Stress Test

Small retailers face big health-care questions as ACA rolls out.

Samantha Oller, Senior Editor/Fuels, CSP

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Call it the Fog of Health Care: As the Affordable Care Act (ACA)continues to roll out and deadlines for implementing its many steps loom, c-store retailers are still grappling with how exactly the law will affect their businesses. Even the smallest retailers—those one- to 10-store chains that make up more than two-thirds of the industry—are discovering that having a relatively small workforce does not necessarily diminish their responsibilities.

Kevin Bahnam, owner of the fourstore USA 2 GO chain based in Howell, Mich., is still gauging the full impact on his business. Including a Tim Hortons location, he has more than 50 employees, with about one-half considered full time under the law, or working more than 30 hours per week. He does not currently offer health benefits and is unsure of his responsibilities under the employer mandate of the ACA, which, beginning in 2014, will require employers to provide at least one health-insurance option meeting specific standards, or else face a financial penalty.

Complicating the situation is the fact that his business consists of four entities under common ownership.

“Will we be treated as four different companies or one company because of the common ownership? It seems like no one has an answer to that question yet,” he says. Regardless, he is expecting the worst. “This is going to make things very difficult for us. But we can’t even calculate how difficult things are going to be, because there are a lot of unknowns right now.”

Even the knowns do not offer much clarity. Consider the health-insurance exchanges, which aim to create a competitive private health-insurance marketplace for individuals and small businesses. USA 2 GO’s home state will have a state-federal partnership exchange, as opposed to a strictly state- or federal run exchange.

“We don’t know if that is a positive or negative,” says Bahnam, pointing out that the exchanges are still being constructed. Meanwhile, the original March 1 deadline for businesses to notify their employees about their health-insurance options has-been postponed to later in the year. The result for USA 2 GO and many retailers like it? It puts a brake on all big decisions.“It’s absolutely putting some kind of a hold on any growth plans for 2013 for us,” says Bahnam. “This is a very thin margin business we’re in. To go from zero to offering $50,000 to $60,000 in monthly costs in health insurance is devastating. It’s not something we could afford.”

One single-store retailer, a 7-Eleven franchisee based in the Midwest, also does not currently offer health insurancefor his seven employees. While not on the verge of the 50-full-time-equivalent threshold and therefore not required to offer health insurance in 2014, he worries about how this lack of benefits will affect his ability to retain employees.

“In that regard, what am I obligated to pay? Very little,” says the retailer, who requested anonymity. “But if there is strengthening economy, employees will migrate to where they can get a better shake.

“Our industry has enough uncertainty with fuel costs fluctuating and commodities rising almost at will, and real debit fee reform more and more unlikely,” continues the retailer, who says the ACA presents an even bigger challenge because of the large numbers of unknowns, from the exact setup of the health-insurance exchanges to the amount that premiums may grow because of increased underwriting requirements.

And these two small retailers are not alone. According to CSP’s 2012 Outlook Survey, c-store retailers ranked the ACA among their top three challenges for 2013, just behind credit-card fees and continued economic weakness[CSP—Dec. ’12, p. 86]. In dealing with everything from confusing definitions to higher premiums, these businesses are discovering how complex the ACA is.

Meeting the Threshold

Let’s start with the very small retailers—or those who, according to the ACA, have 49 or fewer full-time-equivalent employees during the prior calendar year. According to the law, these businesses are not penalized if they do not offer coverage to employees. But while many small retailers may think they are in the clear, the devil is in the details.

“One of the oddities of the ACA a sit touches small businesses is that the threshold for having to offer health insurance is based on full-time-equivalent employees, but the requirement to cover is only for full-time employees,” says David Mair, managing partner and CEO of Soter Healthcare Inc., Champlin,Minn., an insurance brokerage that focuses on alternatives to traditional health insurance for small and midsize businesses.

The ACA defines “full time” as working an average of 30 hours or more per week, or 130 hours per month. Part-time employees are counted on a pro-rata basis.“Full-time equivalent” (FTE) measures the number of full-time employees required to perform the same amount of labor hours as a retailer’s current employees.

“One of the biggest surprises for a lot of small businesses is that they may get over the 50 full-time-equivalence threshold and not really think about it because of the influence of part-time people,” says air. Simple calculators available online can help a retailer determine the FTE figure. (See “ACA Tools,” p. 102.)

To avoid hitting the 50 FTE threshold, some businesses have looked to massage their mix of part-time and full-time workers. However, Mair warns that this may be a losing game in the long run.

“The IRS is now trying very hard to discourage employers from reducing employees’ hours to not have to cover them as full-time employees,” Mair says. “We’re seeing particularly restaurant franchisors cutting hours, making people part time, so they don’t have to offer benefits.”

While he sees nothing in the ACA as it is currently written that gives the IRS the power to discourage this practice through a penalty, “at this point, I think it’s: Don’t do it, or we will find a way.”

