A Model to Assist Your Company in Making Smart ACA Decisions

In ten months large employers will have to have an action plan in place to comply with the Play or Pay Mandate.  The three questions employers should examine when putting together their plan are:
  • How much would it cost to pay the penalty under the ACA?
  • How much would it cost to offer qualifying coverage under the ACA?
  • If coverage is not offered, how valuable will the tax credits provided by the federal government be to the employees and their family?
The firm has created a model that estimates these costs for employers.  The purpose of the model is to assist employers in making sense of all of the moving variables that need to be considered when putting together an action plan for the Play or Pay Mandate.  Below is a brief description of the variables employers need to consider when answering the questions above.

The first calculation is fairly straightforward once an employer determines how many full-time employees it employs ($2,000 x (# of full-time employees – 30)).  Unfortunately, the next two questions are anything but straightforward.

The first step to the second question involves the employer determining the cost of qualifying coverage.  The next step is to determine what portion of the qualifying coverage the employer will pay and what portion the employee will pay.  While self-only qualifying coverage must be affordable (meaning the cost of the employee’s share of self-only coverage cannot exceed 9.5 percent of the employee’s household income), there is no such requirement for other types of qualifying coverage.  Thus, qualifying coverage other than self-only coverage can cost employees a larger share of their household income.  In fact, there is an incentive to make qualifying coverage other than self-only qualifying coverage unaffordable so the employer does not have to pay the employer’s share of the qualifying coverage.  The proposed regulations do not require an employer to offer an employee’s spouse coverage in order to be considered qualifying coverage.  The amount the employer spends on qualifying coverage for its employees, dependents and spouses (if the plan covers spouses) will be deductible and this must be factored in to the decision making process.

It will be difficult to determine the exact cost of offering qualifying coverage because it will be nearly impossible to determine how many employees and how many of the employees’ dependents (and spouses if allowed under the plan) will accept the employer’s coverage.  While individuals will be penalized for not obtaining qualifying coverage, there is a chance employees will elect to pay the penalty because it will provide the cheapest option by a wide margin, particularly in 2014 and 2015.  Each person that does not accept the employer’s qualifying coverage will lower the cost for the employer.

The third question is one that is being neglected by many employers.  Depending on the age of the people covered under a potential plan (an older age allows for a larger tax credit) and the household income of the employees compared to the federal poverty line (a lower household income allows for a larger tax credit), an employer’s employees and their dependents and spouses could be eligible for valuable federal tax credits.  If this amount is substantially more than the cost employers would spend offering coverage, the employer not offering coverage may be best option for the employer and the employees.  It will be difficult for employers to gain all the necessary information needed to make an exact calculation for the third question as employers will rarely be able to determine the salary of the other spouse but estimations can be made within the model.

The third question is critical for employers to consider in order for their employees and their families to be able to receive affordable health care coverage.  Among other restrictions, the federal tax credits under the ACA are only available to individuals who do not have access to qualifying coverage through their employer. An employer offering qualifying coverage to an employee could be a bad thing for the employee and their family.  For example, if an employer offers qualifying coverage that cost the employee 30 percent of the employee’s household income to cover the employee and his or her family, the employer would be taking away the employee’s ability to receive federal tax credits.  If a large segment of an employer’s workforce consists of employees with a household income that does not exceed 400 percent of the federal poverty line, it may be best for all parties if coverage is not offered by the employer.

The model is able to quantify the various options allowed by the Play or Pay Mandate.  While the model is far from perfect, the ACA does not allow employers access to all of the information needed to make perfect decisions.  Please contact me to learn how the model can assist your company in making Play or Pay decisions.