The new health care reform law offers companies with more than 50 full-time equivalent employees a choice: They can play by offering their employees affordable employer-sponsored health care, or they can pay a penalty not to.
It sounds straightforward, but making that decision involves complexities and factors that vary depending on the size of the company and the type of workforce. Since the Supreme Court upheld the Patient Protection and Affordable Care Act (PPACA) in June, many employers have been weighing their options and preparing for the consequences of paying or playing. Others are waiting to see the outcome of the Nov. 6 election because Republicans, should they gain control of both the White House and Congress, have pledged to repeal or at least overhaul the PPACA.
Large employers traditionally have offered health care coverage, and most will continue to do so, at least in the short run. A General Accounting Office review of 19 employer surveys on the topic found the percentage of employers who said they planned to drop coverage ranged from 2 percent to 20 percent, with many studies indicating the smaller the employer, the greater the chance of abandoning coverage.
The cost analysis gets more complicated. First, the penalty imposed for not offering health care coverage is not tax deductible for the company, while the cost of providing benefits is. The penalty is $2,000 per employee (excluding the first 30 employees) if coverage is not offered to anyone, including executives. Second, the law contains a nondiscrimination provision, meaning if coverage is offered to some employees, the same coverage must be offered to all. If some employees can’t afford that coverage, the employer must pay a $3,000 per employee penalty for everyone who goes to the state-run exchange for insurance and qualifies for subsidized coverage. Under current regulations, to be considered affordable, individual coverage under the plan cannot cost an employee more than 9.5 percent of his household income, defined as his W-2 wages for the year, regardless of whether there are other wage earners in the household. That might be an easy standard to meet for executives, but a tough one for low-wage workers.
The competitive environment is another major factor in the pay-or-play decision. Large employers in industries such as high tech, where competition for highly skilled employees is fierce, have a much stronger incentive to maintain health care benefits than those in industries with unskilled workforces that are easier to replace. The economy may play a role: A continuation of high unemployment would make it easier to drop health care coverage without worrying about finding good job candidates. But Cain points out there are still predictions of a labor shortage going forward that could prompt employers to maintain health care coverage in order to attract the best employees.
Beyond the three Cs, employers are concerned about whether the new health care system will offer viable alternatives to employees who lose company-sponsored insurance. Because the law’s individual mandate requires everyone to have health insurance or pay what the Supreme Court dubbed a tax, those employees would likely buy coverage through one of the new health care exchanges, which the states are supposed to run. But no one knows yet how the exchanges will work, what providers will participate and how much the coverage will cost.
The Patient Protection and Affordable Care Act’s (PPACA) biggest impact will be on employers who traditionally have not offered health care to their workers, or who have offered mini-med plans with very limited benefits that don’t qualify as minimum essential coverage under the new law.