno explains. “Employers are going to have to decide whether they will accept government incentives and insure their employees — or not insure them and accept the penalty instead.”
It is a sliding scale tax credit to employers with fewer than 25 employees. Eligibility is based on employer contributing at least 50 percent of the premium. A credit is not an expensed item, but rather a reduction of a business’ owed taxes. It is, says Sarno, worth far more than a business expense, which simply lowers your taxable income.
Sarno will present “The Patient Protection and Affordable Care Act: What HR Needs to Know Now” on Thursday, September 16, at 10 a.m., at Miele Inc., 9 Independence Way. Cost $95. Visit www.eanj.org, or call 973-758-6800.
A New Jersey native, Sarno’s father was a farmer and laborer in Bergen County while his mother raised four children. “My parents were fervent believers in education, which is why I got three college degrees,” Sarno says. He earned a bachelor’s in psychology from Ramapo College in 1977, a master’s in education and counseling in 1980, and a law degree in 1988 from Seton Hall University.
The degrees may seem disparate but not to Sarno. “I see all three degrees as serving one career narrative,” he says. “They are all about helping people and that is exactly why I got into law.” He worked as a law clerk in the U.S. District Court in Trenton before practicing law as a corporate litigator. Sarno joined EANJ as president 15 years ago. He has also taught healthcare policy and law at Fairleigh Dickinson University for more than five years.
Sarno’s goal with the seminars, he says, is to “explain the economics, not the politics, of the new law.” One change in the healthcare law that is retroactive to January 1, is a 35 percent tax credit that small businesses can get for providing coverage to their employees. Among the many healthcare changes that will take effect September 23:
* Children will be permitted to remain on their parents’ insurance plan until they are 26, up from 21.
* Insurers will be prohibited from excluding pre-existing medical conditions (except in grandfathered individual health insurance plans) for children under 19.
* Insurers’ abilities to enforce annual spending caps will be restricted, and prohibited by 2014.
* Insurers are prohibited from dropping policyholders when they get sick.
* Indoor tanning services are subjected to a 10 percent service tax.
* Insurers are required to reveal details about administrative and executive expenditures.
Other changes will take effect at different stages through 2018.
“Employers may decide not to provide insurance to their workforce because their employees — who will be required to have it — will be eligible for government subsidies to buy their own,” Sarno says.
Beginning in 2014, organizations with more than 50 employees that do not offer affordable health coverage will pay a $2,000 penalty for each full-time worker, provided they all earn less than $43,000 (four times the poverty rate).
In other words, small businesses with more than 50 employees could be fined if they don’t provide insurance. Companies with fewer than 50 would not be fined.
If all the pay of all employees exceeds this threshold, their employers can forgo health coverage without penalty. However, employers with fewer than 50 full-time employees will receive a tax break if they offer health coverage and will not be penalized if they don’t.
“Either way, these small businesses will have healthy and productive employees,” Sarno says. “It is a win-win for small businesses.”
New Jersey has 250,000 small businesses with fewer than 50 employees. These employers account for about 1.4 million workers — 40 percent of the state’s total. The other 11,000 companies employ the remaining 60 percent, about 2 million workers.
About half the small businesses provide insurance. But Sarno notes that is down from its peak 10 years ago. “In 2000 small businesses in New Jersey provided health insurance to 930,000 employees and their dependents,” he explains. “The total has since dropped 16.5 percent, meaning 153,500 people lost their health insurance, either because their employer dropped it or they lost their jobs and their COBRA insurance ended.”
#b#The new law will work well#/b#. Small businesses have to weigh several factors as they decide how to approach the new healthcare law. “Small businesses that now offer employee health insurance are paying higher rates because they are not large enough to negotiate lower fees with insurance carriers,” he says. “Larger employers can negotiate lower fees or simply bypass health insurance companies by self-insuring.”
The new law will allow individuals and small companies that provide coverage to join an exchange, “giving them the same purchasing power as big companies,” Sarno says. “The entire market will change because of the new healthcare law. The big question in my mind is: Will businesses stay in the game or get out?”
In other words, how many small businesses will offer insurance to their employees and how many won’t, leaving their employees to obtain it on their own? “If most companies don’t join the exchange because they don’t offer coverage, the exchange won’t be able to create sufficient critical mass to leverage lower insurance rates,” Sarno says. “This will mean higher costs for those companies that do provide health coverage,” Sarno says.
What will companies ending up doing? “I don’t know,” Sarno admits. “Our five seminars are not only for providing information to companies — I will also be listening and learning what they are thinking.”
#b#Or will it#/b#? Small employers may be tempted to skip employee health coverage, leaving their workers to obtain their own, he says. “These companies pay an insurance premium of about $6,000 for each employee,” Sarno explains. “If they decide to accept the penalties for not providing coverage, they would save the $6,000 and pay a $2,000 penalty for each employee.”
This $4,000 difference per employee is something companies will have to include as they consider the cost of doing business. “My goal as president of the EANJ is to get employers to think strategically,” Sarno says. “Right now, not many companies are aware of how the new healthcare law will affect them. Some are in denial, some think it won’t apply to them, and some think that they won’t be in business in 2014. Our role at EANJ is to make them aware, to help them plan ahead.”
#b#Whose Cadillac is that#/b#? There will also be “enormous implications” for companies that continue to provide insurance to their employees in 2018, when other features of the healthcare law become effective, Sarno says. “In 2018 all existing health insurance plans will be required to cover approved preventive care and checkups without co-payment,” he says. In addition, a 40-percent excise tax will be imposed on so-called “Cadillac” (the most generous) insurance plans.
“The pressure to open the exchange in each state for larger business will be tremendous,” he says. “Each state will have to decide if it wants to do that — and they have five years to do it. We could end up with one big exchange for heathcare insurance instead of employer-provided coverage for most workers in the state. It is too early to say what will happen.”
If employers end up mostly deferring to an exchange, those companies that don’t provide health insurance will be the big winners, at least in the short term. “Small businesses that don’t provide health coverage are indirectly subsidized by Charity Care Assistance in New Jersey,” Sarno says. Hospitals are required by law to accept anyone who needs medical care, regardless of their ability to pay.
“Hospitals are partially reimbursed for these costs through Charity Care, which is funded by a tax on business,” he says. “If a company doesn’t pay for health insurance for its employees, other companies are stuck with the bill for their healthcare. I call that the dirty little secret about subsidies.”