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Health insurance under new rules: Will you pay or play?

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in Compensation and Benefits,Human Resources

by Rick Wald

President Obama’s re-election ensured that the Affordable Care Act (ACA) health care reform law will remain in effect. That means the nature of health insurance benefits will change dramatically by 2014, and HR executives have some huge decisions to make about their options.

Today, your employees might not be able to get health insurance—or afford it—if your organization did not offer it. Under the new health care reforms, that won’t be true. Every individual will be required to buy health insurance, and “state exchanges” will make it available to everyone. Federal subsidies will cap the costs.

Still, many businesses will continue to offer health benefits to their employees. But they won’t be required to by law. The big question: Are you going to offer it anyway?

Here are your options under the ACA:

1. Stop offering health benefits. If you have more than 50 employees and choose not to offer health insurance to your full-time equivalent (FTE) employees, you will pay a penalty of $2,000 per year per FTE. That’s a huge amount of money.

2. Offer unaffordable insurance to everyone. Then your employees can go to the exchange and get it cheaper. In that case, your company will pay a penalty of $3,000—but only for the number of employees who found your coverage unaffordable and opted to buy insurance through the exchange.

That’s probably less expensive than completely halting benefits. Reason: Not every employee will buy insurance through the exchange. Some will get coverage through a spouse’s employer. Employees younger than 26 may piggy­back onto their parents’ policies. A few might opt not to buy coverage at all and pay a small penalty instead. Higher-paid employees might not qualify for the subsidies offered through the exchanges.

Employees who earn less than 400% of the federal poverty level can qualify for the subsidies that lower the price of insurance. That’s likely to be about 70% of your staff.

3. Continue offering your current health benefits, comply with the law, manage the costs and make it affordable for both the organization and your employees.

Making the decision

To decide whether your organization should continue to offer health care benefits, you’ll need to know:

  • How much you currently pay per employee. Calculate your costs now versus paying a $2,000 penalty.
  • Your percentage of full-time versus part-time workers. Keep in mind that under the new rules, any employee who works an average of 30 hours a week over a four-week period is considered an FTE and must be offered benefits.
  • Your employees’ average pay. What percentage earn more than 400% of the federal poverty level? Those who earn more are not eligible for the subsidies and would likely pay a higher premium to use the exchange if your organization does not offer an affordable insurance. Decision: Would you offer health benefits or a subsidy of your own to this higher-paid group?
  • How many employees do you have? Penalties kick in at 50 employees. The smaller your firm, the greater the benefit of sending your employees to the exchange rather than offering healthcare benefits on your own.

Doing the math will tell you if it’s more cost-effective to offer coverage or send employees to the exchange.

Beyond the fiscal math

As an HR professional, however, you should take a fresh look at why you offer health insurance and why it may or may not make sense to offer it in the future.

Consider what it means to be an employer of choice in your industry. Frankly, in the future, that might not depend on offering comprehensive health benefits. Instead, employees might value an employer that helps them get better, cheaper insurance through the state than the company could offer on its own.

There’s no right or wrong answer, which makes the strategic decision-making even more critical when deciding whether to offer health insurance benefits to your employees.

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Rick Wald is the national practice leader for Deloitte Con­sult­ing’s employer health reform strategy practice and the employer health­care consulting practice. Contact him at RWald@Deloitte.com.

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