Dave Cain: Welcome to unsuitable on Rea Radio, the award-winning financial services and business advisory podcast that challenges your old school business practices and the traditional business suit culture. Our guests are industry professionals and experts who will challenge you to think beyond the suit and tie by offering you meaningful modern solutions to help enhance your company’s growth. I’m your host, Dave Cain.
2017 will bring us a new president and a new administration. Many business owners are wondering what tax and regulatory changes are headed our way. Today’s conversation goes far beyond political leanings. Our goal today is to get some answers for business owners about one of the biggest questions they are grappling with today, the fate of the Affordable Care Act. Of course we all want a crystal ball to see what’s ahead of us. Until we get ours up and running, we’ve got the next best thing. Our guest today is Joe Popp. Rea & Associates resident ACA expert is joining us today to hopefully ease our mind as we try to make sense of the future of this regulation. Today’s podcast is sponsored by the Rea Consulting Group, of which Joe is a member. Welcome back to unsuitable, Joe.
Joe Popp: Thank you Dave. It’s a pleasure to be here.
Dave: You know Joe, I understand you picked up a new hobby this past year, and that was kayaking. We’ve got a lot of listeners on the podcast that do kayaking, so how’s that going? Pretty well?
Joe: Pretty well. A little cold this time of year, but you try and start as early as possible, go as late as possible, and have a good time.
Dave: Hopefully we can have you back. Maybe you can talk about doing the Eskimo roll for our kayakers. Are you up for that?
Joe: Okay, I’ll give it a try.
Dave: Yeah. I thought we were … When I was handed the notes for today’s podcast, I thought we were talking about Obamacare. Now I understand we’re talking about the Affordable Care Act. What’s up with that?
Joe: It’s interesting. The terms really are interchangeable, Affordable Care Act, Obamacare, these days, and actually for the last maybe four years it’s virtually the same. Really even the political connotation left us I think some time ago in terms of just what the term is. Everyone refers to the Affordable Care Act as Obamacare and vice versa.
It’s an interesting time. A lot of people that are in the industry tend to forget that the early part of the Affordable Care Act, aka Obamacare, the road was very rocky. It moved beneath your feet all the time. The joke that I had when I was doing presentations on this was that I like doing presentations because often something changed the night before and so I found out about it by doing the presentations, because someone would invariably ask me, “So Joe, could you comment on the change that was just made last night?” Of course, you know, I hadn’t heard of it yet, and so it’s kind of fun that way.
That’s where we are today. The ground is always moving, not quite sure what’s going to happen, but that’s really not new. That’s how this has been for its entire lifetime. For me, some people have come up to me like I’m about to go to a funeral, like, “Joe, the Affordable Care Act, that’s rough man that you’re specialized in this,” but it’s totally fine. It’s just the next evolution of it, just as it has been evolving for the last couple years.
Dave: Joe, as soon as I use the term Obamacare, have I played a card about my … What side of the aisle I’m on?
Joe: I don’t think so. I think originally that was a politically charged kind of item, but really, like I said, for the last maybe four some years that was just the term that everyone agreed to use to refer to that. The president used the term. Members of both major party in the US used the term. Industry people use the term, so it’s really not in my view a political term anymore, though I think originally it probably was.
Dave: Well, I think too when you also look at the term Affordable Care Act, affordable should be taken out of that equation, because I think most of our listeners would agree this is not affordable.
Joe: Yeah. You know the … We can get into some of the insights coming from Tim Price.
Dave: Do a little name dropping, huh?
Joe: Hey, you know, got to get it somewhere. The information that we’re getting from the new leadership seems to indicate that we’re going in a different direction, not rocket science, but going in directions very … Changes in very specific ways I should say. This thing about the Affordable Care Act, really the reason for this in the past, why this was written the way that it was, was to get rid of pre-existing conditions.
You might imagine that this Affordable Care Act was a grand bargain to get rid of pre-existing conditions as a concept and in return we had to change a variety of things relating to health care. You … the Affordable Care Act and you did some premium subsidies and some other things, but really if you look at the structure of it, that’s what the structure was designed to do, is remove pre-existing conditions as a concept.
Dave: Okay.
