Pay or Play … What Makes Sense for Your Company? Preparing for the Affordable Care Act Implementation in 2014 By CHARLES EGERTON
When it comes to health benefits, the rules are about to change dramatically for companies with 50 or more full-time employees. The so-called “employer mandate” of the Patient Protection and Affordable Care Act (ACA) includes so-called “pay or play” regulations, which will soon begin imposing significant penalties on those who fail to offer “adequate and affordable” health insurance coverage.
Understanding the Penalties
After December 31, 2013, ACA provisions levy penalties on “applicable large employers” – those with more than 50 full-time workers – that don’t offer employees and their dependents the chance to enroll in a minimum essential coverage health plan. The fine for noncompliance is $166.67 per month per employee, except for the first 30 employees. For a business with 60 employees, the penalty would add up to $5,000 each month, or $60,000 each year, beginning in 2014. And a 600-person company that failed to comply with the law would be fined $95,000 a month,
or $1.14 million a year. Penalties are even less forgiving when it comes to the “affordable” aspect of the law, which prohibits the cost for coverage to employees from exceeding 9.5 percent of their household income. Employers that don’t offer a “qualified health plan” and premium assistance to employees to keep their cost below 9.5 percent will be subject to this penalty. The fine is $250 per month, multiplied by the total number of full-time employees who buy coverage through a Health Insurance Exchange (not just those in excess of the first 30, as with the other aspect of the law). In other words, if your company attempts to offer a plan, but it doesn’t measure up to federal standards – the penalty can be as much as $3,000 per employee. This second penalty cannot exceed the total amount of the first penalty. Both of the law’s penalty provisions will be adjusted for inflation each year. The ACA penalties that go into effect next year can represent a significant cost for a business of any size. But since offering health insurance is typically more expensive than that, some businesses are considering whether to simply pay the fines. As
Penalties are even less forgiving when it comes to the “affordable” aspect of the law, which prohibits the cost for coverage to employees from
exceeding 9.5 percent of their household income.
a financial professional, how should you advise your company … pay or play?
Evaluating Your Company’s Standing as an Employer
The first step is to determine whether the federal government will regard your organization as an “applicable large employer.” Your company is exempt from the law if it has less than an average of 50 fulltime employees. But defining a full-time employee is complicated; especially for companies that employ lots of part-time or seasonal workers. Simply put, according to the ACA regulations, a full-time employee is one
who works an average of at least 30 hours per week. This news won’t come as a shock to many human resources professionals, who have long used the 30-hour mark as a litmus test for determining whether an employee was considered full-time and eligible for healthcare coverage. But beginning in January 2013, companies must also take into consideration the average amount of hours logged by all workers within a calendar month. The statute requires businesses to determine their number of “full-time equivalent” employees. To get this figure, add the hours of all of your company’s part-time employees and divide by 120, or a month’s worth of hours for one full-time employee at 30 hours per week. This provision was included to prevent businesses from trying to circumvent the law by cutting their employees’ hours to less than 30. Similarly, the ACA prohibits companies from subdividing their business into separate companies to create the appearance of multiple employers with less than 50 full-time workers. The law was written so no matter whether companies “pay or play,” they must play fairly. (CONTINUED ON PAGE 9)
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4/22/2013 9:39:13 AM medicalnews
Tampa Bay Medical News May 2013