Mandatory healthcare coverage under Obamacare – the Patient Protection and Affordable Care Act (ACA) – begins January 1, 2014. ACA imposes penalties on most employers with more than 50 full-time employees who do not provide “affordable” coverage, and penalties on most individuals who do not buy health insurance. In response, some employers have been reducing full-time workforces and adding more part-time workers to avoid potential penalties. This may not be the best approach.
ACA offers different ways to obtain affordable health insurance. These include expanding Medicaid eligibility at the state level, creating state-based health insurance exchanges that offer individual coverage and provide tax credits/subsidies at certain income levels, and employer-sponsored coverage. As an employer, you do not need to offer health insurance to full-time employees in order to comply with ACA. But, you need to be aware of the following:
If you offer healthcare coverage, it must have a “minimum value” and be “affordable” based on a percentage of the employee’s salary. If your plan does not meet the definition of “minimum value” or “affordable” under ACA and one of your employees seeks coverage on the health insurance exchange and is eligible for a tax credit or subsidy, then you face a $3,000 annual penalty for each such employee.
If you do not offer healthcare coverage to 95 percent of your full-time employees and their children, and at least one full-time employee receives a tax credit or subsidy on the health insurance exchange, you face penalties of up to $2,000 per year per full-time employee, minus the first 30 full-time employees.
“ACA defines a plan as “affordable” if the employee portion of the premium for single coverage does not exceed 9.5 percent of the employee’s wages.”
The cost estimates you may have received from health insurance advisors to comply with ACA may have initially seemed astronomical. However, in most cases, these estimates were based on every employee enrolling in your health plan or, if you are considering not offering health insurance or affordable plans, every employee turning to the health insurance exchanges and receiving subsidies or tax credits. These scenarios are highly unlikely for several reasons:
- Many employees may currently be eligible for Medicaid (or may be eligible in 2014 if the state expands eligibility) as well as Medicare, Tricare, and other government-sponsored programs. They may also be covered by a partner’s policy and, therefore, would not need additional employer-sponsored health insurance.
- Employees who do not file tax returns do not qualify for federal assistance.
- Employees who would have to pay more than 8 percent of their household income for health insurance are not penalized for failing to purchase health insurance.
Given this, it is important that, as an employer, you survey your employees to identify a realistic number for enrollment in your healthcare plan and assess your potential penalty/ risk in consideration of the above. This will enable you to assess your potential cost. Additionally, we recommend that you inform your employees about their costs for healthcare coverage under ACA and advise them of their options, which would include:
Employer-provided coverage
ACA defines a plan as “affordable” if the employee portion of the premium for single coverage does not exceed 9.5 percent of the employee’s wages. There is no such limit on family policies. Therefore, an employee may opt out of coverage if they don’t want to reduce their pay by 9.5 percent of their income.
Health Insurance Exchange
Employees may opt out of your plan and purchase insurance under the state exchange instead. Credits or subsidies may be available to help reduce premiums and out-of-pocket costs for those with incomes falling between 100 percent and 400 percent of the federal poverty level. However, as noted earlier, if an employer offers affordable insurance and the employee chooses an exchange-based option, the employer would not incur any penalties.
No coverage
Employees can choose not to purchase coverage. If they make this choice, they may incur a penalty of $95 (up to $285 for a family or 1 percent of family income over their tax filing threshold, whichever is greater) beginning in 2014 and increasing thereafter. Before they choose this option, we recommend that you advise your employees to look beyond the first year penalty to the potential cost of the penalty plus medical costs not covered by insurance.
Without a doubt, complying with ACA is complicated. But it doesn’t have to be painful for you or your company. Once you assess the healthcare needs of your employees and the opportunities you may have to reduce costs, you will have a better sense of the actions you need to take in complying with the ACA next year.
