Business Owners and Health Care Reform

If your business requires more than 50 workers, you have a decision to make about the approaching health care reform changes.  The Affordable Care Act is on track to enforce a penalty for failing to provide minimal health insurance coverage.  The first step is to see whether your company fits the definition of what firms can be penalized.

The actual language of the act is not that clear in a couple of ways.  It refers to employers with at least 50 full-time “equivalent” employees, and indicates there’s a penalty if the employer does not offer “qualified” and “affordable” health insurance to employees.  Here’s the translation.

It’s simple if you only employ staff on a full-time basis.  Otherwise, the “full-time equivalent” can refer to the full-time equivalent of your company’s part-time employees.  This is used to calculate the size of a business based on the number of hours worked by all W-2 employees. That makes the number of full-time equivalent employees roughly equal to the full-time employees plus full-time equivalent part-time employees.  The result is rounded to the lowest whole number, and here’s an example to make that more clear.

Start with the actual number of employees who work 40 or more hours a week. Then, determine how many employees work less than 40 hours a week. You can do that by summing the hours for which wages were paid to part-time employees, and dividing the total by 2,080.

If your company faces a penalty, the next hurdle is to deal with which health insurance plans are “qualified.”  One way to look at that is to consider the set of health care services that are designated as minimum essential health benefits (EHB). Although these must be covered by certain plans in 2014, state insurance departments will have some discretionary power to modify the EHBs.  So, I’m afraid we’ll have to wait for that, and for the affordable definition to be ironed out before 2014.

Once the actual coverage and cost is definite, it’s just a matter of figuring whether the cost or the penalty is higher, right?  Like most important decisions, this is more of an “if, and, or but” analysis than it is an “either/or” choice. Your business may depend on attracting and keeping innovative and responsible staff.  A competitive health benefits program certainly helps, but the cost of employer-sponsored health insurance is a major drain on the company. There are options, and one that’s becoming increasingly popular is health care reimbursement.

You could provide employees with tax-free contributions to use for an individual health insurance plan.  These are available at a much lower cost than group plans.  And, Health Reimbursement Arrangements allow for tremendous flexibility, which can benefit both the company and the employees