Telling Where It Hurts
Two Companies Explain Their Choices in Light of the New Health Care Law
by Tara Taffera
After years of debate it seems comprehensive health care reform—via President Obama’s Affordable Care Act—is set to go into effect January 1, 2014. To gauge the impact this new plan, and healthcare in general, is having on door and window companies we spoke to two very different window company owners. One is a manufacturer with more than 50 employees and the other a dealer with less than 30 employees and installers. Surprisingly, we found costs aren’t the only items shaping these decisions. In fact, you may be stunned at the factors driving their healthcare choices.
Case Study: Window Manufacturer
Gilkey Window Co.
Approximately 100 employees
Moral philosophies are driving the way Mike Gilkey, owner, Gilkey Window Co., makes his decisions about health care.
Gilkey Window Co. has been in business since 1978 and has provided employer paid health care to his employees since 1990. As of April 1, 2013, however, workers there have to pay for their own health care as Gilkey has ended coverage.
Come January 1, 2014, when the plan goes into effect, Gilkey will otherwise have to pay $2,000 per employee for the sum of $140,000 per year. He must fork over these fines as he is not offering health care to his employees.
Why not just offer a medical plan? For Gilkey, it’s a matter of principle. The reason he dropped his coverage is due to a little known part of the plan (see page 19).
“From what I understand, under Obamacare, $1.00 per month of each person’s premium goes to subsidize abortion costs,” says Gilkey. “Also, with the mis-named ‘Contraceptive Mandate’ (see page 19) all policies must cover birth control pills and devices. These ‘birth control’ methods interfere with human lives after they have been created.”
So were employees at Gilkey suddenly wondering what they would do to cover their medical costs? Actually it wasn’t that sudden and employees may not have been that surprised. Gilkey, who says “he is lucky to be a Catholic,” isn’t shy about his views.
“Even before the presidential election I knew this was coming and sent a letter to my people so they could vote accordingly,” he says. “I guess I was trying to influence votes. That shoe dropped when Obama was reelected, then the other shoe dropped when our health care renewal was coming up. At the meetings there was no pushback at all. I thought there would be and I wanted to be prepared and let them know what their options were.”
Though he didn’t agree with the health care plan he would have complied with its principles.
“I thought it would be a mistake for the economy but I would have gone along with it,” he says. “We could all go bankrupt together.”
All that changed when he learned the details. Still, he didn’t want to just drop the insurance so he tasked his insurance agent with finding a new plan.
“I felt like it was our job to search for options for our employees as we could do it easier than they could.” Ultimately, he couldn’t find a health care program that didn’t conflict with his moral views. Gilkey now offers employees the limited pay basic care program from Reliance Standard Life Insurance Company based in Philadelphia.
“This program is not considered a health insurance plan therefore it doesn’t need to meet or contain the Obamacare requirements including the contraceptive/abortion aspects,” says Gilkey. “My company does pay half of the monthly premiums of our employees, and it will be a significant help to them and their families if needed.”
The Numbers Game
Though Gilkey was accommodating, searching for a new plan that kept employee’s interest in mind, he did look seriously at reducing the number of his employees to less than 50—if he did, these moral dilemmas would vanish and he wouldn’t have to comply with the mandate. He considered firing his in-house salespeople and installers and instead subcontracting the work. He even made a drastic move regarding his insulating glass (IG) production. The company no longer produces its own IG, so those employees were let go which reduced his count by 12. Still he had 38 more to downsize and he just couldn’t figure out how to reduce that number of employees and still operate his company.
According to the health care plan, Gilkey’s employee count would be based on a six-consecutive-month period in 2013. “So we would have had to get down by June 1 to 49 people,” he says. “My installers were telling me it would be hard for them to adjust to pay their own taxes, etc. I was feeling it out with them and realized this would create more than $2,000-per-employee of chaos.
“After anguishing over the whole thing, we figured it’s better not to have it, but pay the penalty. As we worked through it we realized getting our count to below 50 would be a mortal blow to the company,” adds Gilkey.
What happened to his IG line? Will that be resurrected now that Gilkey doesn’t have to aim for less than 50 employees? He says he is going to stick to that decision and sell the equipment: he now buys his IG from Cardinal.
“It’s a loss of jobs, and yes it will cost more to purchase our glass but we won’t go back,” says Gilkey. “It was gut-wrenching firing these people.”
Is There Hope?
