This week, President Obama and the Department of the Treasury announced that several key elements of the Affordable Care Act (ACA) will be delayed until 2015. Specifically, the “pay or play” provision, or employer mandate to provide essential minimum coverage that is both affordable and minimum value. In addition, the employer informational reporting requirement has also been delayed until 2015. The administration cited stakeholder concerns and difficulties in implementing smoothly as reasons for the delay.
This is good news for businesses who were not providing sufficient insurance to employees. These businesses would have to pay penalties or increase the amount they pay for coverage. For these businesses, the “pay or play” provision would have been a pure cost increase. But, the delay in the “pay or play” provision better positions large employers to evaluate an opportunity that small employers were already considering – dropping your healthcare coverage and allowing your employees to go to the exchange for coverage.
Why might this be a good opportunity?
Other areas of the ACA are still on track. There are new fees that insurers will be passing on to businesses next year. These amount to around a 2 percent increase to the cost of the full premium and around $65 per person insured (so a family of four would be $65 x 4) in new fees. There is also a technical change to the way that insurance companies are permitted to vary premium costs (the allowed premium spread between the best and worst groups is shrinking substantially), which will impact the premiums for some groups in a big way. Then you add in the normal increases and changes to the insurance system by the ACA. When added to your current employer share of benefits costs, that might be a significant number.
Dropping coverage—is it an option for you?
If, instead of paying your current benefit cost and increases, you chose to drop coverage and let your employees go to the exchange— what would that look like? For one, you would save all those benefits costs. If you were a large employer, you would also have paid your “pay or play” penalty (except this is now delayed a year). The only other expense you might have is paying something to your employees to “make them whole.” What I mean is that some employees, due to their family size and income, would get significant premium subsidies that in many cases will be better than what the employer is providing now for similar coverage. Family coverage in the private market now is typically above $1,000 per month – on the exchange some families could buy better coverage for under $500 per month. Some employees, though, would be worse off going to the exchange – they would pay more for similar level coverage.
You as the employer can take some of your savings and pay your employees so that no one is worse off going to the exchange. Many will be better off. You, as an employer, may net save 25 to 50 percent of your current employer share premium cost. That’s a win for employees and a win for the business! Due to the delay in the employer “pay or play” mandate, large companies now have an even better opportunity to examine and implement this change. What if your employees hate it? You can go back to private insurance next year. If they love it (a family with an extra $800 in their pocket every month), once the penalties come back are you still better off as a business from where you would have been? Even one year of savings could allow you to fund a new piece of equipment, bonuses for all your employees (basically for free), or a nice increase in owner profits.
Let me give you an example of how this might work. An employer has around 100 employees. The employer’s current medical costs total around $1.5 million annually. Its health care costs are projected to increase between $200,000 and $300,000. Two of its employees have substantial medical costs annually, which amount to about one-third of the total claims for the company. The majority of employees are paying higher insurance rates due to the few employees that have substantial claims. Basically, the risk is only spread amongst 100 people. By dropping coverage and having employees go to the exchange, that risk is spread across a much larger group, and now they won’t have to shoulder that extra cost. Many of the employees are in the 200 to 300 percent federal poverty level range. For them, dropping coverage is a $1.5 million savings. This includes the avoidance of increases taken against the estimated $700,000 cost to make their employees whole. That’s a million dollars in savings annually.
In order to take the next steps on this, you really want to examine what it will cost your employees if they go to the exchange versus what it will cost them to stay on your plan. Generally speaking, the closer a family is to 100 percent of the federal poverty level, they get outstanding coverage (no deductible) at a very cheap price (several hundred dollars for family coverage versus more than $1,000). If they are under 400 percent of the federal poverty level (around $88,000 for a family of 4), they still will be entitled to a premium subsidy.
Health Care Reform Help
As we are seeing, the health care reform regulations are changing, and these changes aren’t all bad news for businesses. Businesses now have more time to determine how these regulations will affect them, and what they can do to best prepare themselves and their employees. Visit our health care reform resources page to learn about the burdens and opportunities that health care reform poses for your business. Have specific questions about the recent announcement and how you can prepare your business? Contact Rea & Associates. Our Ohio tax professionals will help you understand how this delay impacts your business and can provide you with an analysis to determine the best approach.