Large Employer Ideas for the Adventurous

OK. For you, the large employer with more than 100 employees that has said, “What can I do?  Can you get insurance for my employees for less than $2000/year? I will just pay the penalty.  I have no choice.” Here’s something that just might work for you. Let’s start by reviewing the rules.

Affordability Penalty Refresher

Under the Affordable Care Act (ACA), employer-provided coverage is considered "unaffordable" if it (1) costs more than 9.5 percent of the employee's W-2 wages, or (2) doesn’t cover an average of 60 percent of the employee's medical expenses. Once the ACA employer mandate takes effect, if an employer with the equivalent of 50 [updated to 100] or more full-time workers does not provide affordable coverage to full-time workers (based on a 30-hour work week), those workers can shop for insurance through a public exchange and may qualify for a federal premium subsidy or tax credit.  An employer would face a penalty of $3,000 per each full-time worker who receives a subsidy/credit.

As described below, the affordability penalty is separate from the "pay or play" employer mandate to provide health coverage or pay a penalty of $2,000 per each full-time employee.

Update:

For Midsize Firms, Employer Mandate Delayed Until 2016

In February 2014, the Obama administration announced it was again relaxing the employer mandate under the Affordable Care Act. According to a Treasury department final rule and related fact sheet and Q&A on Employer Shared Responsibility Under the Affordable Care Act:

• For employers with the equivalent of 50 to 99 full-time employees (based on a 30-hour work week), the employer mandate will not take effect until 2016.

• For employers with 100 or more full-time equivalent workers, offering coverage to 70 percent of their full-time employees will be counted as fulfilling the employer mandate in 2015. This is a transitional measure and, by 2016, large employers will need to provide
coverage to 95 percent of their full-time workers.

Now, what does that mean for you? Let’s summarize. If you are required to offer a plan and
choose Pay instead of Play, you will pay a non-deductible fine of $2,000 per person. There are some exceptions but let’s keep it simple for our example. If you choose Play but offer health insurance that is either unaffordable or doesn’t meet the ACA standards, you will be fined $3,000 only for those employees that receive a subsidy through the Exchange. So if you offer a good plan, how many of your employees will go to the Exchange and get a subsidy? Probably a lot less than everyone if you had to pay the fine for no coverage. The penalty would be lower than the penalty associated with not offering any health plan at all (the “play or pay” employer mandate’s $2,000 penalty times every full-time employee).

If I have your attention, then let’s look at how we can do this. These aren’t your safe bets. These are “out of the box” ideas. We can look at (1) plans that offer less than the 60% actuarial value threshold under ACA. If an employee accepts this plan, they will meet the individual mandate and therefore will not have the tax penalty. Another option would be (2) to offer two options: a rich plan that meets all the requirements and a lean plan like the first option. Employees make their choice and you have no penalties. Another strategy would be (3) to offer a qualified plan that doesn’t meet the affordability requirement. The employee pays a larger portion of the premium. The employer is still liable for the penalty only for those employees granted a premium subsidy or tax credit.

Should we talk about your specific employees and come up with some ideas?