Play Time or Pay Day?

There's no time like the present for employers to start thinking about whether to offer health-care insurance after 2014.

Fontanetta agrees that few companies are likely to dump their health-care coverage in 2014 — after all, they could do that now with no penalty — but suggested that the situation could change by, say, 2016. Many employers, he says, will wait to “take the pulse” of the state insurance exchanges required under the reform law, currently targeted to be rolled out in 2014 as well. They will evaluate such factors as how effective the exchanges are, how the insurance is priced, and the range of options offered.

“We expect it will take a couple of years after the exchanges are operable for employers to get comfortable with what the landscape looks like,” Fontanetta says. But in the short or medium term, there is the possibility of solutions that are a mix of “pay” and “play.” For example, an employer might decide to pay for employees’ health insurance but reduce or eliminate coverage for dependents.

For many employers, the industry they’re in and the demographic and health profiles of their employees may be major factors in the decision. A sector with high turnover, like retail, may conclude that the exchanges are the better way. For utilities, with older, harder-to-replace workforces, retaining health insurance may be vitally important.

Meanwhile, even companies that offer health-care programs could be subject to stiff financial penalties. Under the reform law, employees of organizations with poor-quality insurance could qualify for a tax credit to subsidize their own purchase of insurance. In order for such companies to avoid paying a government penalty (the lesser of $3,000 annually per full-time employee who gets such a tax credit, or $2,000 annually for every full-time worker), an employer must do three things.

First, it must offer “minimum essential benefits,” although the government has not yet defined that. Second, the plan must cover at least 60% of the costs of the benefits, with employees paying no more than 40%.

Third, an employee’s share of the premium cannot exceed 9.5% of his or her household income, though an employer obviously wouldn’t know the income of an employee’s spouse. Rather, the employee likely would apply for the tax credit to the federal government, which then would notify the employer. That requirement may be “worked on a bit,” suggests Bray, because “it just doesn’t seem logical or fair to employers.”

That brings up what may be the most salient factor of all: anything or everything could change with regard to pay or play — or for that matter with the reform law as a whole, right down to a possible repeal, depending on how well the Republicans do in the 2012 elections. And that might even provide an acceptable rationale for procrastination. “Not a lot of clients are doing anything yet [to get ready for 2014],” says Jeff Mamorsky, co-chair of the benefits practice at the big law firm Greenberg Traurig.

(Click here to access a recent CFO webcast on the cost impacts of health-care reform.)

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