Mark: Welcome to Unsuitable on Rea Radio. Unique financial services and business advisory show that challenges your old school business practices and the traditional business and culture. You'll hear from industry professionals who think beyond the suit and tie to offer meaningful, modern solutions to help you enhance your company's growth. I'm your host Mark Van Benschoten. The term Obamacare continues to fuel confusion among employers everywhere, many of whom are still trying to figure out what options are available, or which one is right for them. Today, to help us shine some light on the issue, we are talking to Affordable Care Act expert Joe Popp. Joe's been asked to speak about the topic of the state level numerous times and has helped provide solutions to, well, countless employers throughout Ohio. Welcome to Unsuitable Joe.
Joe Popp: Well, thanks. Glad to be here.
Mark: You've been a great resource for so many people with regard to this subject, and I'm sure you have many more listeners out there who want to know what they need to do to avoid being burned by this government mandate. That sounds kind of harsh. Before we start, I have a question to ask you. What kind of nicknames were you given in high school?
Joe Popp: What kind of nicknames? Oh man. Most likely to whatever?
Mark: No, just, you know ...
Joe Popp: Well, you know, I was drama nerd in high school, so I was up on the stage quite a bit, and so I was Captain von Trapp in Sound in Music, so I had a couple of off color nicknames related to that which I won't go into more detail, but you can imagine what those might have been.
Mark: Anybody ever call you Joe Mama, opposite of Joe Popp?
Joe Popp: Yes, got some of that. I got some ... Actually Joe Popp like Joe-Pa. Got a lot of that. Joe Popsicle. There was a couple of those, so yeah, a lot of interesting ones.
Mark: I'll let you know something about myself. Every time I go to call or send you an email, I always think Joe Mama.
Joe Popp: Joe Mama. All right. It's like back in the day, they had Obama Nation and all those other colorful Obama, and then add the rest of the term.
Mark: Can you give us in thirty seconds, the current status of Affordable Care Act?
Joe Popp: Sure. In thirty seconds. Okay. On the clock. Survive many legal challenges? It's here to stay. Does it need to be fixed or tweaked? Yes. What has it done to employers? It's basically given the employers a choice, either provide full boat benefits to all of your people, or give them nothing. If you try and do something in the middle, you're penalized or you're in trouble with one of the administering agencies. On the individual side, if you're able to get premium subsidies, great. If you're not, that's kind of too bad for you, because your costs have likely gone up.
Mark: If we can stop for a second, I heard all or nothing.
Joe Popp: Yes.
Mark: That seems kind of drastic.
Joe Popp: It is. One of the things that the Affordable Care Act has done, and just to give you an idea how large in the scope of this thing, it's being administered by the IRS, Health and Human Services, Department of Labor. Those are the three major federal agencies that are doing it. We also have Social Security Administration and Homeland Security of all things that are also being pulled in as well as OSHA, so there's a whole bunch of different agencies that are administering this thing. That gives you an idea of the scope.
Mark: Is it reporting to all those?
Joe Popp: Not all of them, but some of them, yes. In fact, some reporting is required to each of those agencies by different aspects of the business world. Some are business owners, some are individuals, some are insurance companies and third party administrators, so each of those kind of have a different role to play.
Mark: So all or nothing. Again, that seems drastic. You have to provide it, or you don't provide it.
Joe Popp: Right. Just to give you an example of something that is kind of in the middle. One of the things that employers previously have done with their employees is, I'm not going to offer you health insurance. I don't want to do that. I don't want to get involved in all that, but I don't want to leave you hanging with nothing. I want to give you something, so if you have insurance, turn in your premium amount to me, and I'll give you a reimbursement of some amount. It's not going to go on your W2. I'm just going to reimburse you. Right? It's going to be a non-taxable thing. That's a no-no now. It's a big no-no now. That's kind of a middle position where you're not giving full boat traditional, here's all the insurance for you employees. You're not doing nothing. You're doing something in the middle. The Affordable Care Act has made it very difficult to play in that middle area without getting in trouble.
Mark: I assume it's too early to tell, but is it working? Is it accomplishing it's stated goals?
Joe Popp: It is like most things of the sort. There are winners and losers. The winners are winning. The losers are not. The winners would be the folks that have the pre-existing conditions. That was one of the original things for the Affordable Care Act. They're clear winners. They have access to health insurance now. They didn't before. That's a win. There are segments of the population that are not technically poverty level, but if you look at them, they really kind of are. They don't really have a lot of spending ability. The Affordable Care Act has really helped them with insurance. The things it has done that appears to be winning, it's helping the folks at the bottom of the economic food chain, but are not traditionally so far down that they need all of these ... We don't provide them all these benefits. The Affordable Care Act is as if you like patched that. It's given a greater safety net for some of those folks. For folks who had preexisting conditions, it's working very well.
