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Posted: June 14, 2013

Bracing for Obamacare

Have you considered how your company will comply?

Taylor Simonton

The Affordable Care Act (ACA), also known as Obamacare, is the law, and businesses must brace for full implementation in a matter of months.

Depending on your company's size and infrastructure, Obamacare could be a train wreck, smooth-sailing or anything in between. Officers and directors of every organization, large or small, public or private, should immediately develop plans to deal with the law.

At a recent Colorado Chapter of the National Association of Corporate Directors (NACD) program, Leo Tokar, senior vice president of the Benefits Group at the Lockton Companies (our region’s largest benefits consultancy), outlined bullet points for boards of directors and officers for any ACA strategic planning. They are earnings impact, workforce changes, compliance, lawsuits and audits, public relations management and M&A due diligence.

“The risk associated with ACA is often higher than people think and can vary sharply between companies,” Tokar said. “Many businesses haven’t even begun to plan their ACA strategy.”

He recommends each company first determine how it will comply: 1) continue to furnish current health care benefits, 2) modify its workforce or benefits strategy, or, 3) drop coverage and pay the penalties. At this late date, lack of preparedness and proactive planning are the most significant issues.

Though the impact may be a relatively straightforward financial issue for small, professional businesses, large companies – usually consumer brands with low-wage, high-turnover employees (restaurants, hotels and retail franchises in particular) – may deal with Obamacare on a dramatic stage. Similarly, ACA may affect other employers with low-wage or variable hour workforces, such as construction, hospitals and manufacturing.

Some companies plan to drop health care coverage, and the few that already made this public have suffered from the public-relations fallout. The immediate, negative impact has been striking. Both incremental health care costs and a sales hit from bad press can reduce the earnings of a large, low-margin business.

Yet almost all employees still view company-subsidized health care as an expected benefit and a major piece of their compensation package. Companies with high-skill, high-pay employees will therefore be more likely to stay the course and continue absorbing the health coverage costs.

Despite the reputation risk, some companies will feel compelled to pay the penalties rather than supply health care coverage, thereby forcing employees to obtain their own insurance through a state exchange. The PR problems coupled with the ability to retain, motivate and recruit the best employees may be of higher risk than the financial implications.

Large, asset-based companies have strong infrastructures to address the law's  complexity and unknown costs. It will have the greatest impact on smaller businesses with a few hundred employees as they try to hire and retain the best people. Companies with less than 50 full-time employees are exempt but might be hesitant to grow because of the law’s administrative burdens.

For organizations of all shapes and sizes, there will be increased demand for part-time employees who work less than 30 hours a week. Productivity will suffer, and smaller companies in particular may be vulnerable to employee lawsuits and expanding scrutiny from a variety of regulatory agencies. A recent study by the International Franchise Association predicts the ACA will threaten 3.2 million franchise industry jobs, including 57,400 in Colorado.

Mergers, acquisitions, public offerings and private investments will now require another layer of due diligence regarding a company’s benefits structure, labor/management relations, and other compliance decisions they are making now, which may affect their ability to acquire, merge or achieve financing in the future.

While some administrative compliance has already started, boards of directors need to make sure management has a plan to address full ACA implementation in 2014. Best-practice steps toward execution include:

• Establish a multidisciplinary team to evaluate ACA from different viewpoints
• Identify an executive leader who will oversee the effort, as well as an informed advisor to guide you
• Present key decisions for the board’s consideration and determine how to update the board
• Perform a complete compliance assessment and detailed financial modeling
• Monitor and measure key areas of impact as ACA implementation progresses

Understanding and addressing implementation of ACA and bringing the company directors’ strategic experiences and business wisdom to the table, should be a top priority.
 

Taylor Simonton, CPA, is a Director and Past Chairman of the Colorado Chapter of National Association of Corporate Directors (NACD) and is a retired PwC LLP National Office SEC Partner, who is serving or has served on the board of directors of six Colorado public companies as audit committee chair. NACD is the recognized authority focused on advancing exemplary board leadership and establishing leading boardroom practices. With over 15,000 corporate director members, NACD provides world-class director education programs, national peer exchange forums, and proprietary research to promote director professionalism. Contact Taylor about NACD and its Colorado programs at tsimonton@NACD-Colorado.org or www.linkedin.com/in/taylorsimonton.

Enjoy this article? Sign up to get ColoradoBiz Exclusives. The opinions expressed in this article are solely that of the author and do not represent ColoradoBiz magazine. Comments on articles will be removed if they include personal attacks.

Readers Respond

Thank you for a nice summary, Taylor. One thing I might add is that moving to a larger part-time staff will not help a company avoid the number of employee thresholds of the ACA. The Act counts FTE's - Full Time Equivalents - using a formula which takes into consideration total numbers of hours worked, not full time employees. By Cindy Wolf on 2013 06 14
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