Rose Report: Issue 15

Important Questions About the Affordable Care Act

If there’s one thing for sure that we know about the Affordable Care Act, it’s that there are still many questions left to be answered. But notwithstanding all the headlines and political bickering, companies must begin preparing for the new law and assessing how it will affect their payroll.

Beginning in January 2014, the Affordable Care Act will require employers with 50 or more full-time employees to provide health insurance or pay a tax. Small companies take note: ACA does not require organizations with fewer than 50 full-time employees to provide healthcare coverage. However, employees of these small firms that do not provide insurance will be eligible to buy their own coverage through a health insurance exchange, a new marketplace for buying insurance that was established under ACA.

Regardless of your company’s size, it makes good business sense to understand how the new law works. Here are some important questions employers should be asking themselves between now and the end of the year.

How does the new law determine whether I have 50 or more employees?

To figure out the number of full-time employees in a given month, an employer adds the number of people who work 30 or more hours on average per week to the number of full-time equivalent employees in that same month, which is calculated by adding the total number of hours worked by part-time employees in a month and dividing by 120 hours.

How much will I be charged if I have 50 or more full-time employees but do not offer health insurance?

The way the tax is levied is complicated. Here’s an explanation from the web site of law firm Sacks Tierney:

“The alternative is to pay a tax of 1/12th of $2,000 per full-time employee in a given month (where no insurance is offered) or 1/12th of $3,000 per full-time employee in a given month (where some kind of insurance is offered, but it does not meet all the requirements of the statute). The 1/12th of $2,000 tax applies to all full-time employees in a given month so long as at least one of them successfully enrolls in a qualified health plan for which an applicable premium tax credit or cost-sharing reduction is allowed or paid, whereas, the 1/12th of $3,000 tax only applies to each full-time employee so enrolled. An employer required to pay the higher tax will not, however, be required to pay any more tax than the product of the total number of its full-time employees times 1/12th of $2,000 (which equates to the tax for not providing insurance at all).”

If I choose to not offer health insurance, how should I make that up to my employees?

Tax experts predict that most large employers will continue to offer employer-sponsored health insurance in 2014 because the penalty they would pay is in most cases more expensive than providing the insurance.

Looking down the road, that may change. A survey of private sector employers by McKinsey and Company found that 30 percent of employers will definitely or probably stop providing health insurance in the years after 2014. Said the study: “To make up for lost medical insurance, most employers that drop ESI will increase employee compensation in other ways, such as salary and other benefits like vacation time, retirement, or health-management programs.”

The most important asset any company has is its workforce—all companies are only as good as the people they employ. Although the future of employee sponsored health insurance is still very much in flux, one thing is certain: companies will continue to look for ways to retain and attract talent, while keeping an eye on their bottom line.

The McKinsey and Company study concluded, “Whether your company is poised to shift from employer-sponsored insurance or will continue to offer the same benefit package it does now, health care reform will change the economics of your workforce and benefits, as well as how your employees value coverage. Understanding these changes at a granular level will enable your company to gain or defend a competitive advantage in the increasingly dynamic market for talent.”