Though this whole issue of abortion and contraceptives as it relates to health care has not been widely reported, a deeper look will reveal some very high-profile companies such as Hobby Lobby, Dominoes and Chick-fil-a, fighting back on this very same issue (see below). Gilkey explains that even though the plan doesn’t go into effect until January 1, 2014, a company has to be compliant when their health insurance comes up for renewal—and for Gilkey that was May 1, 2013.
“Somehow the Hobby Lobby attorneys wiggled it around and now they don’t have to renew until December 31. They bought themselves one more year … Domino’s Pizza was also successful in getting an injunction against the mandate.”
Yes those companies are giants compared to Gilkey’s, but why didn’t he fight back? He couldn’t, due to an overlooked fact that he continues to lament today.
Gilkey told his human resources (HR) division that he didn’t want a health plan that covered birth control and abortion.
“Last February I found that my health plan was covering birth control. I mentioned it and my HR director (who happens to be Gilkey’s sister) said she was unaware of what the plan covered,” he says. “I truly believe she didn’t know. I didn’t have standing to file a lawsuit as I inadvertently covered it before.”
Other companies can file lawsuits and they have done so in large numbers (see below). “Hopefully the Supreme Court takes the case and they throw out this mandate,” says Gilkey.
Case Study: Window Dealer
The story of Mark Milanese, owner of Milanese Remodeling, in the Pennsylvania steel town of Coatesville couldn’t be more different than Gilkey’s. Ultimately, employees at this window company are not affected by the health care plan—with less than 50 employees it is not required to offer health care. Like Gilkey, Milanese wrestled with rising health plan costs and ultimately dropped insurance for his workers.
Employees at this window company are younger, says Milanese, and he has always provided insurance—he had to.
“We are in the steel belt,” he says. “We have always competed for union steel workers [who have great benefits] so our benefits were always extraordinary.
He adds, however, that at some point it was more than a competitive advantage—“it became a moral obligation,” he says.
The steel worker eventually became extinct, and a city that once had three blue collar workers for every one white collar now has two white collars for every blue, so to speak.
“I no longer was obligated to provide health insurance to compete for laborers, I did it to be able to sleep at night I needed to know they would have health insurance,” says Milanese. “How can I look my employees in the eye if I have better insurance than them—if their children don’t have the same opportunities as mine?”
So how did he get from there to here—from exemplary coverage to none? It’s simple: his brother, Gabe, who also works for the company, was diagnosed with brain cancer.
“We were given a 60-day notice of a 98-percent increase for every employee,” says Milanese. “Our rates rose $20,000 per month.”
Milanese had to run really fast to come up with a solution.
“We reduced our group,” he says. “Gabe couldn’t get insurance somewhere else so we came up with four people to keep that group. We had the best in there, single, no dependents, no smokers, etc.”
Milanese researched alternatives for the rest of the employees and says the alternatives went from the ridiculous to the sublime.
“There were plans that would give us two office visits per year and the rest would be through Medex, which consists of an Internet physical. That was an alternative that brought us from a 98-percent increase in costs to 65 percent,” says Milanese.
So instead Milanese gave its employees funds so they could purchase their own insurance.
“It is more expensive for them than it was last year, but we basically had to stop providing insurance,” Milanese admits. “Maybe it’s [ObamaCare] needed, I don’t know,” he adds. “People lost their lives long ago to get these benefits we take for granted. Maybe government is the answer. As a business person it’s tough out there.”
What is the HHS Mandate?
On February 15, 2012, the Obama Administration published a final rule mandating contraception and sterilization coverage in almost all private health plans nationwide, with a narrow exemption for some religious employers. The rule was published by the Department of Health and Human Services (HHS), Department of Labor and Department of the Treasury.
According to that rulemaking, “Section 2713 of the PHS (Public Health Service) Act, as added by the Affordable Care Act and incorporated into ERISA (Employee Retirement Income Security Act) and the Code, requires that non-grandfathered group health plans and health insurance issuers offering group or individual health insurance coverage provide benefits for certain preventive health services without the imposition of cost sharing. These preventive health services include, with respect to women, preventive care and screening provided for in the comprehensive guidelines supported by the Health Resources and Services Administration (HRSA) that were issued on August 1, 2011.”
The HRSA Guidelines require coverage for ‘‘all Food and Drug Administration [(FDA)] approved contraceptive methods, sterilization procedures and patient education and counseling for all women with reproductive capacity, as prescribed by a provider,” according to that rulemaking.