Joe: Tim Price and Speaker Ryan plan to get rid of some of this grand bargain stuff in the Affordable Care Act, and guess what? Pre-existing conditions are back. The grand bargain, once we dismantle it, yeah, we lose the bad pieces but we lose the good pieces too. It’s interesting, because if you look at the plan that has been proposed in the past by Mr. Price and the one by Mr. Ryan, both of them have as a concept so Medicaid is good. We want to take care of people who can’t take care of themselves because of happenstance or whatever. There’s a layer above Medicaid that is appropriate to provide some kind of subsidy from the government. What does that sound like? The Affordable Care Act, right? The concept is the same. That is still a component of the new plans that are coming down the pipe. That’s an appropriate thing for us to do.
Then where they kind of diverge is the Affordable Care Act said we have to have this grand bargain in order to get rid of pre-existing conditions. In order to do that, we have to allow the insurance companies to make money, and to do that we have to drive a lot of people in to make the risk attenuated over a large group of people. The way that they chose to do that was to force people in, and so the stick, right?
These new plans are going to try the carrot, but the carrot isn’t very tasty. The subsidies are not as attractive, at least under the current proposals that we have details on. The carrots don’t seem to be as tasty as the paired carrot and stick of the Affordable Care Act. They are instead going with a different tactic to try and expand the pool of people, if you will. Their tactic is we’re going to expand by crossing state lines. We’re going to expand by making these insurance purchases across state lines.
Dave: You know in the introduction to today’s podcast and based on some of the things you just said and since you’re an expert in ACA consulting, I hate to break it to you, but it seems like that line might have encountered some setbacks recently. What are you going to do this summer? Are you going to play golf and kayak, or what’s next on your agenda?
Joe: See, that’s the funeral comment I was talking about from earlier, yes. The Affordable Care Act in its major components, some of those are going to get stripped away, but a lot of the major concepts of it I think have survived and have become part of these new plans. What we need to do is we need to expand the pool of people who are getting coverage. We’re going to do it with a carrot. We’re going to take away some sticks. We’re going to incentivize some people at a particular, you know, stratum of the income brackets or the federal poverty level brackets, however you want to slice that.
Those sorts of things are still there. Some people like to think that the Affordable Care Act, once it goes away, ah-ha. Unfortunately, health insurance is still around. You still have to figure out how you’re going to help your employees, if you’re going to help your employees, so all of those same consulting kind of issues that I’ve been going through are still going to be there. It’s just that it’s going to be a little bit freer. There might be the toolbox is a little bigger and a few less restrictions, a few less sticks that are out there. That’s kind of exciting in that it’s a change. It’s going to be different, and different usually means you’re going to need a little bit of help to figure out what to do next.
Dave: Sure. On this … Throughout the history of this podcast we’ve always challenged when a new government regulation or rule comes in just how are businesses going to afford to pay for this. Let’s say I’m a business owner. Let’s say I’m a customer service-centric hardware store in Coshocton, Ohio or an engineering consulting firm in Jackson Center, Ohio or a software design company in Dublin, Ohio. What is the most important thing for me to know about health care or ACA going into 2017?
Joe: Very, very good question. We’ve kind of already alluded to it, and that is pre-existing conditions are coming back. What that means is from an employee point of view, if I have decided you know what, my employer coverage is too expensive. I don’t want to get coverage on the individual exchange for political reasons or because I don’t think I need it, my family doesn’t need it, I can’t afford it, et cetera, there is going to be a point somewhere probably in 2017, possibly 2018, where this game of being able to just go and get insurance regardless of what has happened to you in the past is going to turn off and that’s not going to be a game that you can play anymore.
The one thing that I tell people when asked a similar question is on the employee side you really need to understand that, and from the employer side you need to go out and beat the bushes and tell your people that if they have family members who might have something that would be a pre-existing condition it is probably best to go ahead and sign up for insurance this year. Even though it may be a little more expensive, even though you may not want to do it, you’re going to perhaps get a lot of dividends by paying that extra money now rather than waiting, having the rule change, and finding yourself in a high deductible, bad health kind of pool for the pre-existing conditions folks.
Dave: You ready to talk politics?
Joe: We haven’t already? Okay.
Dave: Now we’re going in a different direction. We’ll still say … I think this is one of the questions that came up during the recent debate and election, but what’s the one thing that President Trump will change on the ACA in his first 100 days in office, and we’re going to hold you to this. We’re going to record this and we’re going to hold you to it, so-
Joe: You’re recording?
