Two Acronyms HR Can’t Neglect: Can ACA have an Impact on EVPs?

Bert Murray is credited with saying “It used to be that death and taxes alone were inevitable. Now there’s shipping and handling.” For many of us however, shipping and handling costs have not been such a burden, especially if it means not spending time and money driving to a store, and more importantly, avoiding sales taxes. But this is changing. As sales taxes become unavoidable and shipping and handling costs probably stay put, Murray’s quote might be more valid than ever. Let’s look at how various taxes are changing the landscape in business and work.

In business, Amazon, the eminent online retailer, is now required to collect taxes in 9 states which include New York and California. Miyazaki believes that this will level the playing field in part by allowing local businesses to leverage their lower same-day delivery costs or their instant gratification advantage.

Miyazaki also contends that Amazon might very well respond by opening distribution centers in various locations, and maybe even retail stores. This will mean that Amazon will continue competing with local businesses and maintaining their advantage possibly through low prices.

So this got me thinking about the workplace where we face the advent of tax penalties via the Affordable Care Act (ACA), which is set to start on January 1st, 2014. Many companies are preparing to deal with regulatory compliance issues and the impact on the bottom line, but what could be ACA’s impact on the employers’ ability to recruit and retain talent?  Will ACA impact the employee value proposition (EVP)?

I believe the effect on EVPs and our ability to recruit and retain talent will depend not only on how employers respond to ACA, but also on the characteristics of the health care coverage offered in federal and state exchanges. Very simply, your company might be able to derive a value proposition advantage if your health coverage is of better perceived value, price, and quality than those found in the exchange. I also believe that the Human Resource function will need to focus on communicating appropriately the impact ACA will have and on providing effective assistance to help employees navigate these impending changes. So let’s explore what’s coming!

In general, health care coverage will be offered by employers and federal/state exchanges. American citizens will be eligible to choose either channel; however, subsidized plans will only be offered to those whose employer-sponsored health care plans do not meet minimum essential coverage (MEC), or do not meet standards on affordability and minimum value. An employer’s health care coverage will meet affordability standards if the employee-only plan premium is less than 9.5% of the employee’s household income. The plan will meet minimum value standards if the health plan covers at least 60% of the total allowed medical costs.

Not meeting these standards might subject employers to tax penalties. Specifically, this would be the case if employees buy coverage through the exchange and receive premium tax credits due to the one of following two reasons:

  1. The employer fails to offer minimum essential coverage to at least 95% of its full time employees (including children). In this case, the employer might be subject to a $2,000 tax for each full time employee.
  2. The employer fails to offer coverage that meets affordability and minimum value standards. In this case, the tax is $3,000 for each full time employee who buys coverage through the exchange and receives premium tax credits.

Now individuals might also be subject to tax penalties. This would be the case if individuals do not buy insurance, unless they meet certain criteria (click here for a nice infographic detailing these criteria.) For the rest of us, in 2014 individual penalties may range from $95.00 per adult to no more than $285.00 per family or 1% of your family income, whichever is greater. In 2016, penalties will increase to $695 per adult to no more than $2,085 per family or 2.5% of your family income, whichever is greater.

So, all these taxes and costs will certainly affect business and individual behaviors in ways that might resemble Amazon’s determination to remain competitive. For human resources, this determination is centered on the employer’s ability to recruit and retain talent. As a matter of fact, in a recent survey conducted by the Sentinel Benefits and Financial Group, 84.7% of employers reported that they are likely to or will in fact continue offering health benefit coverage to their employees after the ACA requirements go into effect.

What is interesting is that the four top reasons these employers gave for continuing to provide healthcare insurance are related to recruiting and retaining employees! The reasons are maintaining/increasing employee productivity and satisfaction, recruiting talented new employees, and retaining current employees. On the other hand, only 2.8% of employers decided to drop coverage, and their main reasons were the cost of providing such coverage and the ability to send employees to the exchange.