Who it's not working out so well for is middle class, upper middle class. It's left them in a bad position where they don't get help. They're outside of that range of we've got poverty level, and then if you're the next layer, the layer on top of that is not getting any help. In addition to not getting any help, their costs are increasing. Those are losers if you like the way it's working.
Mark: I know we're here to talk about the impact of business, but one more question about it. Conceptually, how does the Affordable Care Act compare to what you hear health care over in Great Britain and France and so forth. Has anybody ever done any comparison to that?
Joe Popp: Actually, yes. There are a couple of works out by authors who have looked at this and have compared the systems in the US vs. the systems in other places. One of the things that they have mentioned if you really look at that is, it's less about trying to take another system and whether it could work in America. Instead it's, we already have a system and there's some resistance to change. Actually, Donald Trump mentioned this. One of the few things he mentioned on the Affordable Care Act in the recent [crosstalk 00:07:20]
Mark: As a democrat, I'm surprised you're reading about Trump.
Joe Popp: Well, you know, Trump is an entertainer and he is a very visible figure and honestly, this particular issue he brought up is a really small piece of the Affordable Care Act that isn't talked about a whole lot. He's brought visibility to it. It's great. His point really, and I don't know that he necessarily went through all of it when he was mentioning it, but the point was, there are other payer systems, single payer systems in other places that work out well, but that's in those countries with their history. We have a different history and a different industry that's grown up and we can't just take another system that seems to work well and plug it in. It wouldn't work, so there's this resistance. The Affordable Care Act is a change, a small change but a significant change in how we have been doing things. Is there another system that would work better? Sure. Of course, but another system that would work better with our system to plug it in? I don't know.
Mark: Sure. You always hear that they want to uncouple health insurance from employment.
Joe Popp: Yes.
Mark: Just a little bit that I know about the Affordable Care Act, it doesn't appear to me that they've done that. It's still employer based, employer, as you mentioned, employer gets the penalty. How have they addressed that, the uncoupling of health insurance with employment?
Joe Popp: Let me give you an example. Back when the Affordable Care Act was still young, I had a client ask me that kind of question along with other things on the Affordable Care Act. He's an electrical contractor here in Columbus, Ohio. He didn't really want to deal with this, but he had to have me in because he felt like something was going to come. Something was going to change, and he needed to know just so he could make his business decisions.
His situation was with the electrical contractor business, at least here in Columbus, very competitive. Great danger of losing employees to other places. We actually went through his employee census. He had a lot of single breadwinner families. Good incomes, but a lot of mouths to feed. It turns out, most of his employees would do very well not getting coverage through the employer. Getting coverage through the exchange.
Just to give you an example, his employees were paying on average around $1,000 a month for family level coverage. Under the Affordable Care Act with the exchanges, if they didn't get premium subsidies, they would go to paying $750 on average for family level coverage, same coverage. If they got premium subsidies, they would go down to $250 a month, so $750 difference.
Mark: Significant.
Joe Popp: For him, to get back to your point of decoupling it from employment, as long as all of the employers didn't offer that class of people coverage, they could go wherever they wanted. It would be portable. There would be no difference.
Mark: Sure.
Joe Popp: However, if for example one of his competitors offered health insurance, they're not doing that electrical contractor any favors to employees, because they might be going from a situation where they're paying $250 a month with premium subsidies if he dropped insurance to one of the competitors offering insurance. It's not as good. There is no premium subsidies. They may go to paying, I'm going to pay you this. It's a little more than your current employer, but you're going to have to pay $800 a month for your insurance. It is decoupled in some sense, but even if you go to the system where the employer is not providing coverage, it's still somewhat linked to employment, because it restricts your ability to move around. You wouldn't necessarily go and work for another competitor that offered insurance because there's that phantom cost of the additional premiums you're paying. It is still linked to employment, even if they've done their best to make it not linked.
Mark: We're here, mid-2015. We've heard about Obamacare, Affordable Care Act for a number of years. You mentioned that it's gone through some legal challenges. What should ... If I'm an employer and I've not looked at this at all today, what would you recommend that I would do today?
Joe Popp: Great question. This has been delayed implementation. Some pieces of it have been delayed for many years. The delays have run out, so for employers that have fifty or more full time employees, there's a new reporting requirement this coming January that they need to do. They need to be aware of it. They need to do the data testing.
A lot of the payroll companies who are the main people doing this sort of work, because it's like a W2 almost, they've taken to, "If you don't lock in with us right now, pay us the fee, we can't guarantee we'll do it for you." They're using some scare tactics and fear mongering, which not that anyone in our profession ever uses of course, but that's what they're doing. That's one thing.
