In the new health reform law, many employers will generally have to offer health insurance coverage to workers or pay some type of penalty. There are penalties now making news that relate to workers who are provided health coverage by their employers but whose coverage is deemed “unaffordable.”
- A company with 50 or more employees that asks employees for an employee contribution to group health plan premiums, must be concerned with how much an employee contribution is in relation to each employee’s household income.
- If the employee’s contribution to the health plan exceeds 9.5% of his or her household income, the employer will be subject to a fine of anywhere from $2000 – $3000 per employee.
- A recent study by Mercer (one of the U.S.’s largest employee benefit firms) showed that roughly a third of the nation’s employers have workers with coverage that could be considered unaffordable. (1)
- Employers with less than 50 employees are in most cases free from penalties under the new law.
However, this rule could be very hard on companies with large numbers of lower wage employees, such as restaurants and retail businesses. Consequences are likely to be less hiring and higher prices in these sectors. Ultimately, hurting many of the people the law is intended to help.
- If an employee’s coverage is qualified as unaffordable, it opens the door for that employee to receive subsidies or “credits” to purchase insurance through a soon to be established state based exchange.
- It could be challenging for employers to comply because they typically have no access to information about an employee’s household income. Household income is derived by the combination of items such as spouse’s earnings, children’s earnings, dividends, interest, etc.
Examples:
- 50 full time employees (average 35 hours per week).
10 employees having unaffordable coverage (i.e. receiving federal subsidy or credit).
10 X $3000 = $30,000 penalty.
Employers are penalized a maximum penalty of $2000 for every employee over 30 employees.
- 50 full time employees (average 35 hours per week).
30 employees having unaffordable coverage (i.e. receiving federal subsidy or credit).
50 total employees – 30 = 20 employees. 20 x $2000 = $40,000 penalty.
Michael Gibbons of the National Restaurant Association (NRA) sees the new costs of health care reform as potentially devastating to his industry. The NRA estimates some 4 to 6 million restaurant workers have no health insurance. The industry is working with insurers to derive affordable options to help meet the new requirements. However, the institution of such plans will be difficult as coverage must also comply with new standards for “minimum essential coverage.” (2)
Other sticking points are whether household percentage requirements will apply to single coverage, family coverage or some other form of composite rates. The government is working to release more clarifications soon.
(1),(2) Sources: The Leader Board
http://republican.senate.gov/public/index.cfm?FuseAction=blogs.view&blog_id=02d2611a-2829-46bb-9205-9101fec5ccbc
The above article is for informational purposes only and not to be used for implementation. Actual provisions and any amended portions of the health care reform legislation apply.