The countdown to 2014 — when the entirety of the health care legislation passed in 2010 is set to take effect — has begun.
Three major changes will happen next year as a result of the Affordable Care Act, and each poses challenges for employers.
First, all taxpayers will be required to show proof of health insurance when paying their taxes or pay a penalty. Second, employers with more than 50 full-time employees will be required to provide health insurance or pay a penalty.
Finally, employees will have a choice between purchasing health insurance at work — and receiving the employer contributions — or purchasing it in an exchange and receiving federal subsidies to lower the cost of premiums.
Here’s a more detailed look into what employers need to know to prepare.
Every man, woman and child will be required to have health coverage starting in 2014. This means large numbers of the uninsured will join exchanges and take advantage of this new low-cost avenue to purchase health insurance — without exclusions for pre-existing conditions or history.
Many experts, however, believe that only the sick will purchase insurance immediately since they cannot be turned away or charged higher rates. Millions of young, healthy people may simply pay the penalty for at least the first few years — in 2014, the penalty will only be $95 — or wait until they get sick to sign up for insurance.
This is good news if you’re an uninsurable sick person. But for employers, it’s likely to mean higher rates to cover the increased costs to the system.
Pay or Play
Starting in 2014, employers with more than 50 full-time employees are required to provide health insurance or else they will have to pay a penalty if at least one employee joins the exchange and receives a subsidy.
The penalty is $2,000 per full-time employee minus 30. In other words, if an employer has 60 full-time employees, it would pay a penalty on 30 employees.
For some businesses, however, paying a penalty may be cheaper than offering insurance. Many companies are considering their options, weighing the impact of dropping insurance on recruitment and its effect on their ability to attract talent.
Furthermore, companies can be subject to penalties if the cost of “self only” insurance is more than 9.5 percent of an employee’s income and the employee enters the exchange. If the cost is higher than the 9.5 percent threshold, the insurance is deemed “unaffordable,” and the employer is penalized at $3,000 per full-time employee who opts for the exchange.
Each state is supposed to establish a health care exchange by 2014, where its citizens can shop for health insurance among plans offered by various private insurers. Most states, however, have refused to implement the exchange. This in turn will place the burden on the federal government to pick up the expense. At this point, no one knows what the exchanges will look like or how they will work, but most experts envision a website that will function like a traditional e-commerce website.
Starting in March, employers will be required to provide a written notice to employees explaining how the exchanges will work, and the employee’s option to decline the employer’s insurance in favor of the exchange. If the employee purchases coverage through the exchange, the federal government will provide premium assistance in the form of an “advanceable” tax credit based upon income level and number of dependents.
Employees making up to 400 percent of the federal poverty level are eligible for the subsidy. That equals roughly $90,000 for a family of four.
In all, some employers may find little impact on participation in their plans, while others may see a mass exodus to the exchange. If the latter happens, the employer group will be smaller, likely driving up costs further. It’s therefore incumbent on employers to be prepared and model out a worst-case scenario — and sooner rather than later.
David L. Barron is a member in the Houston office of law firm Cozen O’Connor, with a focus on litigation practice on labor and employment law. He can be reached at email@example.com.