By CYRIL TUOHY, managing editor of Risk & Insurance®
TUCSON, ARIZ.---When it comes to the Patient Protection and Affordable Care Act, employers with more than 50 full-time equivalent employees have two choices: They will either continue to offer their workers group coverage, or they will opt to "go naked" and decline, allowing employees to seek coverage in the individual market through the healthcare exchanges.
Under the provisions which go into effect in 2014, employers deciding to go the group coverage route will likely offer their employees one of three choices: They will provide the same level of coverage as they do now, opt to reduce benefits while increasing employee contributions, or eliminate their healthcare responsibility by moving jobs overseas and reducing working hours for part-time employees.
This wisdom is courtesy of attorney Joseph T. Holahan, with the firm of Morris Manning & Martin in Washington, D.C. Holahan spoke Monday at a gathering of the Captive Insurance Companies Association (CICA) in Tucson, Ariz.
Companies could choose a fourth option, which is to decline to offer employees coverage at all. Companies doing that will have to pay a penalty under the PPACA's clauses pertaining to employer responsibility provisions, Holahan said.
Penalties come in two forms. The first, the so-called "sledgehammer penalty," amounts to $2,000 a year per full-time equivalent employee. This fine applies on a per employee basis to a maximum of 30 employees working at any one company. The sledgehammer penalty applies even if a full-time equivalent employee does not have access to minimum essential coverage from an employer, purchases coverage through an exchange and receives a subsidy from the government, Holahan said.
The second penalty, the so-called "tack hammer penalty," amounts to $3,000 per employee. It applies if any employee purchases insurance on an exchange and receives a government subsidy, Holahan also said.
The primary purpose of the federal healthcare reforms is a focus on universal coverage and the provision of subsidies to help people pay for coverage. As a result, there is little incentive for small employers to offer the benefit, said Holahan. Guaranteed coverage through the creation of insurance exchanges and premium subsidies for lower-income workers will make small employers think "long and hard" before offering healthcare, he also said. Small employers will simply tell employees that, though the company can't afford coverage, there are other options, he theorized.
"There's very little in the way of reform that affects cost of coverage, but there are big subsidies," Holahan said. The subsidies will grow as healthcare costs continue to grow.
Several states have sued the federal government, alleging that the U.S. federal authorities don't have the right to force people to buy healthcare. Some judges have found the law to be unconstitutional, while others have upheld the law. The challenges will in all likelihood be decided by the U.S. Supreme Court.
By 2014, every individual will be required to obtain a minimum of health coverage. Individuals who refuse minimum coverage will incur a penalty of up to $695 per adult in households not covered.
Holahan said the penalty was "not that strong" and the idea is to force people into coverage and not wait until they have a condition.
March 15, 2011
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