Know the Answer to these 3 Questions!
By Andrew Oram
There seems to be quite a bit of misinformation about what
is really going to happen for business owners come 2014. Knowing the answer to these three questions should create as a huge relief to HR departments, executives, and business owners.
1. Will I need to offer health care to all of my
employees?
2. Is the health coverage I have in place,
“adequate & affordable,”?
3. Will I need to pay a fine?
There are many unknowns about what the actual cost of
healthcare reform will be, but without going too deep into PPACA (Patient Protection and Affordable Care Act) lets peal back
the onion and address these basic questions head on.
Do I need to offer
healthcare to all of my employees?
If your company has fewer than fifty employees as of 2014 you do
not need to offer coverage or make changes to your existing plan.
If your company has fifty or more employees you may or may
not need to make any changes. Without getting into the formulas for calculating how many
full time employees your company actually has. Lets address whether your current
plan is deemed, “adequate & affordable,” under the new PPACA law. If you can answer yes to both than you probably don't need to make any changes to your plan.
Does your plan cover at least 60% of your employee’s medical
expenses? Most basic plans offered
by employers cover 80/20 medical. . This
of course means the employee is responsible for 20% of incurred medical expense
and the insurance company picks up the remaining 80%.
Most of us have deductibles, co-pays, and out of pocket maxes for
hospitalization that fall well below this threshold. If your plan only covers 60% of your employee’s
expenses you’re still compliant according to the new law. If you don’t fall into this category, or are
not sure, you should probably talk to you insurance broker or adviser and find
out.
Is your plan
affordable?
Retailer & manufacturers who employ a relatively high
percentage of full time minimum wage workers who do not currently participate on their company plan may be panicking wondering how they are going to afford to stay in business. Currently the new law states that companies that fail to offer an affordable health care plan to their employees will be assessed a $2,000 penalty per employee. But before you throw your hands up and close
shop take this into consideration; affordable means that your plan cannot cost
your employee more than 9.5% of his/her annual income. Okay, that’s great, but what does that really
mean when you work at a company with a thousand employees? Do you need to calculate how much 9.5% of
each employee’s salary is? No. What you need to do is offer a plan that is affordable to your lowest wage earner. If it is affordable to that person it will be affordable to everyone else in your company.
Let’s work backwards on this. The minimum wage for a worker in California is
$8.00. To be considered full time an
employee must work 30 hours per week week. Over a 52
week period assuming that this employee works 30 hours every week of the year he
makes $12,480. 9.5% of his salary is
$1,185.60 or $98.80 per month. If your
company plan costs your employees less than $1,185.60 per year or $98.80 per
month you are in compliance.
What if my employees
pay more than that for coverage?
First, consider that this model is based on a minimum wage
earner at 30 hours per year. To make this
applicable to your company take the lowest wage full time employee at your
company and multiply his/her salary by 9.5%.
Divide that number by 12 months and you’ll have your magic number. An employee working 40 hours per week at $12 per hour for 50 weeks a year makes $24,000 per year.
9.5% of his/her salary is $2,280.
In this example in order for this health plan to be “affordable” the
employee cannot be asked to contribute more than $2,280 per year or $190 per
month.
What are my options if my company is still not
compliant?
- Seek out a more affordable healthcare plan where employee contributions are lower.
- Consider raising your employer contribution. You may be able to raise the employer contribution a couple of percentage points in order to make it affordable to all employees.
- Offer a more affordable option side by side with your current plan
It has probably occurred to you that even if your company is
compliant adding additional employees to your company plan may not be financially feasible. You may have to consider offering fewer benefits, raising co-pays or increasing deductibles. Before you do this you should probably discuss with your benefit adviser the likelihood that healthcare reform will make an impact on your plan and what that financial impact could be.
Just food for thought but consider this, if your low wage employees are not enrolling on your current plan now do you think they will enroll next year when faced with a $95 per year tax penalty? If the alternative is to pay $190 per month (as in the example above) the likelihood seems pretty low. If your plan is already adequate and affordable you have done all that you need to do in order to be compliant under the new law. Remember, to be in compliance your plan must be "adequate & affordable," as outlined by PPACA. It is your employees' choice whether they decide to enroll or not.
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