What this tells me is that most employers believe that they can continue to offer value to their employees and candidates by offering health care coverage…that at least meets minimal essential coverage of course. That is, despite the cost to employers, they believe that they might be able to get a positive return on engagement by offering their employees the opportunity to not deal with the exchange.

The above might be the case because employees and candidates will likely determine the value of employer-sponsored health care plans by comparing these plans’ quality and costs to those offered in the exchange. While health plans in the exchange will basically provide the same array of coverage employers will offer, it is really hard to tell where we stand in regards to cost.

Recently, there have been mixed reviews on the cost of health plans offered in the exchange. A good example is the recent discussion that took place on Forbes Magazine where two of its contributors made arguments on whether ACA will translate into significantly lower or higher premiums for Californians; each of them arguing and providing evidence for each end of the spectrum (for more details, please see Rick Ungar and Avik Roy’s articles.) Other arguments supporting burdensome costs in the individual market refer to health insurance taxation and overhead allowances.

My prediction is that we won’t really know the impact of ACA until it is implemented (I think anyone could have come up with that one!) But important questions still remain: How will our employees and candidates perceive the value of these health plans once the dust settles? What other factors will impact people’s perceived value? Will these perceptions have an impact on EVPs and our ability to recruit and retain talent?

These questions are worth asking but hard to answer at this time. But we can’t afford to wait or neglect them. We will need to remain vigilant on how employees and candidates react to the various health plans that the market will provide. In the meantime, it seems appropriate to continue offering employer-sponsored health plans that we think will keep our employee value proposition robust enough to continue recruiting and retaining talent.

In addition, a sound communication strategy will be key in maintaining an engaged workforce and attracting talent. That is, employers will need to develop communication plans that detail what employees and candidates need and want to know in a way that is simple and straight forward; while explaining how the organization has made the necessary steps and decisions to offer strong and competitive health plans. Every channel of communication should be used including those related to online media: the intranet, knowledge sharing tools, social media sites, and others (see my previous blog post for more information.)

As Bert Murray suggested, a lot more than just death and taxes are inevitable. Unfortunately, inevitability does not translate into certainty. So in times of change, we must react proactively and understand what will keep our organization strong and viable. Let’s continue watching the interaction between ACA and EVPs.

I look forward to hearing your thoughts and experiences!

Aleister Avila, SPHR

2 thoughts on “Two Acronyms HR Can’t Neglect: Can ACA have an Impact on EVPs?

  1. Aleister, Perception is the key work with any Employee value proposition. It doesn’t matter to what lengths a company goes to create benefits for an employee if those benefits are not being adequately perceived by the employee. The fact with ACA is that most Americans really don’t understand all the details with it. (I’m no exception) They publish a document larger than ‘War and Peace’ and expect everyone to understand. What this could end up meaning is that employees misperceive the benefits that ACA actually bring, and don’t give credit to the employer when due. In this case, the employer can taking huge measures to offer incredible health coverage to the employee but they might only believe this is all mandated by the government.

    So, I agree with your stance on Communication. It all comes down to communicating the extra mile back to the employee. Managers need to ensure that the employee understands the entire EVP, and does not confuse what is being offered to them with government programs. Great Post. Thanks

  2. Not only is healthcare (and access to it) part of an organization’s EVP, it is also part of a company’s bottom line and revenue. Increasingly, studies are supporting that a healthy employee is more productive than an unhealthy employee. Organizations slowly are understanding this concept, but progress is being made (slowly) on companies’ understanding that the health of their employees DOES MATTER. It is very interesting to see the benefits (and of course the unintended consequences) that the ACA will bring with it and to see if it will help in our nation’s healthcare crisis, but how do we turn our healthcare system from an acute one to a chronic and preventative system? Should companies offer more chronic and preventative healthcare benefits as part of their EVP? Personally, the offering many benefits for chronic and preventative healthcare would have more weight over other factors in a company’s EVP and would motivate me to work and stick with the company offering the best benefits.

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