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Pasta House Co. owner Bob Hoppmann, above, talks with longtime customers Doug and Mary Jane Van Fleet. Group health penalties under federal reform are a major issue for restaurants, which have slim profit margins, many part-time workers and often don’t provide coverage. | John Wright. The Journel.

Possibly having to pay stiff health insurance-related penalties under mammoth federal reform doesn't sit well with Paducah restaurateur Bob Hoppmann.

"My bottom line is nil," said the owner of the Pasta House Co. behind Kentucky Oaks Mall. "If I'm going to have to pay thousands of dollars to pay for health insurance, it will be impossible."

Hoppmann opened the new, expanded eatery two years ago amid the worst recession since the Great Depression. The past 14 months have been a financial struggle as consumers eat out less because of declining disposable incomes, he said.

Sales are down 6 percent this year over 2009, he said.

"I know I'm probably about average compared with other restaurants," Hoppmann said. "The beer and liquor guys, the insurance guy, and my vendors all tell me they're down, too."

50-worker threshold

Restaurants, retailers and contractors are among the most vulnerable under federal health care reform, according to those who have analyzed the 2,700-page Patient Protection and Affordable Care Act. Those businesses have many part-time and seasonal workers who by formula must be factored into full-time equivalent positions.

Firms with more than 50 FTEs who don't offer health insurance must pay annual penalties if they have at least one worker eligible for subsidized federal insurance through a state exchange. Eligibility is based on income. Penalties are $2,000 per full-time employee, but the first 30 employees are excluded.

Brad Bolte and Jason Robbins (from left) of Benton’s Pinnacle Construction Inc. assemble materials for the new Community Financial Services Bank in Murray. Pinnacle pays for employee coverage but reform requires young adult children to be added if they have no other insurance. | Photo provided.

Similarly size companies who offer coverage, but have at least one full-time subsidized employee, pay the lesser of $3,000 for each employee receiving a subsidy or $2,000 for each full-time employee.

Hoppmann, who doesn't provide health insurance, employs 56 — more than 40 of whom chose to be part time, he said.

Stacy Roof, president-CEO of the Kentucky Restaurant Association, said, "Our industry is absolutely affected, from the tiniest mom and pop to the largest chain and everybody in between."

Kentucky's roughly 6,700 restaurants employ about 138,000 people, making them the second-largest employer behind government, she said.

But restaurant profit margins struggle to reach 3 percent, Roof said, and many eateries could find paying penalties cheaper than providing health insurance.

Another reform provision requires businesses to file 1099 tax forms for any payment exceeding $600 a year for goods and services. Restaurants are hard hit because they buy uniforms, equipment and many services, Roof said.
"In my opinion that's ludicrous," she said. "The National Restaurant Association is trying to stop it."

Coverage mandates

General contractor Pinnacle Inc. of Benton currently has 29 workers but averages about 43 and has approached 50 during better economic times, President Dennis Smith said. Pinnacle insures its workers, who pay for their family coverage

Under reform, employer plans starting Sept. 23 must:

• Include children up to age 26 if they aren't eligible for other group coverage.
• Bar lifetime limits on the dollar value of essential benefits.
• Not charge extra for preventive care such as mammograms. Grandfathered plans are excluded.

Reform highlights Tax credits go to small firms — no more than 25 employees and average annual wages of less than $50,000 — that buy health insurance for workers. Phase-outs begin with 11 employees and/or wages over $25,000 on average. 2011 • Unless prescribed by physician, over-the-counter drug costs excluded from health reimbursement, flexible spending, health savings or medical savings accounts. 2013 • Flex-spending account contributions for medical expenses limited to $2,500 per year, increased annually by a cost-of-living adjustment. 2014 • Everyone must buy health insurance or face a $695 annual tax penalty up to a maximum of $2,085 per family, although exceptions exist for some low-income people. Reform is intended to expand health coverage to 32 uninsured Americans. • Employers with more than 200 workers must automatically enroll them in company-sponsored health insurance plans. Workers may opt out of coverage. • Workers will be eligible for federal subsidies if they pay more than 9.5 percent of their gross adjusted income for employer coverage. Insurance agents and CPAs say that puts more work on employers to determine employees’ family incomes. • Businesses employing more than 50 people who don’t offer health insurance must pay annual penalties if they have at least one subsidized worker buying health insurance through a state exchange. The fee is $2,000 per full-time employee, but the first 30 employees are excluded. • Employers with more than 50 employees who offer coverage, but have at least one full-time subsidized employee, pay the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each fulltime employee. Sources: Peel & Holland Financial Group, Johanna Fox CPA, Buck Consultants

Those and other changes could add considerably to the cost and management of group health plans, said Steve Travers of Western Rivers Insurance in Paducah.

