Big, small Valley businesses consider Obamacare options

The Fresno BeeSeptember 14, 2013 


Wally Nishimoto, owner of The Bridge Store in Madera, is a small business owner who is having to make decisions about health insurance under the Affordable Care Act.


Less than a month before enrollment opens through the Affordable Care Act, employers in the San Joaquin Valley have questions — and decisions to make — about health coverage for their workers.

What the companies do will affect thousands of people in the region.

Under the new health law, most people will be required to have health insurance come Jan. 1. Starting Oct. 1, those without employer-sponsored coverage can begin enrolling in health plans offered through Covered California, the state's health benefit exchange.

Employers remain a primary source of insurance in the United States, and the federal health-insurance overhaul counts on that continuing. But employers' decisions will be shaped by requirements in the Affordable Care Act, which Valley business owners and human resource managers say they're still trying to decipher.

Understanding the law, also called Obamacare, is harder in the Valley because agriculture-based businesses can be tough to pigeonhole into categories recognized under the law.

"To say it has been confusing to most business owners would be an understatement," said Alan Thaxter, a senior benefits consultant with Gallagher Benefit Services Inc. in Fresno.

RELATED: Questions, answers about Obamacare

Employers understandably are frustrated, said Thaxter's colleague, Sean Borchardt, who led an insurance seminar Wednesday hosted by the Fresno County Employer Advisory Council. "There's a lot of confusion and misinformation out there," he said.

For starters, size matters with the Affordable Care Act.

Small employers — those with 50 or fewer workers — don't have to offer insurance plans to workers. But those that do can apply for federal tax credits to help pay for the cost of providing coverage.

They also can choose from among three small-business health plans offered through Covered California. In the Valley, Health Net, Blue Shield and Kaiser Permanente will provide the small-business plans.

Large businesses have less leeway: They must provide insurance for full-time employees or pay a penalty; and the employer-sponsored insurance plan must be affordable and adequate. If the plan fails the price and quality test, the business faces a penalty. (In July, the federal government announced the penalties for larger employers would be postponed until 2015.)

But deciding where businesses fall — large or small — isn't as simple as counting to 50. There's a mathematical formula for adding part-time and full-time employees together for a "full-time equivalent" employee total used to distinguish large businesses from small.

Adding to the murkiness: seasonal employees. A mainstay in the Valley's agricultural industry, seasonal employees can be excluded from the part-time and full-time employee count.

Generally, employers use 120 work days as a yardstick for differentiating between seasonal and full-time workers, Borchardt said, but there is wiggle room. According to the Internal Revenue Service, employers can use a "reasonable, good faith interpretation" to determine seasonal employees, he said.

The Valley's agricultural-based businesses face challenges with the new health law, said Andrew Casado Jr., administrative manager at Cal West Packing Co. in Parlier. "It's more difficult to understand how the law impacts us, and also the implementation of the law is going to be more difficult for us."

For example, in the busy harvesting season Cal West Packing may employ 100 people, but most are seasonal, Casado said. Year-round, the business has only eight full-time employees, which puts it within the category of a small business. The company pays for individual insurance policies for the full-time workers, Casado said.

Less clear is how the health law will affect a farm labor contracting business that Casado owns. "We will have to try and understand who qualifies and who doesn't qualify" for insurance, he said.

The Affordable Care Act has rules concerning employees in related businesses being combined or "aggregated" for a total employee count, but Casado said the packing and farm labor businesses are separate corporations and have been for 30 years.

The "aggregated" rule could be a big issue in the Valley, where a lot of farm management companies are connected to farms and family owned businesses that have been divided for family and estate planning reasons, said Daniel O. Jamison, a Fresno attorney specializing in health-care law at Dowling Aaron Inc. Jamison led an insurance seminar in Visalia on Tuesday.

Crossing the line

Valley small-business owners know crossing the 50-employee line has consequences, and many adjust employee hours to stay within it.

"A lot of businesses have, across the board, cut everybody to below 30 hours," keeping the number of full-time-equivalent workers below 50, said Wally Nishimoto, who owns three stores in Madera — Bridge Store, Fastway Chicken and Fastway Market.