The exemption for “religious employers” pertains to the following groups, according to the Federal Register announcement. “A religious employer is one that: (1) Has the inculcation of religious values as its purpose; (2) primarily employs persons who share its religious tenets; (3) primarily serves persons who share its religious tenets; and (4) is a non-profit organization described in section …”
Full Court Press
Although Mike Gilkey couldn’t file a lawsuit, other companies did just that. As of the end of April, 60 lawsuits challenged the Obama administration’s contraception coverage mandate. Legal experts predict that the Supreme Court will take up the issue sometime this year.
The Thomas More Law Center (TMLC), a national non-profit public-interest law firm based in Ann Arbor, Mich., announced in March that it has filed its fourth legal challenge to the HHS Mandate. This fourth case was filed on behalf of Michael Potter, chairman and president of Eden Foods.
TMLC attorney Erin Mersino has been spearheading the Law Center's legal initiatives against the Federal Government's HHS Mandate, which, according to Mersino, requires companies to provide insurance for their employees that cover and promote abortion-inducing drugs and contraception. Thus far, Mersino has secured preliminary injunctions against enforcement of the HHS Mandate for two of the employers she is representing. Motions for preliminary injunctions in her other two cases are forthcoming.
Mersino obtained a preliminary injunction against enforcement of the HHS mandate on behalf of Thomas Monaghan, a nationally known Catholic businessman who founded Domino’s Pizza.
In past years Potter was able to exclude from his company's Blue Cross policy insurance coverage for contraception and abortion-inducing drugs, categorized by Blue Cross as "Lifestyle" drugs. However, in March he discovered that Blue Cross inserted the HHS mandated coverage without his knowledge or consent, says Mersino.
The purpose of the lawsuits are to seek a court ruling that permanently blocks implementation of the HHS Mandate, according to a press release issued by Mersino.
Mark Milanese, Milanese Remodeling, couldn’t change insurance companies when his brother was diagnosed with brain cancer. His current insurance plan raised rates by 98 percent and other companies would have done the same due to his brother’s pre-existing condition. In fact, Obama’s health care plan includes a $63-per-head fee “to cushion the cost of covering people with pre-existing conditions,” according to a Fox News report. The fee is temporary, raising $25 billion over three years, according to CBS News.
Most of the money will reportedly go into a fund administered by the Health and Human Services (HHS) Department. “It will be used to cushion health insurance companies from the initial hard-to-predict costs of covering uninsured people with medical problems,” says the Fox article.
Small Business News: Tax Breaks Go Largely Unclaimed
While employers with less than 50 employees are not required to offer health insurance under the new health care law, the government does offer tax credits, in the hopes of enticing more small employers to offer insurance.
The tax credit is available to “small employers” with fewer than 25 full-time equivalent employees who pay an average wage of less than $50,000 a year, and pay at least half of employee health insurance premiums, according to the Internal Revenue Service (IRS).
For tax years 2010 through 2013, the maximum credit is 35 percent for small business employers and 25 percent for small tax-exempt employers such as charities. An enhanced version of the credit will be effective beginning January 1, 2014. (Additional information about the enhanced version will be added to IRS.gov as it becomes available. In general, on Jan. 1, 2014, the rate will increase to 50 percent and 35 percent, respectively.)
Surprisingly, the General Accounting Office (GAO) says fewer small employers claimed the Small Employer Health Insurance Tax Credit in tax year 2010 than were estimated to be eligible. While 170,300 small employers claimed it, estimates of the eligible pool by government agencies and small business advocacy groups ranged from 1.4 million to 4 million, according to a GAO report. The cost of credits claimed was $468 million.
One factor limiting the credit’s use, the report continues, is that most very small employers, 83 percent by one estimate, do not offer health insurance. According to employer representatives, tax preparers, and insurance brokers that GAO met with, the credit was not large enough to incentivize employers to begin offering insurance. Complex rules on full time employees and average wages also limited use. In addition, tax preparer groups GAO met with generally said the time needed to calculate the credit deterred claims. Options to address these factors, such as expanded eligibility requirements, have trade-offs, including less precise targeting of employers and higher costs to the Federal government.
Is That It?
The answer to that question is a simple no. With this massive plan about to take effect, employers may still have additional concerns. For more answers on the Affordable Care Act, look to the Frequently Asked Questions section found on the Department of Labor site. The mammoth health care plan requires 15 separate FAQ sections.
Tara Taffera is the editor/publisher of DWM/Shelter magazine. She can be reached at email@example.com. Follow her on Twitter @dwmmag, read her blog at dwmmag.com and like DWM magazine on Facebook.
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