As with most things in life—homes, SUVs, babies and wedding cakes—size matters. The same is true for the Affordable Care Act (ACA). Certain mandates apply to all employers, while others only apply to employers that meet a specific size threshold.
Understanding “size” is critical to the ACA’s employer cost-sharing mandate commencing in 2014. This mandate requires employers with 50 or more full-time equivalent (FTE) employees to provide affordable, adequate medical coverage to substantially all full-time employees (using the new 30-hour standard) and certain of their dependents. Large employers that fail to comply face one of two non-deductible tax penalties, which range from merely painful to downright catastrophic.
Businesses also are seeing their cost of benefits increase annually, and most employer plans have likely lost “grandfathered” status by now (triggering an additional wave of compliance mandates). As a result, many employers are wondering whether they are powerless on the issue of employee health coverage. They are not.
To the contrary, employers have multiple strategies available to comply with the ACA while also potentially reducing benefits costs. Although implementation of any of these strategies could be beneficial financially, the analysis involves far more than just math. There are also other considerations, including culture, recruitment and retention of talent, predominant wage base, scope and richness of current benefits, requirements under any medical insurance or stop loss policy, any collective bargaining or similar arrangements, and morale.
Eliminate employee medical coverage: Most employer coverage stems from World War II, when frozen wages left companies looking for new ways to entice employees. Benefits administration is not a core function for most employers. This strategy is certainly the most extreme and does not, at least initially, appear popular among Ohio employers.
Provide unsubsidized medical coverage: If coverage is provided on an employee-pay-all basis, the employer could avoid the larger of the two ACA penalties, only paying a penalty for those employees who obtain subsidized exchange coverage. For employers with high-wage employees, the vast majority probably earn too much to even obtain a subsidy (no subsidy = no penalty), making this strategy potentially more beneficial than eliminating coverage altogether.
Subsidize employee coverage only: Employers are only required by the ACA to subsidize medical benefits for employees, not enrolled family members. Employers subsidizing family coverage could actually harm the employee by making the individual ineligible for richer, cheaper coverage through an exchange.
Limit spousal coverage: The ACA does not require employer coverage for spouses. Employers could exclude spouses or implement a surcharge when other coverage is available.
“Part-time only” workforce: The ACA does not mandate coverage for part-timers. Some national employers, primarily in the restaurant industry, are piloting part-time workforce programs.
Reallocate employees among affiliates: Provided that the employer to which an employee is allocated is truly the employer, shifting employees among affiliates may produce cost savings even if penalties are applied. The IRS has informally voiced disfavor for this strategy.
Halt short-term growth: This strategy may be advisable for employers slightly below the 50 FTE threshold. It could be informative to watch the ACA penalty structure play out.
Cold, Hard Reality
Although CEOs may not be involved in deciding whether physician copayments are $25 or $30 per visit, or whether employees get 12 or 15 paid chiropractic visits annually, the potential price tag associated with ACA compliance and rising benefits costs is well worth some C-suite time and energy.
The compliance strategy implemented for 2014 may not be the appropriate course of action in future years: ACA penalties could increase or merger/acquisition activity could intervene. Whatever path is chosen, it should be determined in conjunction with the CEO’s team of advisors, including legal counsel, human resources and IT personnel, and revisited annually to ensure continued viability.
Unfortunately, there is no one-size-fits-all solution to complying with the ACA and the attendant battle against rising benefits costs. Meaningful strategies require employer-specific analysis, and many decisions will not be easy. Anyone stating otherwise is wrong and probably has something to sell, like a really nice bridge.
Jolie Havens is a partner in the Columbus office of Vorys, Sater, Seymour and Pease. She can be reached at (614) 464-5429 or at email@example.com.