"When business owners try to decide whether to keep a grandfathered plan or change, it's going to be based on how big a hit they've taken this year on cost," he said. "We're seeing increases of 10 to 20 percent."

Besides payroll, in-house group insurance is the biggest cost of Western Rivers itself, President Allen Dossey said.

Tax credits

• To qualify for partial credit for providing insurance, a business must have no more than 25 FTEs employees whose annual wages average no more than $50,000, said Johanna Fox Turner of Johanna Fox CPA of Mayfield.
• To qualify for full credit, a business must employ no more than 10 FTEs with annual wages averaging less than $25,000.
• Phase one of the credit is available for tax years 2010-2013 for health insurance purchased from a state-licensed insurance company.
• In phase two — years 2014–2015 — the credit is available only to an eligible small employer that buys health coverage through a state exchange.

Some eligible employers could potentially qualify for this credit for six tax years — four years under the first phase and two years under the second, Fox said.

Travers said some small business owners have considered starting group coverage to gain the credits, but spouses' plans already cover many workers.

"With the requirements of a group health plan, you usually can't get the right amount of people to establish a plan," he said. "So it's kind of a double-edged sword. Either you don't have enough interested folks or they don't make enough money to pay their share of the premiums."

Pass-through costs

Tax credits probably won't compensate for greatly increased paperwork, cost and reporting requirements of group health coverage under reform, said Greg Carlton of Peel & Holland Financial Group in Benton.

"My gut tells me the average small business under 50 employees is probably going to use this as an opportunity to get out of offering health care benefits," he said.

Overall, reform could dramatically affect a company's per-employee costs, labor allocation, capital equipment investment, desire to take on health care benefits or alter other benefits, and motivation to grow in size and employment, said Lars Blythe of Blythe, White & Associates certified public accounting firm in Paducah.

Employers may pass some of the costs on to employees in reduced wages, hiring freezes or even layoffs, Blythe said. Retirement funding and other existing benefit structures could change to absorb new costs, he said.

"Instead of adding employees, businesses may seek to increase hours for current employees, outsource or use independent contractors," Blythe said.

Courts, Congress

President Barack Obama and reform supporters said reform carried no new taxes, but the act's constitutionality is almost certainly headed for the U.S. Supreme Court, Turner said. "I believe this ‘penalty' is merely a pseudonym for ‘tax.'"

If Republicans take control of the House after the November election, one of the first votes taken next year will be to repeal health reform, U.S. Rep. John Shimkus said.

Health care reform workshop When: 8 a.m. - noon Sept. 2 Where: Emerging Technology Center, West Kentucky Community & Technical College Who: Greg Carlton - Peel & Holland Financial Group; Lars Blythe - Blythe, White & Associates; John Mark Fones - Center Care; Bruce Thompson - North American Administrators; Lawrence Ford - Anthem Target: Businesses employing more than 50 Cost: $35 Registration / Information: www.peelholland.com/healthreform , 800-599-8621

Shimkus, a Republican who represents most of southern Illinois, said the House would vote for repeal. But it would have little chance of repeal in the Senate because Republicans won't be in control, even if they pick up seats, he said.

Without a full repeal, Shimkus said, opponents can block parts of reform from taking effect over the next four years by not approving adequate funding.

 

Contact Joe Walker, journal editor, at 270-575-8656.

