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To Play or to Pay: No Easy Answers

Original article from United Benefit Advisors

The Patient Protection and Affordable Care Act (PPACA) requires all employers with 50 or more full-time employees to offer affordable health care coverage to their employees and their dependents or pay penalties.

For many companies, especially those not far above the 50-employee cutoff line with seasonal or lower-paid employees, whether to “play or pay” is a tough decision complicated by incomplete information and uncertainty over how much health care costs will increase.

Ultimately, there are a number of factors to consider when making the decision. For example, while the penalties are less than the cost of providing coverage, choosing the “pay” option may result in demands from employees for additional compensation and lost productivity.

Employers face two potential penalties. Large employers that don’t offer at least 95 percent of their full-time employees minimum essential coverage during a given month will be subject to a $2,000 per full-time employee (minus 30 employees) penalty if any of their full-time employees enroll in an exchange and receive a premium tax subsidy. Employers that offer coverage that is deemed either unaffordable or below minimum value are subject to a penalty of $3,000 per employee – but only employees who enroll in an exchange and receive a subsidy are counted. The real cost of the penalties is likely greater, as employers who face penalties also lose an important deduction (insurance costs can typically be deducted), Business & Legal Resources reported.

Accounting for increased health care coverage costs further complicates matters. Such costs are projected to rise significantly, perhaps 20 to 50 percent. But the exact amount is uncertain, Human Resource Executive reported.

“We still don’t know how the exchange system will work or what the rules, prices and products will be,” Joe Trauger, vice president of HR policy for the National Association of Manufacturers, told Human Resource Executive.

Linda Rowings, Chief Compliance Director with United Benefit Advisors, said that employers who choose to “play” need to make sure they meet the minimum PPACA public option guidelines (available on the Department of Health and Human Services website), have affordable plans and cover all full-time employees.

Multi-state employers face the biggest compliance challenge, Haraden added, since rules and plans differ in various states.

Since many PPACA changes involve “hard numbers crunching,” a skill many HR departments do not possess, employers should start working with employment attorneys or benefit consultants, advised employment attorney Kathy Kudner.

Employee benefit advisor, Mick Constantinou, summarized a number of hidden costs of health care reform in the United Benefit Advisors Insight and Analysis Blog. These hidden costs include:
–    Increased reporting burdens (whether you “play” or “pay”)
–    Recruitment and retention challenges
–    Impacts to employee productivity and morale
–    Changes in taxable income for both employers and employees

The workforce costs are especially important to consider.

As Business & Legal Resources reported, employees will likely apply pressure to increase wages if employers choose to drop insurance. Since wages are taxable, however, equalizing through compensation would cost more than the cost of coverage.

Employers also need to consider the impact that not offering coverage would have on their ability to attract talent.

Another possible effect of eliminating coverage could be lost productivity. Companies that drop coverage may assume that employees will get insurance from an exchange. However, just as it costs employers less to pay the penalty than it does to pay for coverage, the same is true for individuals.

Ultimately, to play or pay is not an easy decision and many factors are involved. Whatever employers ultimately choose, they need to make the most informed decisions possible – which means they should start preparing now.



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