Who’s Afraid of Obamacare?

In 1998, Bob McCafferty set out to start a business that would pay the bills and give him more free time to go camping. He bought a run-down funeral parlor dating to the 1850s. For the next several years, he spent nights restoring the building while holding down jobs as an archaeologist and bartender. He and his wife, Jodi, transformed the space into a microbrewery that could pass for a Middle-Earth pub in a Peter Jackson movie.

“Nobody thought I’d pull it off,” he says. But in 2005, North Country Brewing Company opened in Slippery Rock. Ever since, it’s had a waitlist almost every night.

From the beginning, McCafferty offered his managers and full-time employees the same healthcare plan he and Jodi enjoyed. Some took the insurance, while others opted for a higher salary. Fourteen employees have been with him since opening, including a dishwasher who worked his way to sous chef, and a busser-turned-barback who’s now the brewery’s yeast expert after earning a chemistry degree just down the road at Slippery Rock University.

As of June 2013, McCafferty had 82 people on the payroll and was about to open a coffee shop across the street and a second restaurant after restoring his much-loved Harmony Inn in southern Butler County. His success puts him at the center of the storm of healthcare reform. His “mom and pop” business, he says, is in peril for one reason: the Affordable Care Act (ACA). Also known as Obamacare, the ACA went into effect in 2010 but kicked into high gear in 2014.

“I voted for Obama the first time. Man, what a mistake,” McCafferty says, followed by his signature chuckle. “We’d be out of business if we were compliant [with the ACA],” he says, explaining that he can’t afford to add almost $300,000 to his payroll in order to provide insurance for all of his full-time employees. And if he decides not to cover his employees, he’ll face a $75,000 fine. The ACA will soon require businesses with 50+ employees to provide healthcare coverage for full-time employees or face a $2,000/employee penalty. (Supposed to take effect in 2014, this requirement was delayed until 2016.)

Windfall for some; hardship for most

Businesses across the region are feeling the impact of healthcare reform—although not yet fully, as key parts have been delayed through 2016. Not everyone is bearing the brunt as McCafferty is. Some have seen healthcare costs decrease—even dramatically for one Squirrel Hill accountant. But many in the business world say they are baffled by the law’s complexities and bracing for a future of even higher healthcare-related costs.

“It [the ACA] has been an administrative and financial hardship for most American businesses,” says Barbara McGinley, senior vice president of human capital management with downtown-based insurance broker HDH Group. “Clearly, we couldn’t continue on the track we were on. Something needed to be done. But this legislation was not the answer. It was not thought through. People who never had to make a payroll and hire anyone are making these decisions.”

Bob Cagna is director of client relations for USI Affinity, an insurance broker with an office in Bethel Park. “For some businesses, the ACA is good,” he says. “So far, it is saving them money while providing good coverage for their employees. But it doesn’t work for everybody.”

When companies renew their insurance plans in 2016, they will be required to offer only ACA-compliant plans that can no longer base rates on employees’ health status. Additionally, all ACA-compliant plans will be required to cover all essential health benefits. Cagna has noticed about a 50-50 split with business groups sticking to their current health plans (even those that are not ACA compliant) and opting for plans that meet ACA requirements. The reason is cost: One of Cagna’s clients with seven employees would have experienced a 55 percent jump in premiums by going to an ACA-compliant plan so the client opted for a 10 percent rate hike by sticking with their current plan.

Cagna works mostly with small- to mid-size firms of lawyers, doctors, accountants and other professionals, and business has been brisk. “I’ve done this a long time and have never seen anything like this. Every day is unique. People, I think, do get overwhelmed with this. Everything will settle down at some point. We still have a good two or three years of a learning curve.”

Making sense of reforms

“The ACA is very lengthy and complex,” says Sheryl Kashuba, vice president of health policy/government relations and chief legal officer for UPMC Health Plan. “Many businesses are confused and at times frustrated because they aren’t always sure what is required of them or what they have to do.” UPMC Health Plan created the health policy department she leads in 2010 to stay abreast of the ACA. Ever since, her department has been helping area businesses make sense of tens of thousands of pages of regulations, which she and her staff have read several times. “For the last four years, we have really tried to be visible to employers in the region and to educate them and help them navigate through the ACA.”

