Cost of tax, health care changes weighed at summit

While tax changes are always on the minds of business owners, evolving health care laws continue to compete for their attention, as discussion at a recent Providence Business News Summit on Government Regulations and Business showed.
Approximately 100 business leaders attended the Nov. 6 event at the Crowne Plaza Providence-Warwick that featured a five-person panel that also discussed a new electronic unemployment-claims process, among other issues.
As expected, the federal Affordable Care Act was a major topic of discussion, a “very complicated law with about 2,400 pages,” said panelist Robert P. Brooks, managing partner of Adler Pollock & Sheehan and chair of the law firm’s labor and employment law group.
“There will be attempts by Republicans to revoke the ACA, so we’re probably in for a lot more gridlock,” he said. “It will raise the profile of the issue.”
Some businesses will be more affected than others, the panelists said, by requirements to comply with the health care act, also known as Obamacare. In 2015, the provision will apply to companies employing 100 or more full-time workers, but in 2016, it will affect those with 50 or more.
Brooks said that 1,253 employers in Rhode Island will be affected by the changes, 555 next year and the rest in 2016, making it “a pretty large number for a state our size.”
Another issue discussed is what constitutes full-time status, he said, a “definition some employers will find disconcerting,” since it doesn’t just count hours at work but also things like vacation, holiday, sick and military-leave time.
“One interesting thing under ACA is the requirement to offer coverage to individual employees and dependents but not spouses,” Brooks said. “How in the world do you go to Blue Cross and ask for dependents but not spouses? At our firm, we renewed our coverage this year providing family plans. That’s the way we’ve always done it.”
Applicable employers under the law must contribute to the cost of a single-only plan where it doesn’t cost more than 9.5 percent of the worker’s gross income, and the plan has to meet certain requirements. Companies violating the law face fines of $2,000 per person. The penalty aspect raised the question of whether it would be cheaper to pay the fine or provide the insurance.
“When you take the lowest-paid, full-time worker, where the typical rate may be $10 an hour, at 9.5 percent the employer ends up contributing about 50 percent,” said James J. Raiola of James Raiola CFP & Associates, and a member of the expert advisory board at HealthSource RI, the official state marketplace for health insurance under the ACA. “That’s very close to the $2,000 penalty.”
But, he said, most employers will need to step up and abide by providing a minimal pay-or-play provision, he said.
“By 2016, you’ll have to show compliance to the IRS,” Raiola said. “It’s not going to be easy to avoid penalties. I’d rather see them take the liability and offer a plan rather than getting caught and hit with say a $200,000 penalty.”
HealthSource RI will cost $20 million a year to run, Brooks said, with the federal government putting up the money until 2016.
“The [election] changes in Washington … throw a monkey wrench into any hope of the federal government coming up with the money to help the state to pay for it,” he said. “HealthSource RI is a great option but it’s expensive and the concern, is where do they get the money?”
Raiola said when he meets with companies he makes everyone aware of what the true cost of the ACA is, and where the money is coming from for the expansion of Medicaid. In 2013, he said, a company with 250 or more single filers had its rates go up by 6 percent to fund the ACA.
“But if I meet with a group not in that bracket, they may say it’s not on their radar,” he said. “But 5 percent of every renewal we get from Tufts and other providers goes to the ACA. We all collectively pay to solve the uninsured problem.” Some businesses may reduce full-time help to part time to avoid paying, which isn’t always the best idea, said Bruce A. Desrosiers, a tax director with BlumShapiro.
“Businesses see high-quality workers and need to keep them,” he said. “They make a choice to offer insurance but shop for better ways to offer it, showing where to go to get cheaper MRIs or X-rays, or putting wellness plans in place. I quit smoking 30 days ago through a program and those are the kinds of things that encourage a workforce to stay where they are, be happy and make businesses more profitable.”
Desrosiers also spoke of the changes in corporate taxes: “In Rhode Island, the major change to corporate taxation is reducing the rate from 9 percent to 7 percent, curtailing the franchise tax, initiating combined reporting and adopting a single sales tax. A lot of words your accountant is well-versed in.”
In 2015, he said, C Corporations will be subject to combined reporting in the state.
“If I have a subsidiary group or a brother/sister group, if I’m running a unitary or single business, if I cross state lines with a management company, this unitary or combined tax will address that,” Desrosiers said.
A major change has been made in estate taxation, said David T. Riedel, counsel at Adler Pollock & Sheehan. New rules eliminate state estate taxes for less than $1.5 million in assets starting in 2015; currently estates worth at least $921,655 are taxed at full value.
“For a $2 million estate, the tax is now $100,000, but next year will be $35,000,” Riedel said. “Is that good enough to keep people moving out of state where there aren’t estate taxes? It’s a start, but for larger estates it won’t make that much difference.”
Overall, he said, “estate tax only accounts for $30 million in the state, it’s not a lot.”
Recent automation is a major step at the R.I. Department of Labor and Training, said Jason Bliss-Wohlers, coordinator of unemployment insurance programs for the department. The DLT joined with the Unemployment Insurance Separation Information and Data Exchange System, known as UI SIDES. “We started in April 2012, and it works well for us,” he said. “It reduces expenses.”
When someone filed for benefits under the paper-driven system, “sometimes forms were unreadable,” he said. “People would write information between the lines or up and down margins.”
The online system is far clearer and faster, he said, adding “when someone files for benefits, we send the information to the employer that day. By the next, the claim is available for the employer to respond. We’re getting a four- or five-day lead time on what we had before, and it’s a lot more secure.”
Another cost reduction is curtailing fraudulent payments, which he said account for 2 percent to 5 percent of claims. And the new system makes it easier to recover money that was improperly paid, he said, through tools like the National Directory of New Hires, where names can be checked and cross-referenced.
“If you win the lottery and owe us, we get our money before you get the check,” he said. “We can also get it from tax refunds.”
Michael Healey, chief public affairs officer for the department, was in the audience and spoke to the changes.
“Between legislative changes and repaying the principal on our UI loans, we’re a couple days away from having a clear account on federal loans, a credit to Rhode Island businesses and workers who shared in real pain the last few days,” Healey said. “Without businesses, we don’t have a UI program to administer.”
Savings, Desrosiers said, “mean maybe more jobs are available, it’s more enticing for the business community to hire if they have a lower cost base.”
“Over the next two fiscal years because of all that,” Healey said, “we’ll save $95 million for Rhode Island businesses on unemployment tax.” •

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