Perhaps of even greater concern for small businesses that offer health insurance is the effect the ACA will have on premiums. Because the law adds newly required benefits and eliminates the use of medical history as an underwriting condition, rates are going to rise, says Mair. Soter Healthcare estimates that small-group health-insurance rates will increase 25% to 55%, depending on the group.

“In addition, for a lot of very small businesses in particular, rates will rise because they now have to increase the level of coverage they are offering,” says Mair. “A lot of small businesses don’t offer coverage that meets the broadest criteria under the ACA, and that change is going to be significant as well.”

Mair points to a client with 35 employees who currently offers a robust health-insurance plan that would qualify as “platinum” level coverage under the ACA’s guidelines. “When ACA goes fully into effect, the impact of underwriting rules essentially will create a premium increase that is greater than their profit margin in 2012,” he says. “They’re going to have to make a decision to continue benefits or not, [and if so], to continue to offer robust benefits.” In some cases, the company is considering whether some employees might be better off with health-insurance exchanges.

Soter Healthcare is working with the client to redesign its current policy to best meet the ACA requirements and minimize additional cost.

“For a lot of small employers, it’s literally looking at what they’re offering today and making decisions based on what they can afford going forward,” says Mair. “The important business is to start to assess that early in 2013 so that come October, when enrollment in exchanges is scheduled to begin, they’ve already made decisions about what they’re trying to do for the coming year. Waiting until fall is going to be several months too late.”

Not Taking Credit

One carrot that the ACA offers to small businesses to provide insurance coverage is a Health Insurance Tax Credit. Those who have 25 or fewer full-time employees with an average wage less than $50,000 may qualify for the credit, which began at 35% in 2010 and will grow to 50% after 2013. However, the credit, which has been in effect since 2010, has not had a lot of takers, according to Martin L. Tanenbaum, tax principal and partner with Habif, Arogeti and Wynne LLP(HA&W), Atlanta, which works with a range of closely held retail, restaurant and other businesses on preparing for thetax implications of the ACA.

Consider that out of an estimated 1.4 million to 4 million small employers who could be eligible for the credit, only 170,300 claimed it in 2010, according to the Government Accountability Office. As Tanenbaum explains, the qualifications are both limiting and highly complex. In addition, a small employer would have to weigh whether it wanted to even provide coverage.

“In reality, it’s a subsidy to what you are ultimately paying,” he says. “The size of companies that this is catered to don’t typically pay for coverage for health insurance. So I don’t think it’s been a big win for companies in general.”Beyond premium increases, those small employers who do offer coverage will also need to consider whether their plan is up to snuff, a service that HA&W, partnering with insurance brokers, provides to its clients. “For a company that may already provide health insurance, the actual policy may not be ACA compliant,” Tanenbaum warns, advising retailers to consult with a CPA or insurance agent to see how this applies to their company. “For lower-pay type of establishments, it’s going to be a real issue.”

From his perspective, he expects most companies will come to the conclusion that they need to offer health insurance and pay a certain portion of those premiums simply to remain a competitive employer.

“In the long term, it’s going to be just another cost to do business and will be adjusted in the price we all have to pay,” he says. “And maybe that’s the right answer, from a cultural standpoint, to get where the country seems to want to go with health insurance.”

ACA Tools

To determine whether you qualify as a “large employer” under the Affordable Care Act and what penalties you may be subject to if you do not provide health-insurance coverage, visit for helpful calculators, definitions and advice.

HRAs: Another Coverage Option

While small retailers may feel as if they cannot afford to provide health-care benefits to employees, one option may be a health reimbursement arrangement (HRA), an employer funded medical reimbursement plan wherein the employer provides employees with a set amount of pretax dollars each year to spend on medical expenses.

Zane Benefits Inc., Park City, Utah, provides a Software-as-a-Service (SaaS) platform that enables businesses to set up and manage an HRA. Rick Lindquist, president of Zane Benefits, says that the passage of the ACA has “absolutely poured gas on the fire” when it comes to the growth of HRAs.

“You’re not offering health insurance—you’re just offering a business health expense account for health care, and the individual has to go out on the individual market to buy health insurance,” says Lindquist. “The key about an HRA that is attractive to small businesses is it is completely controlled by the employer. Just like the employer controls compensation, they control basically the tax-free compensation through the HRA.”

Employers can define their own contribution amount (there is no minimum or maximum),although the average falls between $150 and $300 a month. While the HRA must be offered to all employees, an employer can assign different coverage amounts by type of employee—for example, part time vs. full time, hourly vs. salaried, or even by different location.

One small c-store retailer who has signed on with Zane, and who has requested anonymity, says the plan has proven to be much less expensive for his company, as well as for the employees, by almost one-half. While only about 14% of his employees are participating in the HRA, he expects this share to grow. For more information, visit calculators, definitions and advice

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