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By Alvin D. Lurie
January 24, 2011
The time for reforming the 2010 Health Care Reform legislation has never been more opportune. The stars are in a most unusual alignment:
The last bullet point is well encapsulated in the headline of the story in this past Sunday's New York Times [on Jan. 23, 2011] characterizing the "centrist agenda" to which the President is moving. The article predicts that Obama's address will be "geared to business owners and executives alienated by the expansion of government and the partisan legislative fights of the past two years." Could there be a better description of the Congressional wrangling that led to and eventuated in the passage of the Health Care Reform legislation? The article infers, not implausibly, that he "seeks to cast himself as a more business friendly, pragmatic progressive."
In the foregoing catalog of auspicious events, another one is deserving of special mention: the immediate initiation, in conjunction with repeal of the present law, of a legislative process in the House to replace it with a market-based health care law shorn of the big-government role that characterizes much of PPACA. During the two-day repeal debate, House Democrats contended that Republicans meant only to take away the many beneficial improvements in health care established by the new law. Now there is no basis for doubting the authenticity of the action of the new House leadership to assure the prompt and efficient introduction of appropriate replacement legislation.
The much-deserved approval by the public at large of the benefits now guaranteed by the new law, and most often cited by the President, members of Congress, and commentators — the curtailment of benefits for pre-existing conditions, annual and lifetime limits, rescissions of coverage, and the inclusion of children up to age 26 in parents' policies — do not require the mandates, traps, taxes, penalties, paperwork, costs and constraints on businesses of all sizes (particularly impacting on small businesses, which are the focus of this paper). ERISA overhauled the pension law of this country by prescribing minimum standards for participation, vesting and funding, without the mandated coverage and benefits that are such large features of PPACA. Early attempts to incorporate mandatory requirements into the pension reform law — which found expression in the so-called Cabinet Committee proposals of the Eisenhower Administration in the 1950s — were defeated, and have never found their way into the pension law. That experience surely is not without relevance as the Congress turns again to Health Care Reform.
Universal health care, a laudable goal, comes at a heavy price, principally when forced on the backs of small business, when choking off new employment, when discouraging formation and expansion of small businesses, when adding to already unsustainable government deficits at federal and local levels. The recent elections surely tell us that most of the voters are not happy with the new law. Studies before the election — notably one conducted by three professors at the Hoover Institute months before the election — foretold that result, projecting that opposition to the proposed health reform law would have "a statistically significant and electorally important impact on intention to vote against the Democratic candidate . . . ."
The new law is especially harmful to small business. Many traps for the unwary inhere in a law of 2,500 pages (actually two laws: PPACA and HCERA), a law some of whose rules became immediately operative in 2010, others rolling out in spurts over the next four years (indeed, for different employers, in each of the 48 months of plan years beginning in 2011 thru 2014), possibly even later for employers operating under collective bargaining agreements, and some even at indeterminate dates following the issuance of regulations. There will be regulations, thousands upon thousands of pages of them, not just in the coming four years, but ad infinitum. (Have the rules and regulations under ERISA ceased to pour out 36 years after enactment?)
Then there is the matter of grandfathering. Whose plans are immune from the new laws? What changes can be made without blowing the grandfather protection? What are the impacts on a business, on its hiring practices, on the costs of operation, on the burdens of compliance of making a change that later may be deemed to have caused the loss of grandfather status, with future consequences incalculable — in fact, unknown — as new rules emerge long after the change? By then it might be too late to reverse course, as the employer might have become trapped in the "pay or play" scheme that I'll address in a moment.
How do the rules change for a business that passes certain employee sizes, i.e., 25 or 50? When does that happen if one has part-time employees? But don't think for one minute that's the escape hatch. The law aggregates part-timers to make up "full time equivalents" — counting not just part-timers in your client's company, but in every company within its controlled group. Think of an FTE as a new life form invented by PPACA — whole new persons cloned from the parts of other partial persons!
What are the penalties and other consequences if the employee count passes the 50 threshold? The employer enters the universe of pay-or-play, where not playing can come at a very steep price, measured by a head count of all one's work force, apparently even counting employees who are covered in a compliant plan. How many of my readers can describe how to calculate those penalties? They can be very expensive, and determining the penalties can be very tricky business. As you may know, that becomes very relevant if an employer decides to drop a health plan, or to not institute one, because of the mandated "play or pay" rules that come into force in 2014.
