Estimates have varied widely on just what the Affordable Care Act (ACA) will do to employer-sponsored insurance, with some predicting a mass departure of employers from offering health insurance.
However, recent analysis - including that from consulting firms Aon Hewitt and Towers Watson — suggests that most employers intend to keep their coverage for full-time workers when group Marketplaces (formally known as the Exchange) come online in 2014. This aligns with a Feb. 2013 study conducted by the National Small Business Association that found only 3 percent of employers plan to stop offering health insurance and pay the employer shared responsibility penalty1.
The ACA mandates an annual penalty of $2,000-per full-time-employee (minus the first 30 employees) against employers with 50 or more full-time and full-time equivalent employees who don't provide coverage to at least 95 percent of all full-time employees (and their dependents) if at least one of their full-time employees receives a premium tax credit or cost-sharing reduction for coverage purchased through the Marketplace. Generally, the penalty is smaller than the typical per-employee cost of health coverage. But as employers investigate the issue, many will find other costs that will tip the scale in favor of continuing to offer coverage that meets or exceeds the minimum, affordable standards of the new ACA health law.
- Most employers would not face penalties with their current health plan. The impact of the coverage requirement affects various kinds of employers very differently, depending on employee demographics, employer plan design, and employer contributions. As Wellmark analyzes its book-of-business and reviews industry research, however, the average employer already offers "affordable", "minimum value" health insurance today, and is therefore unlikely to pay an employer penalty.
- Employers would lose tax advantages. Providing health insurance is a way for companies to give benefits to workers on a tax-free basis. Plus, employer contributions for health coverage are tax deductible.
- Employees may push for additional compensation. Employees at a company that drops coverage will recognize their wages have effectively been cut, since they will be forced to purchase coverage on the individual insurance market or pay a tax themselves. In the face of employee complaints, employers might decide they need to make workers whole. Employers would need to budget for the additional payroll, plus any potential penalties.
- Employers who don't offer coverage run the risk of losing good workers to their competitors. Offering benefits helps employers be perceived as an employer of choice. Opting not to offer health care coverage could make it difficult to attract and retain top talent.
- Employer should consider incremental employee costs. By helping employees access quality care, employers can help control costs to their business that take the form of lost productivity: absenteeism, disability, workers' compensation, and employees who work while ill. Dropping coverage could affect employee morale, resulting in sub-par work.
Modeling the Costs of Employer Decisions
Wellmark modeled a number of post-2014 health plan designs for various employer sizes across a variety of industries (manufacturing, education, government, transportation, financial, retail, construction, and more). This analysis found, across the board, no short- or long-term advantage to dropping employer-sponsored coverage.
The cost of bumping up salaries or other benefits to compensate employees for the loss of health care benefits was much higher than the cost to continue coverage. Prior to modeling, most employers might have been under the impression that the cost of either option was fairly even. But our analytical modeling shows there actually is a better option, and that is to continue offering coverage. Nobody likes to pay something for nothing - and with a penalty, that's exactly what you get.
The decision to offer or drop health coverage isn't an easy one, as there are financial, tax, legal and competitive implications. Consult with your Wellmark representative and your legal and tax experts to understand the requirements and implications of the ACA for your company.
This message provides information of a general nature, and is not intended as legal or tax advice or opinion relative to any specific issue. Additional changes may be made to the regulations of guidance described in this message. You should consider consulting with your lawyer or tax advisor before acting based on this information.
Wellmark is not providing any legal advice with regard to compliance with the requirements of the Affordable Care Act (ACA) or the Mental Health Parity Addiction Equity Act (MHPAEA). Regulations and guidance on specific provisions of the ACA and MHPAEA have been and will continue to be provided by the U.S. Department of Health and Human Services (HHS) and/or other agencies. The information provided reflects Wellmark's understanding of the most current information and is subject to change without further notice. Please note that plan benefits, rates, renewal rate adjustments, and rating impact calculations are subject to change and may be revised during a plan's rating period based on guidance and regulations issued by HHS or other agencies. Wellmark makes no representation as to the impact of plan changes on a plan's grandfathered status or interpretation or implementation of any other provisions of ACA. Any questions about Wellmark's approach to the ACA or MHPAEA may be referred to your Wellmark account representative. Wellmark will not determine whether coverage is discriminatory or otherwise in violation of Internal Revenue Code Section 105(h). Wellmark also will not provide any testing for compliance with Internal Revenue Code Section 105(h). Wellmark will not be held liable for any penalties or other losses resulting from any employer offering coverage in violation of section 105(h). Wellmark will not determine whether any change in an Employer Administered Funding Arrangement affects a health plan's grandfathered health plan status under ACA or otherwise complies with ACA. Wellmark will not be held liable for any penalties or other losses resulting from any Employer Administered Funding Arrangement. For purposes of this paragraph, an "Employer Administered Funding Arrangement" is an arrangement administered by an employer in which the employer contributes toward the member's share of benefit costs (such as the member's deductible, coinsurance, or copayments) in the absence of which the member would be financially responsible. An Employer Administered Funding Arrangement does not include the employer's contribution to health insurance premiums or rates.
1 Learner, N. (2013). Few Small Businesses Are Expected to Drop Health Coverage, Take Penalty Under ACA (Table: Group Health Insurance Costs for One Maine Employer Under ACA). AIS's Health Reform Week, Volume 4 (issue 8). Retrieved from http://aishealth.com/marketplace/aiss-health-reform-week.