Will Employers Play or Pay?
“If I had to boil it down, it’s a tale of two states for businesses,” says Kate Johansen, manager of health, transportation, and civil justice policy for the Minnesota Chamber of Commerce.
“Anxiety is the number one theme—anxiety from an overwhelming amount of change” that involves new standards and significant consequences for noncompliance, she says. “The second theme is that business owners are engaging.” After a period of uncertainty, they now know reform is going to happen, and “they’re hungry for information and clarification.”
Top of mind for many business leaders is the “play-or-pay” requirement. The provision affects businesses with at least 50 full-time equivalent employees. Full-time workers are defined as working 30 or more hours per week each month, and the calculation is based on an aggregate of hours worked by all employees. (If a company has, say, 40 full-time employees and 20 part-timers working 15 hours per week, the business is subject to “play or pay.”) To determine if your business is a “large employer,” use this worksheet.
Large employers must meet three standards to avoid penalties. First, they must offer “minimum essential coverage” to at least 95 percent of their full-time employees (those working 30 hours per week) and their dependents. If the business doesn’t meet this minimum 95 percent coverage, they must pay $166.67 per month ($2,000 a year) per employee, and the fine is nondeductible.
Steve Overholser, chief financial officer and treasurer for Edina-based hair salon company Great Clips, says he’s “not looking at making any major plan design changes” for his company’s 200 corporate employees as a result of the new provisions, but salon franchisees have many variables to consider. He estimates that about 150 of Great Clips’ 1,100 franchisees qualify as “large employers” and will be subject to “play or pay.” Others are approaching the threshold and are weighing their options.
But there are “two big unknowns,” he says: the cost of individual plans that will be offered on the new MNsure health exchange, and how many employees will participate in the plan their employer offers. While a large employer is required only to offer coverage to 95 percent of employees, some business leaders are concerned that workers may opt out of employer-offered coverage, choosing instead to purchase individual plans on the exchange or pay the relatively small penalty for being uninsured. Most insurers require that a certain percentage of eligible employees participate in an employer’s plan, in order to prevent a scenario known as “adverse selection,” in which only those prone to sickness sign up for coverage.
“All those businesses that define full-timers as 40 hours a week now may need to start capping their employees’ work weeks at 30 hours to keep them at part-time status so they aren’t included in the 95 percent,” says Chris Schneeman, president of St. Paul-based health care advising group SevenHills Benefit Partners.
The second “play-or-pay” requirement relates to the “minimum value” of coverage. Businesses must provide a plan that pays at least 60 percent of the total cost benefit in order to avoid a secondary penalty. Most plans are expected to meet that threshold, although businesses are looking at ways to make their offerings cost-efficient.
“Employers that currently offer plans are now doing an analysis of, ‘What if I change the benefit levels that are above 60 percent?’” says Ed Wegerson, a partner at Minneapolis-based law firm Lindquist & Vennum, LLP, who has more than three decades of experience in employee-benefit and executive-compensation matters. “What are the cost savings there?”
To calculate whether a plan provides “minimum value,” click here.
Finally, the large employer is required to provide an “affordable” plan—meaning the employee’s contribution for health coverage must constitute 9.5 percent or less of his or her household income. Because employers don’t know workers’ total family income, they have three safe harbors: Charge 9.5 percent of the federal poverty line ($88.43/month as of 2013), take 9.5 percent of an employee’s hourly rate times 130 hours, or calculate 9.5 percent of an employee’s W-2 form wages.
The penalty for not meeting minimum value or affordability requirements is $250 per month, or $3,000 annually, but it is must be paid only for employees who procure a plan through the health exchange and receive a premium tax credit for their enrollment.
Below is a flow chart that details “play-or-pay” requirements and penalties; click the image to download a larger PDF version.
While some large employers may contemplate noncompliance (and absorbing the fines associated with it) there are more factors to consider—namely, the way it affects their competitiveness in attracting a talented work force. To compensate, a business that drops coverage altogether may elect to offer a higher salary to offset the change.
“Dropping coverage could make you look like the Grinch, and your competitors are going to jump on that,” says Wegerson.
Click here for a list of frequently asked questions on the employer shared responsibility provisions, which includes answers from the Internal Revenue Service. Click here for more in-depth language about the employer-shared responsibility regulations.
Small Businesses Are Not Immune to Change
While only large employers are subject to “play or pay,” small companies are also bracing for change—and seeking clarification on reform.
“The problem with the health care bill is it’s so complicated and the rules come out in bits and pieces,” says Shelley Rose, president of St. Paul-based LogIn, Inc., which provides online information services to law enforcement officials and employs 10 people. “It doesn’t give me as a business owner of a small company, wearing my HR hat, the opportunity to really plan and understand how to make the best decisions for the business and my employees.”
Like other business owners, Rose is anxiously awaiting the debut of MNsure. She may cease offering health insurance to workers if it appears they can obtain better and more affordable coverage on the exchange. If she does drop employee plans, she may provide a set monthly sum to workers for them to spend on individual plans.
In the meantime, Rose says she relies on business organizations like the Minnesota Chamber of Commerce to keep her apprised of new requirements and other changes stemming from health reform.
Some small employers that offer plans may qualify for a tax credit. Minnesota businesses may be eligible if they cover at least 50 percent of the cost of health care coverage for workers, pay average annual wages below $50,000, and have fewer than the equivalent of 25 full-time employees.