Dave: We’re recording.
Joe: Oh, man. Okay. I would say if I were to pick one thing that he could get rid of immediately … And the way that I look at the Affordable Care Act, again, it’s like this. The grand bargain is one way, but a simpler and more accessible way of thinking of it is a Jenga puzzle. You pull enough of the Jenga pieces out, the key ones, the whole thing falls apart. Usually if things fall apart, things get kind of messy, bad. People end up not being able to get health insurance for the last half of a year after you pull out a particular Jenga piece.
It’s much easier to take the Jenga puzzle, replace the whole thing, so knock the whole thing down and replace it with another one at the same time. There are some things that he could do in his first 100 days that would be pulling Jenga pieces out that might cause the structure to fail. One that would not do that not as much perhaps is he could remove the restriction on a company wanting to provide some kind of cash benefit to his employees pre-tax without offering health insurance.
Right now you cannot do that. If you are not offering health insurance, you cannot offer cash for health insurance. Many people get around this by just increasing compensation, which as long as you’re not tying it to health insurance that is something … You can still give people raises, right, so that’s nice Dave, so give people raises I’m saying.
Dave: Let’s go.
Joe: That would probably be the first thing that I would toss out. If Trump hired me to go in and fix the Affordable Care Act or dismantle it in a way that was not super destructive, that would be the first piece I would throw out, is I’d throw those gates open. Actually, in one of the two plans, I think it was the Price plan, that is something that’s a component. You throw the gates open and allow employers to provide that even if they are not providing health insurance. I do think that will be something that gets done quickly.
Dave: Yeah. You mentioned to me a couple times that there’s … Possibly repeal it all now, and we talked briefly with maybe keep in place or swap out fees, so the Jenga piece, or just complete replace the option. Can you do a deep dive into that a little bit more? What’s that look like?
Joe: Sure. This also has to do a little bit with the insurance industry and timing and all of that. Most people are familiar with their open enrollment being say November-ish, December-ish, the end of the calendar year. That’s when that happens. All of the work that precedes that, all of the work that the insurance companies go through to get rates in place and figure out what happened and all of that, that happens in like June and July. That’s when that’s happening.
If you imagine the Trump Administration gets in during January, they’re ready to go, they’re really moving stuff. They’re probably not going to have enough time to replace the whole thing in time for the June and July due diligence from the insurance companies to prepare for the next year, which would be 2018 insurance. I think that window is passed at this point. If you’re going to replace the whole thing, you could do it in 2017, but it probably will not be effective until insurance year 2019, so 2018 I think we’re already done. We’re not going to have enough time.
If you wanted to pull out pieces, individual pieces, I think you could pull those out and potentially make it applicable to I suppose even 2017, but certainly 2018. You could do that, but a whole scale replacement I think is probably not going to happen until 2019.
Dave: As plugged in as you are on this topic, is there any information coming out of the GOP and the groups affiliated with the Republicans to the point where they might go with this? Any following there?
Joe: Not really aside from Mr. Ryan and Mr. Price. I mean Mr. Trump, as you know, he’s very good at explaining a vision and what he wants to accomplish. Sometimes that’s left … All the finer details are left to be worked out, which is fine. Certainly if you look at the Affordable Care Act, the document is enormous. The idea of it is relatively simple, but the actual implementation is huge. There’s a lot of writing and fine detail and decisions there.
I think we have a very clear indication of where he wants to go, a very clear indication of what Mr. Price and Mr. Ryan have said and where they’d like to go, but in terms of the finer details of how that would actually work and how it would actually get paid for … One thing we haven’t talked about is both of these plans have some kind of subsidy for the folks just above Medicaid. How are you going to pay for that? The Affordable Care Act has a couple of revenue raisers with the individual mandate and the business pay or play mandate. Those presumably are going to go away. If they do, you have to raise the revenue some other way, so what is that mechanism? We don’t know yet.
For now we have a very clear I think vision, but we don’t have quite a vision of the details and specifically what kind of revenue raiser you’re going to use to incentivize people.
Dave: Sure. One of the things that we continuously hear from our client group and our listeners on this podcast is the ACA … There’s just so much complication to it, a lot of misunderstanding. There’s some good things, but how do you simplify this? How do you make it easier for the business owner to understand and put it into play? Is that even a possibility?
