Now that President Obama has been re-elected, employers know that his signature achievement, Health Care Reform (aka HCR), is here to stay.
In spite of the law's massive 2,700 pages, and thousands of pages of regulations, employers are taking aggressive action in order to understand and evaluate how the law affects them.
This analysis can be summarized in three key areas:
1) Avoid All Penalties: Employers first must establish whether they are subject to penalties. Under the law, penalties may be applied to employers who have more than 50 Full Time Equivalents who work more than 30 hours per week. Employers with fewer than 50 full time employees must perform a complicated formula in order to determine how many FTEs result from adding up all of their part-timers. For example, two employees who work 15 hours per week would be considered 1.0 FTE. Some employers are taking steps to reduce their workforce to levels below 50 in order to avoid potential penalties.
There are two types of penalties to avoid: The largest exposure is the No-Offer Penalty. This penalty would be $2,000 multiplied by the total number of full-time employees above the first 30. The penalty would occur if a business does not offer coverage of a qualified health plan to more than 95 percent of all employees who work more than 30 hours per week. As an example, if an employer with 100 Full Time Equivalents incurred the No-Offer Penalty, the calculation would be $2,000 x (100 - 30) = $140,000 per year.
The second type of penalty is called the Unaffordable Coverage Penalty. This would be assessed to the employer who charges employees more than 9.5 percent of their household income to purchase single coverage through the employer. This penalty is $3,000 multiplied by the number of employees who are deemed as Unaffordable AND who purchase tax-payer subsidized coverage through the state health exchange.
It is important to note that both of these penalties are significantly lower than what I consider the average cost of employer provided coverage which averages around $6,000 per single and more thanb $12,000 for family coverage per year.
2) Evaluate Subsidies: Under HCR, employees who make under 400 percent of federal poverty will be able to receive subsidized health insurance when they purchase a policy through a state exchange. For example, an average family of four that makes $55,000 per year would be able to purchase a policy for around $4,000 per year, with a tax-payer subsidy of approximately $8,000 per year.
Oddly, the law states that the subsidy is ONLY available to employees who DO NOT have access to an employer-sponsored plan. With this in mind, employers are running the numbers to see if it might be better for their employees to have a government-subsidized plan, rather than an employer-sponsored plan. Note: When Congress and the president passed Health Care Reform, they did not anticipate that many employers would cancel their plans in order to take advantage of federal subsidies.
3) Understand and implement Compliance Mandates: Health Care Reform brings with it many new requirements for employers to document data about their employees, and to communicate information to employees, the IRS and other government agencies. For example, employers are now required to document the cost of employer-sponsored health benefits on the annual W-2. Employers are also mandated to produce additional documentation regarding what is covered under the medical plan and communicating the existence of the state exchanges.
Health Care Reform is now moving full speed ahead, and employers are doing the best that they can to adapt. By identifying and avoiding potential penalties, evaluating subsidies and planning for compliance mandates, they will be miles ahead, and ready to take on the new challenge.
Dave Petno is an Employee Benefits Consultant from Hudson.