To “Play-or-Pay?” What is Your Company’s Healthcare Reform Strategy
In 2014, the Patient Protection and Affordable Care Act (PPACA) will require companies who employ more than 50 full-time employees to offer health insurance coverage; send employees to an Exchange and pay a penalty of $2,000 per employee per year or develop a “minimum value” health insurance plan.
Employers who elect to provide health insurance for their employees will be subject to a $3,000 penalty for any employee who finds the coverage to be unaffordable and receives an Exchange subsidy. “Unaffordable coverage” is defined as an employee’s “self-only” premium that exceeds 9.5% of the employee’s wages.
An important piece of the reform is the mandate that by 2014 each state must operate a health care Exchange to provide individuals with a range of affordable health insurance plans to choose from. Through an Exchange, individuals who meet income guidelines will be eligible for subsidies to pay for premiums. If a state elects not to operate an Exchange, the Federal government will step in and do it for them.
The dilemma most companies will face is whether or not it makes business sense to extend coverage to all employees, elect not to provide coverage and pay the annual penalty, or develop a minimum value plan. Businesses must consider how their decision will impact their employees, as well as predict how many employees would be eligible for the subsidies offered through an Exchange.
An Unpredictable Future
There have been numerous reports during the last couple of years speculating on whether or not employers will flock to discontinue health insurance coverage. Reports vary, from estimates that up to 30 percent of companies will drop coverage; to quotes from consultants saying that few large companies will act so quickly.
Several keys to this type of decision remain to be seen:
- Will an Exchange offer comparable plans?
- Will Exchange rates be lower than what employer-sponsored plans cost now?
- How effective will the Exchanges be?
- What will the reaction be from employees?
Because of the perceived cost-savings of dropping coverage, it might seem tempting for organizations to simply accept the penalty without taking the time to determine if this is, in fact, the best business move.
Several factors must be considered before making the decision to discontinue or retain employer-sponsored health insurance coverage. Including:
- The current and future cost of health insurance coverage vs. annual penalties
- The impact dropping health insurance coverage may have on acquisitions and employee retention
- What other companies do and how it affects competitive advantage
- The potential cost savings and how that money can be used in other areas of the business
PPACA and its Impending Economic Realities
Beyond the HR impact, for many companies cost will be a determining issue – whether or not they make a decision to not provide coverage in 2014, or wait it out and plan to decrease or drop coverage at a later date. Determining what makes the best business decision based on cost is a crucial piece of the puzzle.
Some organizations will find that it just makes sense to extend their current health plans to all employees, but will need to carefully calculate premiums and pay scales to ensure that premiums are not considered unaffordable. Others may determine that the money saved by discontinuing coverage and paying the penalty is worth it.
PPACA and the SCA Contractor
While some employers may consider dropping coverage and paying the penalties instead, this is a much less viable option for government contractors. The Service Contract Act has not been amended in any way to reflect changes brought on by PPACA. Thus, government service contractors are still obligated to spend $3.71 per hour on health and welfare (H&W) benefits. Should a contractor elect not to offer health insurance, they may then be forced to add the H&W requirement to employee wages, resulting in double damages – increased payroll taxes AND PPACA penalties. Contractors who develop a “minimum value” coverage plan as a core offering to their SCA employees will have a distinct competitive advantage over contractors opting to drop coverage, as their H&W obligation will remain tax free and they will avoid any PPACA penalties.
In order to help our clients with this important business decision, GSA has created a Health Reform Analytics Team to help them analyze the economic effect that extending coverage, sending employees to an Exchange and paying the penalty, or developing a new minimum value plan will have on their bottom line.
Now’s the Time to Prepare
The PPACA will change how health care coverage is perceived and provided. As health care reform unfolds, now is the time to become aware of the options, responsibilities and potential impact this will have on your business and employees.
Is your company prepared to make an informed business decision prior to the effective date of January 1, 2014?
To learn how GSA can assist you with your business decisions, please contact us at 1.800.250.2741 email@example.com.