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April 3, 2014
Affordable Care Act: Employers Need to Make Decisions
By: Gregg Kennerly
Even as the initial open enrollment period for individuals under the ACA comes to a close, businesses large and small are facing important decisions about the future of their Health Plans.
Small Employers with <50 Employees
Even though employers with less than 50 employees are exempt from the penalties that larger employers are subject to, the landscape for small employer plans has changed dramatically. The ACA mandates many changes in the way Health Plans are priced and renewed, along with what expenses must be covered. Many small businesses will receive large increases due to the following provisions of the ACA:
- “Socializing” of rates- rates for young employees have increased.
- Guarantee Issue causes “Healthy People” to get a raw deal.
- Mandated “Essential Benefits” add significant cost to plans.
- Administrative Burden- no composite rates- one year age bands.
The “socializing” of rates is perhaps the most important, and means that males and females pay the same rate at a given age, and the rate differentials between older and younger employees is dramatically smaller. The net effect is that small employers with a high concentration of young, male employees will see large rates increases, and companies with older, largely female workers will receive much smaller increases or rate reductions.
Some employers with high male content have already elected to stop offering a health plan to employees in 2014, and instead give employees a monthly allowance to purchase individual coverage. This approach is more complicated that it may initially appear, as there are tax and other issues that a qualified broker/consultant can help employers navigate
“ Play or Pay” Under the ACA, all employers with 50 or more employees eventually must decide to provide qualifying coverage to employees, or pay a penalty know as a “shared responsibility payment”. This portion of the law was originally scheduled to go into effect in 2014, but last July, was delayed until 2015. Additionally, most companies with between 50 and 99 employees were given until 2016 before compliance is required.
The regulations revolving around the “play or pay” provisions are fairly complicated and have only recently become clearer in newly issued guidance from the Feds.
The “pay or play” decision isn’t an easy one, and there are a myriad of factors that need to be considered before a decision can be made that is right for a given company. So, what should companies be doing to help with the decision? Employers should be calculating the cost of offering a qualifying health plan to every full time employee (playing) vs. the cost of eliminating employer-sponsored health coverage (paying). The companies electing to pay the penalty rather than provide coverage, the penalty is $2,000 per year per employee. The penalty doesn’t apply to the first 30 employees. Please note there are some short-term transitional exemptions that help with the first year calculation, but ongoing penalties are the same.
Under this penalty structure, a 150 employee company which elects to pay would be fined $2,000 x 120 employees = $240,000, plus, the employees have no coverage.
Remember- the individual mandate is still in place and all individuals without qualifying health coverage will pay a penalty on their 2014 taxes. This means enabling access to even individual coverage is a service employees will need.
An accurate count of the number of employees working more than 30 hours a week on average is essential, along with detailed financial information about pay rates and average hours per employee. In order to meet the standards set forth by the ACA, a plan must be “affordable” and provide “minimum value”.
In brief, a plan is considered “affordable” by the government if the premium cost to the employee is no more than 9.5% of the employee’s gross income. This can be for a lowest cost plan, known as a “bronze” plan. Since all employees working more than 30 hours are still subject this test, most companies are facing substantial increases in their contributions to meet the “affordable” test for employees working near 30 hours per week.
The “minimum value” test is typically easier to meet for companies offering a standard plan design from a major carrier, as all of the mainstream plans offered will meet at least the “bronze” level of coverage. Very large employers who are experience rated, or self-funded will have to make sure that their plan offering meets the rather complicated criteria, including, an unlimited maximum benefit, pediatric dental coverage, maternity for all, and free wellness visits to name just a few.
In summary, the ACA is certain to continue changing, but the basic provisions discussed above are currently law. All employers should engage a knowledgeable, professional, broker or consultant to help determine the best course of action for your company. The potential penalties and the pain of not making the best decision for your company and employees are severe and avoidable.
Gregg Kennerly is a Principal with Advanced Benefit Strategies of VA (ABS). ABS helps companies navigate the provisions of the Affordable Care Act and lowers Health Plan costs for employers through innovative funding strategies. He can be reached at (757) 536-4554. www.absofva.com.