Many employers already are considering that option, and major multiples of the current numbers will take that course as the 2014 date draws closer. The decisions often will be made on insufficient or downright erroneous data, or on a gut impulse without any data. Even well-advised companies will find it a difficult decision to make. It is not easy to measure the difference between the cost of the penalty against the cost of "playing," because playing is not a simple matter of designing a plan of choice or picking an insured plan. The plan or insurance policy must provide what the statute calls "essential benefits," but the statute leaves its definition to the Secretary of Health and Human Services, in consultation with other governmental and quasi-government bodies. That determination, even when made, most assuredly will not remain locked in place, but instead will evolve and expand over time, and change with changes in the government personnel involved in the decision-making, with ever-escalating costs for providing the requisite benefits.
There's another problem. The law has invested three administrative agencies with authority to make the rules: our old ERISA-generated friends in the IRS and the Department of Labor, plus the HHS — but without the fine distinctions and coordinating responsibilities among the governing agencies that were spelled out in such exquisite detail, first in ERISA and subsequently in Reorganization Plan No. 4. Who of us in government and private practice in the early days of ERISA can forget the raging debates and concerns about "dual jurisdiction" that dominated much of the discussion back then? How much more of that can we expect with the present health care law? As extensive as the provisions of the two health care laws are, they are merely a relatively bare outline of the specifics. The real nitty-gritty, the meaningful guidance, will await the rulemaking of the agencies — all three of them — in separate and changing configurations.
I have only touched upon some of the burdens and hazards of compliance and noncompliance. I am spared the need to go further here by the work of others. See, for example, the "Dear Representative" letter of the Small Business Coalition for Affordable Healthcare and its accompanying paper, "Five Ways PPACA Hurts Small Business," which, while not exhaustive, amply support the Coalition's claim that the law has "destructive effects on the nation's job creators," with its mandates encouraging job cuts, its imposition of new tax burdens that will fall most harshly on small business owners (i.e., a new tax on investment earnings, increased payroll taxes, limits on deductions, and new tax reporting obligations), having no connection with health care other than to reduce the actual projected costs and deficits directly attributable to PPACA, onerous paperwork, and prohibitions on the effective techniques that have evolved to curb spending on health care (HSAs, FSAs and HRAs).
The aforementioned Coalition materials correctly state that PPACA "greatly complicates life for a small business owner" and that "the small business community will be forced to divert resources away from hiring and expanding." True as that is, it does not state what more should be stated: the law, because of its complex, oppressive and costly requirements, will, as a minimum, be massively, albeit inadvertently, violated by small business; it will cause many to drop providing existing health plans, and others to refrain from starting one; it will constrain businesses from hiring additional employees to avoid the 50-employee threshold due to the great difficulty (if not outright inability) to cope not only with the actual increased medical costs, but also with the associated administrative, professional and payroll costs; it will drive many small businesses into dissolution, if not bankruptcy, and discourage countless thousands of others from being formed.
H.R. 2, the bill passed by the House of Representatives last week, originally was titled the "Repeal of the Job Killing Act." While I am not partial to the gimmicky titles that have become increasingly applied to legislation by Congress, if it is to be done, it might better be called "Repeal of the Small Business Busting Act," a title which more explicitly describes the full extent of the harm inflicted on the country by PPACA, while of course encompassing the loss of jobs inherent in the contraction of small businesses, which are by all accounts credited with providing the greatest engine for creating new jobs.
This is a message that has not been widely or adequately enunciated. The failure of small business interests to sound that alarm might be interpreted by some as evidence that there is nothing to be alarmed about. There may never be a better time to do so, as the House committees begin their deliberations to replace the present law and the President retools his Administration with eyes on the 2012 prize.
Alvin D. Lurie is a practicing pension attorney. He was appointed as the first person to administer the ERISA program in the IRS National Office in Washington. He is general editor of Bender's Federal Income Taxation of Retirement Plans (LexisNexis), a 2-volume treatise and he is also editor of the annual compendium of articles published under the title New York University Review of Employee Benefits and Executive Compensation.(LexisNexis). Mr. Lurie is the first recipient of the Lifetime Employee Benefits Achievement Award sponsored by the Employee Benefits Committee of the American Bar Association Tax Section. He can be contacted at Alvin D. Lurie, P.C. in Larchmont, New York, at (914) 834-6725 or via email: firstname.lastname@example.org. He is also of counsel to The Wagner Law Group in Boston.
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