Joe: Current rules, yes. Here it is. Pay or play, all or nothing. That’s it. That’s the Affordable Care Act.
Dave: Option A, Option B.
Joe: Well, pay or play, all or nothing. Pay or play. People are familiar with that. If you’re a large employer, either you provide all the health insurance, the quality health insurance that you’re required to, or you pay a penalty, so that’s pretty easy.
The other mandate … This is all the other stuff, is all or nothing. You either can provide health insurance and then 125 Plans and HSAs and all that other stuff or nothing. You can’t give them cash for health care. You can’t give them cash in a pre-tax account for health care. You can’t make a cash payment after tax specifically for health care … All of those things.
From a business owner, it’s pretty simple, all or nothing, pay or play. In terms of the options you have for what you’re doing to provide coverage to people shop, drop, roll, self-insure. Those are your options. Shop is going to shop if you’re eligible. That’s the business portal of the exchange. Drop is you actually drop their coverage, which for many employer groups can actually be a benefit, because you’re able to harvest premium subsidies that are coming in to assist your workforce to have third party money that’s coming in to pay, where otherwise it would just be you and your employee group. That’s drop.
Roll is even though it may be inefficient for the short term until the dust settles, whenever that is, let’s just keep going how we normally do. Let’s continue to pay for insurance. Maybe it’s 50/50. Maybe it’s 60/40, a breakout between employer and employee. Maybe we’ll mess with the deductibles a little bit. A lot of companies do something in that space, and then finally self-insure.
There’s a way to go all in, self-insure it yourself with a stop loss plan over the top, or you can even do kind of a soft self-insure where you go with the really high deductible plan and you pair it with an employer contribution to a pre-tax account for people above a certain level. As an example, if you have someone who has a $1,000 deductible now, you could move that to a $6,000 deductible, and for the people who actually burn through more than $1,000 of their deductible the employer puts in cash to a pre-tax account to allow them to pay for that.
In other words, you’re only self-insuring up to the amount of your deductible times the number of employees you have, which is a much smaller amount than what a traditional self-insured product looked like with a stop loss plan at the top. So pay or play, shop, drop, roll, self-insure and all or nothing. That’s it.
Dave: Our guest today has been Joe Popp with the Rea Consulting Group and the in-house ACA expert on health care. Joe, some great insight. Now if our listeners would like to talk to you more, would they simply drop you a note, jump on our website and send you a note, and you’d be glad to talk to them about a very complicated issue? Compliments to you to take a very delicate, complicated subject and explain it I guess the best you can. You’ve done a nice job, so I appreciate that.
Joe: Thank you.
Dave: Before we wrap up, we have one question. Since 2017 is upon us, what is a good business resolution that you can advise our listeners for?
Joe: A good business resolution for me, and something that when I talk to people I often try to inject in on the Affordable Care Act, over the last six, seven years it’s been very politicized and the unfortunate thing is that health care, caring for your employees shouldn’t be a political issue. It should be a strong commitment to your workforce, building that trust with your workforce, wanting them to buy in, wanting them to grow with your business. It’s really unfortunate that that concept has become a political concept with winners and losers, good guys and bad guys or whatever.
The non-political resolution I guess I would say would be maybe in early 2017 when the political stuff starts happening in health care, take a step back and really think about my value as the business owner. What do I want to do for my employees? What is my … Forget all of this other stuff that’s happening in the political world and people telling me what I think that I should think. What do I think? What do I want to do for my employees, and then how do I most effectively pay for whatever that is? Politics aside, if you have a clear understanding of what it is that you want to do as a business owner, the politics aren’t going to hold you back, or they shouldn’t.
Dave: Good. That’s great advice. Joe, thanks again for joining us on unsuitable. We’re going to have to have you back. We’ll replay this in about six months and see how accurate you were, but-
Joe: All right. We can have beers with that one.
Dave: We can. As usual, thanks to our listeners for tuning in. We’ve included some tremendous ACA resources on our website. You can access them at www.reacpa.com and look up Joe Popp, and Joe will be more than happy to assist with any questions you have. If this is your first time listening to unsuitable on Rea Radio, please consider subscribing to the podcast on iTunes and SoundCloud. Until next time, I’m Dave Cain, encouraging you to loosen up your tie and think outside the box and understand ACA.