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Employer Mandate: Should You Pay or Should You Play?

We’ve talked about how the Affordable Care Act impacts employees, but until now we haven’t talked about how healthcare reform impacts companies. It impacts employers just as much, if not more, than the average individual.

Let’s talk about your options as an employer.

If you’re trying to decide whether or not to offer healthcare coverage at your company, keep reading for more information.

If you’ve read it all already and simply need help, we offer a very sophisticated pay-or-play tool to employers. We’ll look at your company, your employees, your market, etc. and determine what the most cost-effective option is for you. Contact us today to learn more about our pay-or-play calculator tool for your company.

What Is the Employer Mandate?

The Affordable Care Act requires all employers (greater than 50 full-time equivalent employees, FTEs) to offer “qualified” and “affordable” health insurance to their employees, or pay a penalty if they choose not to offer such coverage. An FTE is any employee who works at least 30 hours per week.

Employer Mandate Delay – Now What?

In July 2013, the Administration delayed the start date of the employer mandate by one year. Originally, it was to go into effect on Oct. 1, 2013. Now, employers must offer coverage starting Oct. 1, 2014 with penalties beginning in 2015.

You Decide: Pay or Play

With the delay of the employer mandate, companies have a little bit more time to decide which route they want to go. An employer has two main options: to pay (a penalty) or to play (offer coverage).

Pay

If an employer decides not to offer coverage, they can opt out and pay a penalty starting in 2015.

How much is the fine?

If an employer offers no coverage at all, they pay $2000 times the total number of full-time employees (minus 30 full-time employees). The event that triggers the penalty is if at least one employee receives a tax credit to purchase coverage through a government-run health insurance exchange established under the ACA.

Example:

  • Bob’s Recycle Center has 75 FTEs.
  • One employee buys insurance on the healthcare exchange and receives a government subsidy.
  • Penalty will be: $2000 x (75-30) = $2000 x 45 = $90,000/yr

Important Note: If Bob’s employee buys insurance through another channel, i.e. a broker, direct to health plan, private exchange, the employee will NOT receive a subsidy and Bob will NOT pay a penalty.

If an employer offers coverage that is considered “unaffordable” or doesn’t provide minimum value, they will face a penalty of $3000 times the number of full-time employees receiving tax credits for exchange coverage (not to exceed $2000 times the total number of full-time employees.)

Example:

  • Gloria’s Nursery has 55 FTEs.
  • The health insurance she offers her employees is considered unaffordable.
  • One of her employees buys insurance on the healthcare exchange and receives a government subsidy.
  • Penalty will be: $3000 x (55-30) = $3000 x 25 = $75,000/yr
    (In this example, her penalty would be capped at $110,000.)

Note: Employees with household income between 100% and 400% of the federal poverty level are eligible for tax credits for government-run exchange coverage if they don’t have access to coverage through their employer.

Play

An employer can choose to offer each employee health insurance coverage under a group policy. The company can purchase a policy from a broker, online, or through the new Health Insurance Marketplace small business (SHOP) program.

What Level of Coverage Must be Offered?

Remember, even if you offer coverage, you could still face a penalty. It’s important to offer coverage that meets the requirements of affordability and minimum essential coverage to avoid paying a penalty.

Coverage must be affordable, meaning no full-time employees have to pay more than 9.5% of family income for coverage.

Coverage must also be qualified, also called minimum essential coverage, which includes coverage of the 10 essential health benefits, and is offered through an “eligible employer-sponsored plan,” which is:

  1. Any small or large group market plan offered within a state (including SHOP plans)
  2. A grandfathered plan
  3. A qualified government plan

If you are more of a visual learner, check out this flow chart that takes you through the process one question at a time.

Conclusion

Every company is different and needs to carefully consider all of their options. You know what they say, “the devil is in the details.” If you don’t calculate employee hours correctly – paid time off, maternity leave, disability leave, etc. your conclusion can be skewed.

As you wade through all of the provisions and requirements of the law, it can be overwhelming and daunting, especially for small businesses that don’t have access to sophisticated resources or tools.

That’s where we come in.

We have an extremely robust tool that will look at the specifics of your company, your employees, and your state laws and decide whether it would be more cost effective for you to pay or play.

Contact us today to learn more about our pay-or-play calculator tool for your company.

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