The Affordable Care Act conundrum
Plumbing and heating contractors are concerned about how the law defines a small business.
Earlier this month, the Patient Protection and Affordable Care Act went into effect, requiring nearly all Americans to have minimum health-insurance coverage. Employers were required to give all their employees a notice of coverage options by Oct. 1, which also is the date when the individual and small-business health insurance exchanges opened for enrollment. That is when people can begin using the exchanges to purchase health insurance if they are not already covered by a qualified plan under the law.
Coverage will begin Jan. 1, 2014.Individuals not meeting the requirements of the law by Jan. 1 will be subject to penalties, though the employer penalties have been delayed until Jan. 1, 2015. After that date, large businesses, those with 50 or more employees, must offer minimum essential coverage to those employees and their dependents or pay a penalty.
One of the more controversial elements of the law is the definition of a small business — under 50 employees.
“You have to define the term ‘small business’ carefully in the proper context for the construction industry,” says John McNerney, general counsel for the Mechanical Contractors Association of America. “It is MCAA’s position that the law is inequitable for small businesses that provide good benefits, such as MCAA members, relative to other small businesses that don’t provide such benefits as they are defined in the Act, which is over and under 50 employees. In the construction industry, virtually all businesses are small businesses under the definition used in this law.”
He adds that, according to the 2007 Economic Census, 97% of all construction-industry businesses are exempt under the 50-employee threshold from mandatory coverage. Only 2% of all firms have 50 or more workers. For specialty trade contractors, 98% of companies are exempt from the law.
Which means that the Affordable Care Act allows almost all small businesses in the plumbing and heating industry to escape any employer mandate. “And that is inequitable as it pertains to the small-business firms in MCAA,” McNerney says, as most MCAA small-business members provide health insurance.
McNerney notes the Small Business Administration defines “small” for the construction industry by annual dollar volume rather than employment levels, which gives a more realistic picture of a company’s size. “Although I believe the level — $33 million for generals and $14 million for specialties — may be a little high when you’re trying to set health-care policy and one of the primary tenants is preserving existing benefits,” he says.
Kevin Tindall, owner of Princeton, N.J.-based Tindall and Ranson Plumbing & Heating and vice president of the Plumbing-Heating-Cooling Contractors — National Association, sees the issue this way: “The most pressing issues of the Affordable Care Act center around confusion and cost. The phrase the ‘devil’s in the details’ is very applicable to the new health-care law. The confusion about how it will be implemented and the related costs to businesses has created some real cause for concern.”
He added that his company has experienced a 20% increase in insurance premiums in the last two years and questions whether it is due to the anticipation of the new law.
Tindall testified at a House Small Business Committee hearing April 17, giving his insight on how the ACA impacts small businesses such as his company. “I stated in my testimony that I am a job creator … meaning that, through my business, I employ people through the growth of my business,” he explains. “Anything that would inhibit my ability to grow becomes an obstacle to job creation. How can we as a nation support initiatives that challenge our ability to create jobs?”
He admits the hearing became heated at times, illustrating the strong, emotional dynamics of the issue with business owners and legislators. But he believes his input and those of other industry organizations were appreciated.
For MCAA members, most of whom are union signatory contractors, the issue becomes one of balance. “Union signatory small-business contractors are providing coverage and cost in our plans has gone up because of the various coverage mandates in the law,” McNerney explains. “Yet our plans that are self-insured are not considered qualified health plans to be covered in the exchanges and for which our workers could receive a tax subsidy.
“To us, our small-business, open-shop competitors have the best of both worlds. They can continue to not provide coverage and suffer no pay-or-play penalty. Or they can have their workers choose coverage on the exchange, where they would receive a tax credit depending on their earnings.”
If those companies were classified in a subcategory of the law as small businesses with set average employee earning levels that are relatively low, those businesses also would get a tax credit for the subsidy they provide to their workers, he adds. That’s in addition to the benefit cost deduction remaining after the credit.
“All this confusion is a product of how the law was passed — helter-skelter under the reconciliation process, no conference committee and no technical corrections,” McNerney remarks.
Navigating the mine field
Both organizations have spent time on Capitol Hill advocating clarification of the law for their members.
“PHCC National works to align itself with the House and Senate Small Business Committees,” Tindall says. “We do this because these committees are pressure points in the legislative process for small business. In other words, the issues that will ultimately impact our industry (both positive and negative) will be considered in these committees before any House or Senate floor action.”
While letter-writing and email campaigns are valuable, meeting with a member of Congress face-to-face is the most effective method of communicating, Tindall states. Lawmakers have access to detailed information on any issue except how the issue affects businessess, which is why it is important that industry associations continue to provide them with information.
“There is no magic to advocacy — it is all about relationships, and in order to be heard on Capitol Hill, we need to always be in front of our lawmakers,” he explains.
MCAA was a backer of an amendment sponsored by Sen. Jeff Merkely (D-Ore.), which would require employers in the construction industry with more than $250,000 in annual payroll or more than five workers to provide health insurance for their companies or pay a penalty. But the amendment was dropped before the legislation was passed.
“We believe workers in multiemployer bargaining units in the construction crafts should not count in the 50-employee threshold for any signatory firm that is offering those workers qualified benefits,” McNerney states. “Those workers are employed by the multiemployer unit and they are insured by an independent third-party Taft-Hartley plan, which fits the policy of the law. The nature of their employment relationship and their benefits is categorically different than a single-employer relationship.”
The year-long delay in employer penalty implementation gives construction organizations another year to obtain regulatory relief. Regulators, such as the IRS, have discretion to implement a law that is often not clear in a way that achieves statutory policy. McNerney and other industry stakeholders appeared at an IRS hearing April 23 to put forth the association’s recommendations on the health-care reform legislation.
“We think we have strong arguments with the IRS and have made some inroads,” he says. “Whether the legislators or regulators would sit down in this new time period and determine what they can iron out is a more open question, but I don’t believe it would be wise to be optimistic about it happening.”
Tindall says the delay gives employers more time to prepare for the new health-care requirements. “From a public perception standpoint, the delay in penalties indicates this was a sweeping policy change that was not properly thought-out. I believe that everyone should have access to affordable, quality health care; however, the new law has gone too far, too fast. I know the extra time is sorely needed to figure out strategies to comply with the new law.”
In the meantime, PHCC and MCAA are helping their members navigate the mine field of the new law through webinars, newsletter alerts, legislative conferences and industry meetings. Staff such as MCAA’s McNerney and PHCC’s Insurance, Safety and Risk Management Committee continue to identify the most pressing health-care reform issues affecting their members.
“This new law has generated nearly 20,000 pages of regulations, so you can imagine the complexity involved with communicating the most relevant information to PHC contractors,” Tindall notes.