Many employers in the country are aware of some of the changes that have already been put in place by the Patient Protection and Affordable Care Act, (PPACA) covering dependent children to age 26, free preventative care, no more lifetime maximums on benefits, no preexisting condition limits for children, small business tax credits and W2 reporting requirements.  However, fewer people are aware of things that are still to come.  The insurance exchanges have been a hot topic of conversation with the “Pay or Play” concept.  As the 2014 deadline approaches for states to institute their insurance exchange, employers must decide whether they want to pay the penalty or continue to provide employer sponsored health insurance.  And in some instances, even though they continue to provide employer sponsored health insurance they may still pay a penalty.

Surveys on this question have been as varied as opinions about PPACA.  One survey quotes that 30% of employers’ plan to drop employer sponsored health plans in favor of paying the $2,000 to $3,000 penalty for pushing workers to the exchanges.  While other say it would actually be too costly for firms to shift their benefits to a federally –subsidized coverage bearing roughly $9,000 more in costs for that shift (Truven Health Analytics study).  What’s the right answer for your business?

I believe that the answer lies in your business model and the economic impact of the decision to your business.  Do you want to be an employer of choice and provide premium compensation and benefits packages or are you more focused on running your business with the least amount of overhead costs?  Many large companies will likely retain their group health plans because they feel that it keeps them competitive in retaining and attracting talent resources.  Small to medium size companies have some math to do as they examine their budgets for 2014 and then they have some hard decisions to make.

What are the provisions of the “Pay or Play” piece of the law?

  • Employers with 50 or more employees are subject to this provision.
  • Full time employees are defined as working  30 hours or more per week.
  • Part time employees are counted on a pro-rated basis to determine if the employer is subject to the penalty, but employers are not required to cover part time employees.
  • Employers who offer health insurance to their full time employees will pay $3,000 annually multiplied by the number of full time employees who purchase subsidized individual coverage through the exchange.
  • Employers who do not offer health insurance to full time employees would pay $2,000 annually multiplied by the number of full time employees (not counting the first 30 employees).

The exchanges will provide subsidies for the coverage for low and middle income individuals.  If an individual is earning up to 400% of the federal poverty level, they would be eligible for that subsidy.

Some additional PPACA provisions coming into play next year include:

  • Elimination of the employer tax credit for Medicare Part D.
  • Increase in the Medicare tax on earned income over $200,000 for individuals and $250,000 for joint returns to 0.9%.  Employers are not required to match this Medicare tax increase.
  • New limits on Healthcare Flexible Spending Accounts capped at $2,500 then indexed annually to inflation.
  • Employers will be required to provide employees with a notice which includes: Information on health insurance exchanges, premium subsidies and whether or not the employer’s plan meets minimum coverage requirements.

So as you can see, for a small business owner, there is a lot to think about and act on before the New Year arrives.  As 2013 is ushered in, it will be time to start planning for your business strategy for the upcoming changes.