The other thing that people should be doing is to take a hard look at what you're doing with insurance. What I mean by that is, the traditional model is, hey, I'm your employer. I offer this kind of insurance. We play games as to the quality of the insurance, the deductible amount, how much you're going to pay employee, how much I'm going to pay as the employer. That's been the traditional system for a long time. Now with this Affordable Care Act, there are other options. The exchanges drop is what I call that option. There is even an exchange for businesses called SHOP, S-H-O-P, and a variety of other things, so this is a good opportunity to look at the kind of insurance you're providing to your employees and perhaps make a drastic change. Maybe take a look at your company and your compensation structure and do we really want to put health care in that package, or do we want to put it all in the W2 and let the employees go and get the insurances they like? It's a good time to do that.
Mark: Is it too late? Have they missed the boat?
Joe Popp: Well, it's something I do every year. A lot of people that I've talked to have taken the position, "We're going to wait and see how this all plays out. We want to see what the rates do. This is year number two and we've got double digit rate increases again. Let's see where ..."
Mark: That was supposed to stop that.
Joe Popp: Well you know, that's a longer conversation that we can have for twenty minutes. The short version of that is, the insurance companies when they're pricing these things, the traditional model of insurance has always been, here's a small group, understand the group, and then price based on risk of the group. That's how insurance has always worked. Now in the exchanges, the group is no longer a small group. It's everyone in the zip code of that age. That's a huge group, and we don't necessarily know what our claims are going to be for that group, so we had to make some guesses. That's why we've got the rate increases as the market readjusting to that new pricing model. What we're looking at the group is, everyone in the zip code with that age, as opposed to the ten people with this employer.
Mark: Is there a demographic or could you paint a picture of a client that you would think is most at risk for not being compliant? Who might get burned by Obamacare?
Joe Popp: Probably the one with the most danger would be someone who has a lot of part time people. Let's say they have eighty people that they employ. Is that person a large employer? I don't know. I'd have to look at the hours. You have to do an analysis on the front side to even see if these things apply to you. That group is particularly vulnerable, the seasonal retail sort of folks that have a large increase, let's say in holiday season and then the rest of the year, they're pretty bare bones. That big push in the holiday season, depending on how long the holiday season is for that business, that may push them over. They may not be aware of that. Probably the clients most at risk are the ones that don't know they even have to comply. They're the group of clients who, they know they should comply. They just don't want to deal with it, and that's a whole separate thing.
Mark: They're going to have to at some point.
Joe Popp: At some point, yeah.
Mark: Questions that I get is that I think the premiums that the company pays for the employee have to show up on the W2. Is that correct?
Joe Popp: Yes.
Mark: That's not subject to tax, correct?
Joe Popp: Not at the moment, knock on wood.
Mark: Are you making a prediction that it's going to be?
Joe Popp: I've gotten this question before. Let me give you a scenario. Let's say I'm Congress, and I've required people to report the value of employer provided health insurance to employees on a W2. That's made the data visible. Let's say I'm one of these congressmen and I have a ...
Mark: Or woman.
Joe Popp: Or woman. That's correct. Congressperson. I don't think we can use congressperson. Congressman or woman or person or whatever. If we have one of those individuals who has a particular thing they want to pay for, right? It's somewhat easy to propose something in Congress, but you have to find a way to pay for it, right? That's the problem.
Let's say that this congressperson is sitting across from an IRS agent and the congressperson just says, "Hey IRS, hypothetically speaking, I just want you to take a piece of paper, and write down a number which is the total of all the employer provided health insurance benefits times, lets say, 1%. I just want you to put that on a piece of paper and just slide it across the table for me, just so I can see it. Don't record this, or you know, say that I asked you." So I think that's going to be the danger, is because the data is visible, it's going to be very easy for someone who has an agenda to say, "You know what, we're just going to slap a 1% tax on that, and that's going to fund ..." It could be a really great thing. It could be, "We'll eliminate all poverty in America. We're just going to tax this 5%." Sounds like a great pitch. That's I think where it's going probably.
Mark: Under current legislation, not subject to tax.
Joe Popp: Correct, yup. Not subject to tax. Just information.
Mark: Before we wrap up, I like to ask every guest on our show a particular question.
Joe Popp: Yes?
Mark: You already got the hard one with your nickname.
Joe Popp: Oh, that was a hard one. Okay.
Mark: Joe Mama. If you could have one superpower, what would it be?
Joe Popp: Oh man. That's a good one. One superpower. Definitely flying. Yup. That would be it. Flying or instant transport. Actually the instant transport would be better. If I could have a little place in Hawaii, and then come to work here every day in Columbus Ohio, man that would be great. Instant transport. That's what I'm going to go with. There you go.
Mark: I like your answer. Thanks for joining us today Joe, and thank you to our listeners for tuning in. Obama Care has really changed the way we do business today and I'm sure it's going to be awhile before all business can say they have a complete understanding of what this law entails. Fortunately we do offer some additional resources on our website, www.reacpa.com/podcast. If you haven't already, I would also like to encourage you to subscribe to Unsuitable on iTunes for even more great business advice. Until next time, I'm Mark Van Benschoten for Unsuitable on Rea Radio, encouraging you to loosen up your tie and think outside the box.
