Employers waiting to implement the changes required by the Affordable Care Act (ACA) were in for a surprise when the Obama Administration announced a one-year delay on the employer mandate: the "Play or Pay."Essentials for containing health insurance costsNov. 25, 2013
The Play or Pay mandates impacts employers that qualify as "large employers" (50 or more full-time employees). Under this part of the law, employers are required to provide health insurance for full-time workers and their dependents or pay a penalty to the government.
The delay suspends the new reporting obligations of employers, insurance carriers, self-funded plans, and other parties. It also delays the assessment of penalties under the Play or Pay mandate for large employers until Jan. 1, 2015.
The Play or Pay mandate requires employers to offer minimum essential coverage (MEC) that is affordable and meets the minimum value -- 60 percent actuarial value -- to all full-time employees (those working 30 hours or more per week). This delay may be specially welcomed by large employers that had to comply with the Play or Pay mandate as of Jan. 1, 2014, as they sponsored a calendar year plan or a fiscal year plan (non-calendar year plans) that did not qualify for temporary relief.Play: Maximizing on the delay
Employers who delayed developing an ACA strategy should take advantage of the extra year and develop a cost-effective plan that will benefit their business and full-time employees. Five steps for maximizing on the mandate's delay include:Determine if you are subject to the Play or Pay mandate. Did your company have at least 50 employees in the preceding year (2013)? Do you offer at least 95 percent of your full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan? Is the coverage affordable and provide minimum value?Identify and quantify financial risks under the ACA. Implement and manage measurement periods. Review systems to confirm the management of hours and measurement periods. Assess financial impact of the Play or Pay mandate on business operations.Assess changes to be implemented to plan designs, contributions and eligibility criteria. Determine the actuarial value and affordability of plans. Identify newly eligible employees and determine if reclassification of employees is required.Educate key staff and employees. Educate key staff on what the Play or Pay mandate is and how it fits with your ACA strategy. Educate employees on the individual mandate, exchanges, and Medicaid expansion (in states where applicable). Play or Pay is also known as the "shared responsibility" mandate; if the ACA remains on track, employers face decisions that will have economic consequences. Even retaining your current health-benefit strategy may leave you with unexpected costs.Monitor developments. The Administration anticipates issuing additional guidance. Stay close to the news, and work with your insurance partners who can help make the tough decisions ahead. Pay: Hidden costs for California employers
The ACA provisions governing employers and their group health plans are complex and subject to change, however, employers cannot afford to remain inactive, as failure to understand the impact of the ACA on their business can be detrimental to their ability to compete in the marketplace. Employers should understand that many ACA provisions will undoubtedly impact their business and group health plan costs in ways that policy makers did not necessarily anticipate.
Experts anticipate that the individual mandate will have an expensive spillover effect for companies. Today, people who opt out of coverage at their place of employment may suddenly decide that the least expensive way to fulfill the individual mandate is to enroll in their employer's health program. Some of these individuals will qualify for Medicaid in California, where Medicaid expansion will provide insurance benefits to families up to 138 percent of the federal poverty level.
This means that California employers can expect an increase in the number of insured employees. Since a traditional medical plan requires an employer to pay 70 to 75 percent of the premium, companies may see their costs rise sharply as the number of enrolled participants increase, as employees will not only seek coverage for themselves, but also their dependents.
Employers can avoid the imposition of penalties under the Play or Pay mandate. Be mindful that the imposition of excise taxes arising from the failure to comply with the Play or Pay mandate in most cases will surpass an employer's expense of offering benefits to their full-time population, as excise taxes may not be written off as a business expense in an employer's corporate tax filings.
While offering group health insurance coverage to employees reduces an employer's payroll tax liability -- if employees pay premiums on a pretax basis -- it also minimizes an employer's exposure in corporate tax filing, as the cost of providing health care coverage to employees is a tax deductible expense.Making the right call
In the past, designing the right health benefits package has often been a matter of choosing one insurer's plan over another's, a decision driven largely by cost and services. Today, the decision about what to do with health benefits is best made with the help of knowledgeable experts and a thoughtful approach.•••
John Fradelizio is an employee benefits program leader for Wells Fargo Insurance in the North Bay. He has over 30 years of experience managing employee benefits and health insurance programs. He can be reached at 707-773-1875 or john.fradelizio@wellsfargo.com.
