Obamacare: How Health Insurance Provisions May Affect Qualified Businesses
The Employer Shared Responsibility (ESR) provisions of the Affordable Care Act, sometimes informally referred to as Obamacare, are in effect. Some businesses, defined as "Applicable Large Employers", are feeling the pressure.
Starting in 2016, Applicable Large Employers must offer 95 percent of their full-time employees (those who work an average of 30 or more hours per week, or 130 hours a month for more than 120 days a year during their measurement period) and their dependents adequate and affordable health insurance coverage or face a potential penalty. If they do not offer full-time employees and their dependents health insurance that meets the minimum essential coverage requirements of the provisions, the employers may face an annualized penalty of $2,160 ( assessed monthly) per full-time employee (excluding the first 30 employees).
There is also a penalty for not offering affordable coverage (where the employee’s share of the premium for the lowest priced employee-only plan is 9.56 percent or less of household income) to full-time employees and their dependents that provides minimum value, i.e. the health plan is designed to pay at least 60 percent of the total cost of medical services for a standard population and includes substantial coverage of inpatient hospital and physician services.
Some Minimum Requirements of the Employer Shared Responsibility Provisions of the Affordable Care Act
- Employers must offer minimum essential coverage to "substantially all" (95%) of their full-time employees and their dependents.
- Qualified insurance cannot cost more than 9.5% of the employee's gross household income.
- Plans must have a minimum actuarial value that covers at least 60% of the expected cost of medical expenses to meet the minimum value requirement.
Some companies claim the potential penalty will cost less than moving forward with health insurance, and others that experienced open enrollment for the first time found it difficult to handle the sudden influx of paperwork.
Either in anticipation of the paperwork burden, or as a result of open enrollment issues, some Applicable Large Employers have reached out to third-party payroll companies to help them understand and navigate their health insurance options—and specifically the Employer Shared Responsibility provisions of the Affordable Care Act—because they know that even the slightest miscalculation or error within an organization's IRS returns could result in costly fines.
Are There Less Expensive Insurance Options?
Some employers have looked into self-funded insurance as a different way to adjust to Affordable Care Act provisions. Once exclusive to large companies, self-funding is now being offered to smaller businesses. However, with self-funded plans comes risk. Employers may potentially save on healthcare costs with self-funded insurance, but only if their total healthcare claims are lower than they expected. Only time and experience will tell what solutions best help individual businesses respond to ESR and other aspects of the Affordable Care Act.