President Obama’s new health care law—the “Affordable Care Act”—is being phased in over a number of years, and January 2014 is the deadline for larger companies to offer coverage or pay a penalty.
It is not too soon for all companies to understand the law and plan accordingly, including reviewing their current situation, speaking with health insurance professionals, and determining how to proceed.
The Specialty Equipment Market Association (SEMA), parent company of PRI, has put together the following brief informational guide outlining key issues that company executives should consider when discussing the law with insurance professionals.
A primary purpose of the law is to expand coverage to all Americans while working within the traditional private insurance, employer-based system. The law establishes a “play or pay” system for larger companies (50 or more workers) but does not impose any coverage mandates on smaller companies. It requires all individuals to obtain minimum levels of coverage in order to make everyone participate in the system or face a financial penalty. It provides subsidies and tax credits to help low-wage individuals and small companies purchase insurance.
The law prohibits insurance companies from denying care for individuals with pre-existing conditions and sets specific limits on the cost of premiums based on age, individual versus family enrollment, geographic area and tobacco use.
On January 1, 2014, companies with 50 or more full-time equivalent employees must offer insurance or face a penalty. Already offering insurance? Your company just needs to check with an insurance professional to confirm that the coverage meets the minimum amount required by law (“qualified coverage”) or that an existing plan is “grandfathered” under the law.
Companies not currently offering coverage must decide whether to now offer health insurance or pay a penalty. The penalty for 2014 is $2000 for every full-time employee, minus the first 30 employees. For example, a company with 51 employees would be assessed a fine of $42,000 annually. The penalty will be indexed to inflation in future years.
If the worker is picking up a portion of the premium cost, it must be “affordable.” It is not affordable if it exceeds 9.5 percent of the worker’s household income. (Verifying affordability may require a complex computation, but there are three employer safe harbor options for making determinations.) The issue of affordability is generally associated with lower-wage workers. It is consequential since the company will face a $3000 penalty for each full-time worker that obtains a health care subsidy from the federal government.
Companies with 49 or fewer employees are not required to offer insurance. However, the government offers tax credits for companies with 25 or fewer workers to offer coverage.
Beginning in 2014, companies with 50 or fewer employees (and in some states companies with 100 or fewer workers) will be able to buy health insurance for their employees through exchanges. Exchanges will offer a range of health plans and are intended to infuse competition within the private insurance marketplace. The exchanges will be state-based and offer at least one federal plan. After several years, states will have the option of allowing large companies to participate in the exchange.
The new federal health care law is very complex. There are many variables on how it applies to an individual company. Consequently, it is important that each company review its current health care strategy and talk with insurance professionals to determine whether changes need to be made in advance of January 1, 2014.