Making plans affordable

UPMC Health Plan has been offering group coverage for more than 15 years and was the first insurer in the region, Kashuba says, to agree to continue to offer non-ACA compliant coverage. “By offering both non-compliant and ACA-compliant plans, we are doing everything we can to make these products as affordable as possible for business groups,” says Kimberly L. Cepullio, vice president for sales and account management for UPMC Health Plan. “We have innovative wellness initiatives built into the plans, offering incentives to help people stay healthy.” She adds that for many years, large companies have taken advantage of wellness initiatives to control healthcare costs, but she’s now seeing that trend among smaller businesses.

Double whammy

In the Pittsburgh region, businesses have a second and often more-pressing issue when it comes to giving employees access to healthcare. “We have a unique issue in western Pennsylvania that the rest of the country doesn’t have to deal with,” says Cagna. “We have the possible divorce of the two provider networks. We’ve got two things beating us here.” (UPMC and Highmark settled their dispute in June, leaving many Highmark subscribers out of much of UPMC’s massive healthcare network starting in 2015.)

Cagna is concerned about what 2015 will bring, but Dana Collins of the Office of Health Care Reform with Highmark Blue Cross Blue Shield takes an optimistic view and says “the purpose of the ACA was to expand access, and when I think about what it is that is driving why we (Highmark) continue to want the contract with UPMC, it’s so that together we can improve the quality, affordability and accessibility of healthcare for everyone.” As the area’s largest insurer, Highmark covers 3.2 million members in western Pennsylvania.

Switching insurers

While UPMC and Highmark are still the major players in the health insurance market, Cagna says he is seeing United Healthcare, Aetna and HealthAmerica make headway. “People get comfortable with the Blues (Highmark plans) and UPMC (Health Plan). But they are making the switch. I just moved a medium-sized law firm of 26 employees to United Healthcare because they wanted access to both networks and have international medical coverage. I am seeing more interest in United Healthcare now than three years ago.”

More the exception than the rule, one of his clients experienced a financial windfall as a direct result of the ACA. Squirrel Hill accountant Bob Goldstein is saving $80,000 in healthcare premiums this year. That’s because he was able to switch from a group plan to individual coverage for his wife and two employees—one of whom is his daughter. Goldstein’s premiums had been so costly largely because his wife, who has a chronic illness, accrues incredibly high medical expenses.

“I used to pay $102,000 a year to insure four people,” he says. “Because of the ACA, I now pay less than $24,000 a year, I have better insurance than I did before, and my daughter’s husband is included in the plan.”

Cagna adds, “Bob’s situation is pretty unique. It happened to be the right time and right place.”

Living out a nightmare

McCafferty of North Country Brewing Company faces a much different situation. “From the beginning, we offered health insurance for people who work hard for us and who want it,” McCafferty says. “When this Obamacare came around, we already were trying to be a good company for our employees, but now it’s harder for us to do that. Our [health insurance] rates went up 6 percent last year and 15 percent this year.” And with more than 50 employees, McCafferty’s health benefits firm figured out last September that he’ll need to pay an additional $299,683 to provide his full-time employees with health insurance or face steep fines.

Operating like most restaurants at a 3- to 6-percent profit margin, McCafferty says, “We won’t be able to stay in business and stay compliant with the ACA.” He’s hoping the regulations get nixed. If not, he says he’ll be forced to cut hours for employees so they fall below 30 hours a week (considered “full time” under the ACA).

“I would consider selling my restaurant to Nancy Pelosi or Harry Reid so they can deal with this nightmare,” he jokes, but with obvious frustration directed toward the top politicians behind the reforms. “I’m a fan of everyone being able to have healthcare, but it just needs someone with a business mind and a humanity mind—not a political mind—to revamp the system. This is going to crush mom-and-pop businesses.”