Opinion: The Bathwater, Not the Baby
By Richard Kuehn
Epes Transport System Inc.
This Opinion piece appears in the Jan. 2 print edition of Transport Topics. Click here to subscribe today.
Don’t throw the baby out with the bathwater!” We have all heard this saying at some point in our lives. I was reminded of it recently, when I was researching the 2012 year-end W2 and 1099 reporting requirements. Since the start of the year is upon us, I wanted to make sure our system will capture the proper data from day one.
In this effort I looked into the requirements of the Affordable Care Act — more commonly referred to as “Obamacare.” As with so many parts of this new law, many of the details are still up in the air. I understand that we have to report our health care plan as an employee benefit on the W2, however, I am unclear as to how that is to be calculated. I also understand that my 1099 reporting requirements may change, but I am unclear as to how.
That said, I did a little more reading and stumbled across some interesting little factoids:
Q. Will I have to provide health insurance to my employees in 2014?
A. No firm is mandated to provide insurance, but in 2014, only the smallest businesses will be exempt from penalties if they don’t.
Q. What are the penalties and under what circumstances would I be exempt?
A. Once your firm reaches 50 full-time equivalent employees, a penalty will kick in if you fail to provide coverage for employees who average 30 or more hours a week in a given month. The penalty is $2,000 for each full-time employee in excess of 30 full-time employees. There are no penalties if part-time employees are not offered coverage.
A key factor in calculating the penalty is that the equation isn’t based on full-time equivalents, but rather on actual full-time employees. That means some businesses that are subject to the penalty may end up owing nothing.
Here’s a basic example: Say your firm has 25 full-time employees and 50 half-time employees that, combined, equal 25 full-time equivalents. Your firm, in effect, has 50 full-time equivalents and would be subject to the penalty if you don’t provide health-care coverage. However, your penalty cost likely would be zero because the $2,000 tally starts at the 31st full-time employee and you only have 25 full-time employees.
As a vice president-controller for a large, privately held trucking company, my curiosity was piqued. What does this mean to our company and others like it?
Truck transportation is a brutally challenging business that requires an immense amount of capital investment and risk taking. The returns at this investment and risk level are mediocre in the best of times and barely marginal in the most challenging times. That means owners and stakeholders scratch and claw for every penny they can to protect their margins.
With this backdrop in mind I attempted to get into the heads of our owners and their decision-making process barely two years from now. We have roughly 900 full-time employees, about 80% of whom participate in our employer-sponsored health insurance plan. After allowing for employee contributions to the plan (their weekly premium deductions) the company’s net cost is on pace to approach $4 million this year.
Taking the example outlined in the Q-and-A section above, our 900 employees would cost the company a penalty of $1.7 million — i.e., 900 employees minus the allowed-for 30 employees equals 870 employees times $2,000 — if the decision is made to no longer provide a health insurance plan.
Let’s see: $4 million net cost or the $1.7 million penalty?
There are many smart accountants in the trucking industry doing these very calculations for their company owners and stakeholders today. You can rest assured that IBM, General Electric, General Motors and Microsoft are doing those calculations as well.
You can see where this is headed.
After all the rhetoric and promises of, “If you like your plan, you can keep it,” the truth is that the law has a powerful built-in incentive to opt out — bringing an end to the private-sector health insurance industry and leaving us with only the public option.
If you, like me, prefer to maintain some semblance of control over your personal health care decisions, this law must be repealed.
Our only opportunity to accomplish this will be in November 2012. The next administration will decide how your health care decisions are managed — by you or by the government. (Hint: The current administration would be disinclined to overturn its own law.)
There are millions of hard-working Americans in the trucking industry. If this industry pulls together next November, there is still a chance to save the baby and just throw out the bathwater.
Epes Transport System Inc., Greensboro, N.C., is a truckload van carrier serving the eastern half of the United States. Parent Epes Carriers ranks No. 78 on the Transport Topics Top 100 list of the largest for-hire carriers in the United States and Canada.