Nishimoto has not eliminated full-time employees, but has been careful to keep the number of employees at the stores under 50. "We made the decision we're not going to go over that point," he said.

However, like many small-business owners, Nishimoto already provides insurance. The 33 full-time employees at the Bridge Store, a supermarket his grandmother opened in 1928, are offered insurance for themselves and their families. The other two businesses each have 10 full-time and part-time employees. Insurance is not provided to those workers, but most are high school or college students and have insurance under their parents' plans, Nishimoto said.

What he is trying to decide now is whether he can afford to keep his employer-sponsored health plan.

Nishimoto said he has looked at applying for federal tax credits, but the grocery store has too many employees to qualify.

Small businesses may be eligible for a tax credit if they have fewer than 25 full-time employees, pay them less than $50,000 a year on average and contribute at least 50% toward their premium costs. Employers with 10 or fewer employees must pay annual wages averaging $25,000 or less to be eligible for the maximum tax credit.

For a couple of his employees who are in their 50s, it would be cheaper for them to purchase a plan through Covered California and receive tax credits that would help subsidize their premiums, Nishimoto said. But because they now have employer-sponsored insurance, they would not be eligible for the tax credits.

In the end, Nishimoto said, "if plans available are better through the exchange, we may just end up dropping health insurance altogether and tell them to go to the exchange."

Role of tax credits

Those tax credits could make the difference in affordable insurance for many low-income workers.

A Stanford School of Medicine study found 37 million people nationwide would save money by getting insurance through an exchange because of the tax credits. But the cost to the government for subsidizing the plans would be an extra $132 billion yearly.

"If most employers act in the best financial interest of their workers, it could have a huge effect on federal budget obligations," said Dr. Jay Bhattacharya, associate professor of medicine at Stanford University and lead author of the study published in the journal Health Affairs.

Large employers could drop insurance plans for bottom-line reasons, deciding that the federal penalty is a better financial deal than providing health coverage for workers. But there is debate nationwide over whether many will take this step.

According to a University of Michigan study that appeared in the September issue of Health Affairs, the estimated change in the number of Americans covered by employer-sponsored plans ranges from a 1.8% decline to a 2.9% increase, for a net change of about 1%.

"At the end of the day, I think employer-sponsored coverage is still going to be the dominant way that people get coverage," said Thomas Buchmueller, professor of business economics at the University of Michigan Ross School of Business.

Fears of higher costs

Large employers said they have good reason to be nervous about the Affordable Care Act driving up health benefit costs.

Under the Affordable Care Act, there are new administrative costs, such as a re-insurance fee of $63 per worker to help pay for the exchanges and a $1 "patient-centered outcomes research institute fee" to pay for health research.

The San Joaquin Valley Insurance Authority, which oversees benefit plans for workers employed by Fresno and Tulare counties, estimates new fees associated with the health law will cost $2.3 million yearly, said authority manager Paul Nerland. But the authority has no plan, as of now, to change benefits for the county workers next year.

Large employers, given a year's reprieve on penalties, likely won't make substantial changes to health plans for the coming year, health consultants said. And experts doubt that many companies will drop plans beginning in 2015.

"I don't think employers like us are going to try and get around the law," said Don Doyland, controller of Valley Fig Growers in Fresno, which has 50 to 100 employees.

What's more likely is for large employers to offer less generous benefit packages to keep employee-contribution costs low and within the new law's affordability standard, said Mark Reynolds, president of Ben-E-Lect, a California-based health administrator company with offices in Fresno and Visalia. Premiums cannot exceed 9.5% of an employee's gross income.

But the bottom line for many employers is that providing insurance benefits is good for business. Employers, regardless of their size, want to take care of their workers, Casado said. In his case, "you always have three, four, five really key employees that have been with you a long time and are loyal, and you don't want to lose them."

Important links

Covered California

Internal Revenue Service

Health Law Guide For Business



The reporter can be reached at (559) 441-6310, or @beehealthwriter on Twitter.

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