What veterinary practices need to know about changes coming as a result of the Affordable Care Act
Your veterinary clients may not see it coming, but you do. It’s the Affordable Care Act and, surprisingly, it’s going to impact your clients, veterinarians across the United States.
By Rick Rubin, CPA; Bob Carreker, CPA; Tommy Lee CPA
Veterinary services are subject to flux in the U.S. economy and changes in per capita disposable income. For example, during slower economic times, consumer willingness to own pets and pay for high-cost veterinary services – like surgical procedures – decreases. For this reason, veterinary revenues dropped slightly during the recession due to fewer client visits and a drop in average transaction charges as clients only purchased those procedures deemed necessary for their pets. According to a leading research house, IBIS World, veterinary service revenues were expected to increase by 4.6 percent to $29.9 billion in 2012 due to an increase in pet ownership and a greater willingness to spend money on pet health. But will that increase come to a screeching halt in 2013 and beyond?
Sections of the Affordable Care Act (ACA) legislation will have a significant bearing on veterinarians and their practices. The biggest impact of the ACA on veterinarians will come from two areas, the Medical Device Excise Tax and the Employer Mandate.
What is the Medical Device Excise Tax?
The Medical Device Excise Tax is a 2.3 percent tax on sales by manufacturers and importers of certain medical devices registered with the FDA. The excise tax took effect on Jan. 1, 2013, and some veterinarians may already be feeling the impact. This additional tax has placed a burden on medical device manufacturers and importers, and the increased cost will ultimately come out of the buyer’s (your veterinarian’s) pocket.
You may be wondering how the FDA registered medical devices impact veterinarians who work with animals. Devices that are intended for use in animals are not subject to the tax. However, devices that have a “dual use” for humans and animals are subject to the Medical Device Excise Tax. For example, devices like sterile scalpels are registered under the FDA and can be used on humans and animals, and are therefore subject to the excise tax. Though there is some disagreement on how best to pay for the tax, most manufacturers and importers will be passing along the cost to their customers in some way. Additionally, veterinarians who order directly from suppliers outside of the United States may find themselves in the unfavorable position of being classified as an importer and thus subject to the tax. Though this is an unintended consequence of the new tax, veterinarians may soon begin to feel the financial strain.
How will the ACA’s Employer Mandate impact veterinary practices?
While the Medical Device Excise Tax will have a greater impact on veterinary practices than the Employer Mandate, the Employer Mandate is a topic that must be considered by businesses of all sizes. Businesses are expected to be in compliance with the ACA by Jan. 1, 2014, so many of the implications of this law will be felt in 2013.
Though mandated health care has been a topic of hot debate for the past few years, there is still a lot of confusion around the subject and what it means for businesses.
At a high level, the Employer Mandate requires that any large employer – those employers with more than 50 fulltime employees or full-time equivalent employees (FTEs) – provide healthcare coverage meeting the minimum coverage standards. The exact IRS regulation is broken into two specific parts. The first part states if an employer does not offer a minimum essential coverage (MEC) plan, and one employee gets a subsidized premium on a federal or state healthcare exchange, then the employer is subject to a penalty. The second piece of the Mandate requires employees be offered coverage deemed affordable by all employees, or the employer will be subject to penalty. Affordability is defined as being no more than 9.5 percent of an employee’s gross wages.
Realistically, most veterinary offices are not going to have more than 50 full-time employees or FTEs and, therefore, won’t be required to provide healthcare coverage to their staff. However, it is important to understand what may be required as a practice grows, or if consolidation occurs. Also, in the case of multiple practices that may have common ownership, all employees under that ownership umbrella are considered when calculating the 50-employee test.
If a veterinary practice is inching toward the 50 full-time employee or FTE threshold and expects continued growth, an understanding of this law is essential. The employer is responsible for correctly determining and monitoring the number of employees in the practice and ensuring that once the threshold has been met that the practice’s benefits package includes a health insurance plan that meets the minimum coverage requirements.
Who is considered a full-time employee or full-time equivalent employee (FTE)?
Under the Affordable Care Act, full-time employees may be defined a little differently than veterinarians define them today. Under the ACA, a full-time employee is defined as an employee that works more than 30 hours per week, on average, with respect to any month. In tallying up full-time employees under the ACA, vet practices must also take into consideration full-time equivalent (FTE) employees. What’s a full-time equivalent? A fulltime equivalent is two or more employees whose combined hours per week add up to one full-time employee, or 30 or more hours worked. For example, John works an average of 10 hours per week and James works 20 hours per week on average. Together, James and John work an average of 30 hours per week, which is the same as one full-time employee. Therefore, under the ACA, they are considered as one-full time employee and count toward a company’s total number of employees.
What’s the penalty?
Veterinary practices with more than 50 full-time or full-time equivalent employees can be penalized for two different reasons under the ACA.
The first penalty is for those vet practices that decide not to provide a minimum essential coverage (MEC) plan to employees. The penalty for this infraction is $2,000 per year, or $166.67 per month, per full-time employee, after exempting the first 30 full-time employees.
The second way a veterinary practice can be assessed a penalty under the ACA Employer Mandate is by not providing employees with “affordable” healthcare coverage. By definition this means that the cost of the offered healthcare plan cannot be more than 9.5 percent of an employee’s gross wages. If the employer’s provided coverage is not considered affordable to a full-time employee, and that full-time employee goes to a federal or state subsidized exchange, the employer will be subject to a penalty. This penalty is $3,000 per year, or $250 per month, per employee receiving the subsidy.
What should large veterinary practices focus on as it relates to the ACA?
Veterinary practices, like all businesses, need to focus on the price of the minimum essential coverage plan for employees. How much will a MEC plan cost? Unfortunately, the plan has not yet been priced, making it difficult to judge the financial impact at this time. Insurance industry reports are projecting large increases in premiums affecting the single individual premium and small group premium markets. Many project an increase of as much as 50 to 75 percent.
Additionally, veterinarians themselves, and their office managers, must be prepared to answer employee questions about the ACA and handle all reporting requirements. Practices will need to consider how up-to-speed their office staff is on the ACA and invest time and money to ensure that all the requirements of the ACA are met, regardless of practice size. There are multiple provisions regarding reporting requirements that will likely complicate and expand human resource matters.
The bottom line is that the ACA is going to impact veterinarians. While the Employer Mandate is not as great of a concern for veterinarians as the Medical Device Excise Tax, large practices with more than 50 employees and those creeping up to 50 full-time employees must recognize the impact the ACA will have on their practice. Overall, costs will increase, and these costs may have to be passed on to the price-sensitive customer, just to keep practices above water.
We recommend that veterinarians reach out to their trusted business advisors and become educated on the ACA.