It's fascinating how at Bravo we encounter employers who aren't the least bit concerned about the affordability calculation and others who have been convinced that it's the end of civilization as they know it. On rare occasions, employers with many minimum wage employees will offer a fairly rich health plan that requires the employee to pay a large portion of the premium. In our experience however, this is an exception.
Most of the time, panic over the affordability issue occurs when the employer has a small percentage of minimum wage employees who may be charged more than 9.5% of their annual household income for benefits. Instead of rationally considering the alternatives and risks, some employers are dramatically reducing the employee premium contributions to levels that are far lower than what the vast majority of their population could pay under the regulations - which results in a potentially massive hit to the company's bottom line.
Keep Calm and Consider the Facts
- If the cost of your coverage happens to be "unaffordable" under the regulations, it does NOT mean that you face huge penalties tied to the number of people eligible for your health plan. The big penalty that is tied to the number of people eligible is the "sledgehammer" penalty which is triggered when you don't offer coverage that complies with minimum value requirements. It's not triggered when you offer a good plan that is just unaffordable for some.
- If your plan is unaffordable for one or more of your associates, it's true that you could face a $250/month penalty - but only for those associates and only if these facts are also true:
- The employee was offered your coverage and declined to enroll. If they enroll in a plan that costs more than 9.5% of their household income, you don't have a penalty to pay.
- The employee enrolled in a federally subsidized exchange instead.
- After reporting their "true household income" (not just the wage you pay them) and verifying that they aren't eligible for other government programs like Medicaid, VA, Tricare etc., they qualified for a subsidy under the exchange and received the subsidy.
- You, as the employer, confirmed with the government that the employee was not offered coverage for a contribution that was less than 9.5% of their annual household income. You CAN and SHOULD calculate the cost of coverage by determining the cost that a non-smoker who failed all other wellness incentive categories would pay for employee-only coverage and use that amount to conduct the 9.5% testing.
Let's say you have people who do in fact meet all of the requirements and receive a subsidy under the exchange, causing you to pay a $250/month penalty for each month they received the subsidy. Is that all bad? How much were you going to pay toward their premium if they had enrolled in your plan? In many cases the penalty is less than the 70-80% of premium that the employer was already paying.
Every option you offer does not need to be "affordable" for all employees. Many employers only have an affordability challenge now because the coverage they offer their associates is too good! You can offer a "bronze" plan with a higher deductible and minimum benefits, and typically find that it's easily affordable for everyone. Even if you offer it at the "employee only" and "employee + child(ren)" levels (the cost of covering spouses does not need to be "affordable" for associates) you can meet the requirements of offering affordable coverage -- even if nobody enrolls in the plan.
In full disclosure, I am not an attorney (which is why I'm giving you all this for free) but I have had this dialogue with over a dozen attorneys this past year, as well as dozens of consulting firms and clients. Each time the customer has concluded that the "mountain" they feared was indeed a molehill. Don't get me wrong, I'm all for the ACA and for the requirements to provide everyone with at least a minimum amount of coverage that is available to them, at a cost that is not overly burdensome.
That's why so many of our tax dollars are going into federal subsidies to help people who really need it. As an employer, however, I understand the burden of healthcare coverage costs and the reality that extra dollars spent on health insurance are dollars that could have been spent on new jobs, expanded marketing and enhanced technology. We need to step up and pay our fair share if we're not already doing so, but don't let misguided agendas or bad advice result in enormous new employer expenses that are unwarranted.