The Affordable Care Act in the Salon Industry: A Case Study
After years of debate, amendments and changes, the Affordable Care Act (ACA) has arrived. In the beginning of 2015, larger salons and spas began to witness the first tremors of how it would impact their bottom lines.
Marilyn Ihloff of Ihloff Salon and Day Spas in Tulsa, Oklahoma, studied the forecast and planned ahead so she was ready to offer her employees’ health care in compliance with the new law. In fact, she launched her salon’s health care coverage a full year before it was required, so she could design a system that’s compliant but also offset additional costs.
So what does the ACA require, exactly?
On March 23, 2010, the ACA was signed into law with the intent of providing affordable, quality health care to all Americans. Per the ACA, insurance sold through exchanges is offered in four tiers, covering 60, 70, 80 and 90 percent of health service costs, respectively. Employer-sponsored plans must meet the same qualified coverage standard as plans sold on the exchange. All group health plans will have to be certified as qualified health plans and a minimum table of required benefits will be established to prevent employers from offering low-benefit “sham plans.”
The ACA currently says 30 hours per week constitutes a full-time employee. It also states that businesses with more than 100 full-time employees must offer health care to employees starting January 2015. In January 2016, businesses with more than 50 full-time employees will also be required to do so.
Ihloff owns three salons in the Tulsa area and employs 143 people with about 100 of them being full-time.
Charting New Waters
Although Ihloff wasn’t responsible for providing a health care plan until 2015, she decided to put the plan in starting in January 2014. “I think it’s so wacky that we are the only civilized country that doesn’t provide health care to its citizens,” she says. “I’m glad we finally have some sort of initiative that’s taking care of it.”
As for the salon industry, Ihloff believes the rule that any business with more than 50 full-time employees must provide insurance isn’t necessarily the right way to construct the guidelines.
The Ihloff Team
“The metric is off,” she says. “It should be tied to a combination of number of employees and average wages. An engineering firm may have only six employees and make the same amount of money as my salon with 143 employees,” she says.
However, Ihloff recognized she had to work with the system as it is, so she began planning her budget when she realized she must offer her employees a health care plan—an expense she had never previously incurred. “We’re now paying 60 percent of a health care plan, which is the requirement, for employees who work 30 hours or more—if they want it,” she says.
The ACA states full-time is 30 hours per week, although that is currently being debated and may change in the future. It also states the insurance offered to employees can’t be more than 9.5 percent of wages.
“This has been interesting because if people want the insurance, they have to work 30 hours,” Ihloff says. “Because we’re having to ante up and provide insurance, they need to put in the hours.”
For Ihloff, 60 percent means paying $248 per month, per employee. The individual employee pays $165 per month. All eligible employees did not sign up—some had better plans under their spouses, and some are under the age of 26 and are still covered by their parents.
“We did have some sign up and cancel because they couldn’t afford it,” Ihloff says. However, in 2015, cancellation won’t be an option without incurring a tax penalty. Because Ihloff launched a year early, employees could try it and cancel without a penalty. This year, employees who go without health insurance will pay a tax penalty.
Comments
Archived Comments
4 Comments (Comments are closed)
-
Related Articles
-
Beyond Technical: Aveda Education is Big Picture
Addressing salon culture is a priority for successful salons, paying off in dividends for those who understand its importance. Because of the impact a strong culture can have on a salon, Aveda has created educational opportunities– above and beyond technical education– for its salon network. Salon owners who take advantage of these classes […]
READ MORE »
-
Serious Business 2025: The Evolution of You
Serious Business 2025’s conference theme, “Evolve,” focuses on personal and professional growth. Through insightful speakers and interactive sessions, attendees will explore adaptation, mindfulness, and leadership.
READ MORE »
-
Gen Z’s Mission to Reclaim Life from Work
For years, salon owners have been trying to help their stylists achieve the elusive work-life balance. Four-day work weeks, Saturdays off, double shifting, unlimited time off … owners have experimented with just about everything. Now, Gen Z has entered the workforce and they’re shaking things up even more. They have a lust for life and a drive to […]
READ MORE »
-
Thank you for the insight, Pat.
I have been in business in NC for 20 years this year and 16 years before that in WV. While insurance costs have truly increased immensely over the years, we have always offered it. Now it is a bit different, but still we are able to pay 60% for FT employees.
When determining the 30 hours per week benchmark, my agent told me many years ago to add up all of the hours an employee works in a year and divide by 52. That will give you the “real” number of hours per week they work.
We try to set full timers up on a 35-40 hour per week schedule. Anything much less than 35 does not average out. Once they have their vacation days, personal days, sick days, holidays, etc. very few of them put in an actual 2000 hour work year.
So, it could help to know exactly how many hours per week your employees really work.
Also, we also know that there are only so many slices in a pie, The money must come from somewhere to pay for benefits such as this. We are able to manage as a result of our Team Bast Pay structure which allows for expenses, including a moderate payroll first, and if there is extra left over, the team gets it in the form of a bonus. So less $$$ up front as salary + more dollars on the back end if, and only if all expenses are met.
FYI: I would caution posting “older case studies” for the ACA. Salons who reimburse their workers for health care costs will face tax penalties beginning Wednesday, July 1st.
Prior to the passage of the Affordable Care Act, with its mandate that all Americans purchase insurance and requirement for businesses to offer employees insurance plans, many salons provide coverage by directly reimbursing medical costs or for the cost of private insurance plans. Salons do it because that’s a less complicated process than dealing with an official health insurance plan, but continuing to do so after July 1 could cost them hundreds of dollars in fines each day.
Business groups are calling attention to what they say is an obscure part of ACA that could crush small businesses who are unaware of it.
“It’s the biggest penalty that no one is talking about,” said Kevin Kuhlman, policy director for the National Federation of Independent Businesses, on Tuesday, June 30th.
The penalties will only affect businesses with less than 50 employees. Those with more than 50 employees are already required to offer a health insurance plan.
The new rule is the result of an Internal Revenue Service interpretation of part of the ACA. It seems intended to force employers to offer a group health insurance plan (or leave their employees to fend for themselves on the health insurance exchanges).
The IRS says those reimbursements — technically known as “employer payment plans” — are “considered to be group health plans subject to the market reforms, including the prohibition on annual limits for essential health benefits and the requirement to provide certain preventive care without cost sharing.”
The end result?
“Such an arrangement fails to satisfy the market reforms and may be subject to a $100/day excise tax per applicable employee (which is $36,500 per year, per employee) under section 4980D of the Internal Revenue Code,” according to the taxmen.
Business groups say the punishment doesn’t fit the crime.
“Reimbursing employees for the cost of insurance or medical services is a way for small businesses to help their workers without the administrative headache of setting up a costly group plan,” said Kuhlman. “Most small employers don’t have HR departments or benefits specialists, so this is a simpler, easier way to help their employees.”
The prohibition on employer reimbursement was supposed to start last year, but the IRS postponed implementing it until July 1, 2015.
This was great information and very timely for us. I agree that providing health insurance is something that shows we care about our employees but it also carries a big price tag. Thank you for sharing your idea on sur charge. We personally take the financal hit to make sure we offer insurance.
Our industry has mainly young women and they would not be taking care of themselves as well without assistance.
Great advice shared as always! Thank you Neill Corp.