Tuesday, November 19, 2013

Obamacare: Where Procrastination Pays-Off & The Early Bird Gets a Tapeworm

The Administration's Delays in PPACA Are Wreaking Havoc on Business

When the the few illuminati of government appointed "experts" try to outthink an entire market of free minds, calamity ensues.  In America, the lesson unfolds right before our eyes with the federal government's current effort to quasi-nationalize one-sixth of our economy via a myriad of complex patches, constituency buy-offs, politically enticing Trojan Horses and corporate welfare known as Obamacare.

Every centrally planned economy in world history has ended in hyperinflation, collapse or all out revolt.  Economies that nibble around the edges and flirt with the devil of central planning simply spiral downward a little less dramatically like we currently see in Greece, Portugal or Spain.

As we head into Thanksgiving we see employer premiums elevated by four to eight percent already with no commensurate benefit. Just over five million individuals have lost the health insurance they were paying for on their own only to learn they cannot get onto government websites to buy the new, more expensive policies they need with the help of our taxpayer dollars.   And things will only get worse as we move through 2015 and head into the scheduled reinstatement of the Employer Mandate, 105(h) Nondiscrimination Testing and the continued movement of workers from full to part-time positions.

Against this backdrop, a counterintuitive lesson emerges.  In the world of government bailouts, where political expediency trumps sound policy, early planners and adopters are the first entities punished for their work ethic.  When the government's attempts to control an economy inevitably go awry, it responds with political, rather than practical solutions.  It grants magical fairy-dust-fixes rewarding the businesses and individuals who didn't plan and weren't on schedule to comply.  

During the Obama Administration's rollout of the disaster one of its architects, Senator Max Baucus (D), called an oncoming "trainwreck" the early bird has been rewarded with a tapeworm.  Here are just a four examples of the delays and repeals I've personally seen hurt my clients.

1099 Reporting

The original version of the Patient Protection and Affordable Care Act ("PPACA") called for businesses to report not only services in excess of $500 on 1099 forms as was the law before PPACA, but the purchase of any goods over $500 as well.  Small businesses howled at the onerous burden that heaped upon them.  Some explained it would add hundreds of hours to their workload as it massively increased paperwork for no practical benefit other than an additional checkpoint for the IRS to catch under-reported sales.  Businesses diverted time, money and energy simultaneously fighting against this provision while preparing to process the added forms.  Eventually congress responded and repealed the provision.  If you and your business spent any time preparing to comply; you lost.  

Entire law review articles have been written about the complexity of this text.  It was written decades ago to keep businesses from developing self-funded medical plans solely to benefit their highly compensated employees.  It contains multiple alternate tests to ensure an employer's health plan is offered to and covers most of its employee base.  In its simplest and easiest to understand form, the test will require that all employers have at least 70 percent of their full time employees on their health plan or pay a fine of $100 per person per day for all employees not in the top 25 percent of wage earners in that employee population.  I'm grossly oversimplifying to keep this post readable.  But that fine would be $100 x 75% of all full time employees per day.

The Reform writers' inclusion of this test into PPACA was ludicrous.  It was a test written only for self-funded plans and containing a different penalty for those plans.  The plan was supposed to apply as soon as a health plan lost Grandfathered status (which most plans have).  The penalty is so onerous that the employer would be better off scrapping health insurance all together.  DOL, IRS, and HHS regulators eventually grasped the deep complexity and massive trauma this would cause for employer sponsored plans and suspended enforcement of the provision until they could figure out how to write the regulations in such a way as not to totally destroy employer based coverage (or at least not to do so before an election year).  Those regulations still have not been written.  This suspension, like the President's more recent moves to delay the Employer and Coverage Mandates, was done without congressional authority.  It is just one more case of President Obama's Administration saying, as Megan McArdle wrote at Bloomberg, this law is what we say it is.  We don't need congress.  We'll make up the rules as we go.

I had a large client actually refuse to open up offices in another state because of the confusion and ambiguity of this provision.  That expansion would have cost grandfathered status and potentially resulted in hundreds of thousands in fines.  Ultimately, they decided it was better to not expand and employ another 75 folks but to stand pat and guard grandfathered status at all costs.  Compliance with incomprehensible and ill-planed insurance tests trumped sound economic policy to expand and employ more folks.  Months later, regulators delayed the provision indefinitely.  And now, two years after that, my client is once again looking to re-enter that state.

Employer Mandate

Obamacare requires that all businesses with 50 or more employees provide healthcare to all employees working more than an average of 30 hours per week or pay a fine of $2,000 to $3,000 per employee.  There are look back, stability, and carry forward provisions in the law that are not easy to manage or administer.  Suffice it to say that a business really needs to be preparing for that Employer Mandate six to 15 months prior to its start date to adequately address the regulatory burdens.

The early adopters were preparing and doing what was economically necessary to manage their workforce by getting down below 50 employees or by reducing an employee hours below 30 in order to meet the scheduled January 1, 2014 launch date.  In July, the President pulled that rug out from under businesses, waived his magic wand and without congressional authority, decided to delay that enforcement for a year.  Once again, preparation was punished.

Here is a video from FOX's Shannon Bream discussing how at least 300 businesses are on record explaining how PPACA has forced them to reduce employee hours in anticipation of that mandate.   

Coverage Mandates Now Delayed

Oops.  On Thursday the President stood up and did it again.

This time he decided to pick and choose which federal taxes to enforce.  The Supreme Court held that the Individual Mandate was a tax not a penalty for persons who did not have government approved health plans in place by January 1, 2014.   What the President said on Thursday then means the federal government is now going to pick and choose which taxes it will enforce in 2014.  This violates a deeply held constitutional principal that the tax laws must be enforced uniformly.  Neither the IRS nor the Presidnent himself have the legal authority to pick and choose which tax laws to enforce.  Much will be said about this by constitutional scholars and Supreme Court wonks in the upcoming weeks.

But the practical implication on the ground here is another governmental spanking administered to protect political appearances.  This time, however, the spanking is for the insurers who locked arms with the federal government and dove into the state and federal exchanges head first.  I can just hear my mom now telling me that I'd better be careful which friends I choose.  "If you lie with dogs, you will wake up with fleas," she would tell me.

Now, in a desperate attempt to shift the political blame away from his failing health care overhaul, the President is asking insurers to turn on a dime and basically accomplish in one month what his government could not do in over three years.

Insurers must be seething over this.  All of the sudden, those fleas are really starting to gnaw at them.  At the end of my segment on Armstrong and Getty on Friday, Jack and Joe joked that the closed door meeting at the White House on Friday between the President and insurance executives probably looked more like an episode of the Jerry Springer Show.  I bet they were not far off.

I have an incredibly sharp human resources client in California's central valley who told me that after living through the ADA and FMLA, she learned not to comply with federal laws and regulations until the very last moment (or maybe even a little bit after that fact) because the large bureaucratic legislative and regulatory schemes simply never pan out and must be amended and modified or even scrapped to be workable.  Those laws pale in comparison to PPACA's perversions.

My new advice for clients?  Educate yourself, be ready to react on a dime, and understand the political ramifications of each of these massive provisions coming into play but don't even think about becoming an early adopter.  We will wait to the last minute before we begin to harm your business with the the trainwreck we have before us.