The Impact of the Affordable Care Act on Private Practices

It is commonly known as the Affordable Care Act, Obamacare, ACA or, generically, as healthcare reform, but a private physician practice may also refer to the ACA as a double-edged sword. A physician practice is a business and it is governed by the ACA rules like any other business. In addition, a physician practice relies

on payments from insurance companies as a significant source of income. Therefore, any benefit reductions related to the ACA could potentially impact its annual revenues.

As a business owner, a physician must keep current with ACA compliance, reporting requirements, and

the selection of healthcare coverage for its employees. Businesses, as employers, fall into one of two groups: large employers with over 50 full-time (full time = 30 hours/week) employees or small employers with fewer than 50 full-time employees. Large employers were mandated to comply with the ACA as of January 1, 2015, but large employers with only 50-99 full-time employees were given an extension until January 1, 2016 to comply. Small employers represent the majority of businesses in the United States and thereby are not required to comply with the ACA's health insurance mandate.


Large employers are required to offer traditional employer-sponsored plans by their compliance deadline. Small employers can choose to offer a traditional employer-sponsored plan, offer a plan through a Small- Business Health Options Program ("SHOP"), or not offer any health insurance plan at all. However, all individuals in the United States are now required to have health insurance. Employees will need to buy individual health insurance plans, either through the general commercial market or through a government-sponsored health insurance exchange.

Increased Benefit Costs for Employers

The overall cost of health insurance has been increasing on an annual basis and many health insurance industry experts are estimating that premiums could increase by 30-40% over the next two years. This increase would directly impact the bottom line for physician practices that offer health insurance to its employees.

While it is true that small employers can choose not to offer health insurance, the rules related to subsidizing the cost of health insurance for employees are now more stringent. If an employer chooses to reimburse an employee for the cost of an individual health insurance policy, the amount of reimbursement must be added

to the gross income on the employee's W-2 wages and cannot be specifically earmarked as a health insurance reimbursement. It needs to be, simply, additional salary. The employer penalty for non-reporting (or incorrect reporting) is $100 per day, per instance.


Discounted or free wellness check-ups and gym memberships are other value-added employee benefits that can be offered at low cost to the physician practice.

Although the ACA does not mandate employer-provided health insurance plans for small employers, physician practices need to ensure that they maintain good employee morale should they determine that the cost of an employer-sponsored health insurance plan is too expensive. Small employers should consider offering alternative employee-funded pre-tax benefits such as health savings accounts or flexible spending accounts, which have relatively low costs of administration.

Discounted or free wellness check-ups and gym memberships are other value-added employee benefits that can be offered at low cost to the physician practice.

Based on current projections, the ACA will most  likely increase the cost of employer-sponsored health

insurance, change the reporting requirements related to benefits, and potentially have physician practices

scrambling to retain good employees should they choose to discontinue offering an employer-sponsored plan. But now let's take a look at the other edge of the ACA sword – the possible impact on physician practice revenue.

Potential Risk of Reduced Revenues

Many health plans offered to individuals in today's market (through commercial brokers or government exchanges) have very high deductibles, high co-pays, and high co-insurance. The resulting phenomenon is that


many patients are delaying physician visits until their illnesses are severe. Physician practices are seeing lower volumes, higher acuity, and patient satisfaction is even more critical because patients now perceive a doctor's visit to be a consumer encounter since more of the fees are being paid by the patient instead of the insurance company.

Therefore, physician practices must strategize to maximize their collections. They need to implement procedures to confirm pre-eligibility, collect all co-pays and past-due balances at time of service, and optimize coding. Revenue cycle management becomes critical. The aging of accounts receivable and adjudicated collection rates should be monitored on a regular basis. Rejections and under-payments need to be appealed and the fee schedule should be reviewed at least annually.

Another risk for the physician practice is the fact that individuals who buy insurance on the exchanges have a three-month "grace period." But if the insurance premiums are not paid by the patient at the conclusion

of the third month, health plans are only required to pay for claims during the first month of the grace period and can hold the claims for the second and third months.

Therefore, the physician practice may be left to pay for medical services provided during months two and three of the grace period if the patient's premium is not paid. This means that not only are physicians potentially facing lower volumes, they may also see an increase in bad debt as it is unlikely that the physician practice will be able to collect those fees from the same patients who did not  pay their insurance premiums in the first place.

Given the above, the ACA may become a double-edged sword for private physician practices by raising their overhead costs for employee benefits while increasing the risk of reduced revenues for their medical services. The independent practices that will survive the next decade will be the ones to implement better revenue cycle management procedures and strive to reduce overhead costs, including the cost of benefits, while retaining their key employees. It will not be an easy process, but for many it is worth the effort to maintain control of their own businesses. 


About FGMK

FGMK is a leading professional services firm providing assurance, tax and advisory services to privately held businesses, global public companies, entrepreneurs, high-net-worth individuals and not-for-profit organizations. FGMK is among the largest accounting firms in Chicago and one of the top ranked accounting firms in the United States. For more than 40 years, FGMK has recommended strategies that give our clients a competitive edge. Our value proposition is to offer clients a hands-on operating model, with our most senior professionals actively involved in client service delivery.


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