Cuts in Medicare driving outpatient, private-pay trend By JOE WALKER jwalker@paducahsun.com Dr. Jim Eickholz confers with medical assistant Erika Herzog at his office. He and other physicians are wrestling with big Medicare cuts under health care reform. | Contributed photo. Doctors, hospitals and other health care providers wonder how they will stay in business with a projected half-trillion dollars in Medicare cuts over the next decade. Richard Foster, Medicare's chief actuary, issued an Aug. 5 report sharply contrasting with Treasury Secretary Tim Geither's upbeat assessment that the Medicare fund will remain solvent another 12 years, until 2029, under health care reform. "The number of facilities that would become unprofitable will grow to 25 percent by 2030 and 40 percent by 2050 if the health reform law is implemented as written," Foster wrote. Depending on the type of practice, physicians count on Medicare for 35 to 70 percent of their income. Health care providers in the Paducah area say they hope Congress will inject common sense into reform legislation. "It could be devastating, or they could come up with a fix," said Dr. Jim Eickholz. "I think probably it will be somewhere between the two." Medicare cuts Eickholz, a family doctor, said roughly a third of his patients are on Medicare, but the number grows as patients age. Reimbursement cuts and a massive wave of baby boomers combine for what he calls a perfect storm. "I think everybody is going to have to give a little as health care providers and business owners," Eickholz said. Eickholz said primary care doctors are in short supply because their income has trouble covering soaring malpractice insurance premiums, rising employee costs and declining Medicare reimbursements "That's a business model that works with some specialties, but not for primary care," he said. "We're at the low end of the food chain." He said he may have to hold down costs by avoiding major purchases in the near future. Long term, having more private-pay patients is the answer unless Medicare reimbursement increases, Eickholz said. On June 24, the U.S. Senate delayed a planned 21.3 percent Medicare fee cut for six months and even raised payments 2.2 percent. Prior to the short-term fix, Eickholz and other doctors said, the cuts were not sustainable. "A 21.3 percent cut means a large number of doctors in this country will cease to see Medicare patients," said Dr. James Long with Internal Medicine Group in the Lourdes Medical Pavilion. Medicare patients comprise about 60 percent of his practice. Hospital views A 2.7 percent cut in Medicare reimbursement will cost Western Baptist about $1.9 million a year for the foreseeable future, said Jim Carmain, chief financial officer. "That's a sizable amount of money," he said. "What I see is you're going to have more people to take care of with less money." Western Baptist's Medicare caseload is up 6 to 8 percent as the population ages, he said. Both Western Baptist and Lourdes continue shifting to outpatient care as a less expensive way to treat an aging population. Lourdes nurse Sharon Carter uses telemedicine equipment to monitor a home patient's blood pressure. Medicare cuts are forcing a shift to outpatient and home care to lower costs. | Lourdes photo. Nicholls said Lourdes has hired a discharge nurses and planners to help educate people with chronic diseases. Patients take home durable binders containing their health records, follow-up appointments and other information. Lourdes will continue expanding hospice teams for a telemedicine program that began last year for congestive heart patients. Nicholls said a home medical device allows patients to adjust medications and make other changes to avoid readmission to the hospital. "We're definitely partnering more with doctors in town," she said. "Many are at the point where they're considering employment with hospitals." Nicholls said partnerships improve team health care and make it easier to disperse payments under one umbrella. "Doctors and hospitals must put into place systems to make it easier to manage the business side of what we do," she said. Medicaid Medicaid is the nation's largest health insurance program, covering about 59 million low-income pregnant women, children, the disabled and seniors. Reform raises the mandatory minimum income eligibility level to 133 percent of the federal poverty level. It also requires states to expand Medicaid to include childless adults starting in 2014. As a result, Kentucky's record Medicaid enrollment is projected to swell from 800,000 to more than 1.1 million. The federal government — which normally shares Medicaid expenses with states — is paying all the costs of newly-eligible people through 2016. Western Baptist's Medicaid caseload is rising because of high unemployment and companies' dropping group insurance because of soaring costs, Carmain said. "I do think that trend will continue." He said many area employers are self-insured. They may find it cheaper to pay penalties under reform and drop coverage, putting even more people on Medicaid. "Some experts say 70 percent of Americans could be eligible for a combination of Medicare and Medicaid," said Greg Carlton of Peel & Holland Financial Services in Benton. Contact journal editor Joe Walker at 270-575-8656. Health reform fees, taxes 2011 • Annual fees on branded drug makers / importers, increasing from $2.5 billion in 2011 to $4.1 billion, then $2.8 billion annually. 2013 • 2.3 percent excise tax on manufacturers and importers of certain medical devices • Medicine tax increase from 1.45 percent to 2.35 percent for high wage earners; 3.8 percent tax on investment income for families making more than $250,000 annually. 2014 Annual fee on health insurance providers, rising from $8 billion in 2014 to $14.3 billion in 2018, then indexed to medical growth. 2018 40 percent excise tax on "Cadillac Plan" health coverage costing more than $10,200 for individuals and $27,500 for families. Source: Tax Foundation, Buck Consultants