With the ACA very much alive as we head towards the start of 2018, many employers may be adjusting their health insurance strategies. Applicable large employers—those with 50 or more FTEs—full time equivalent employees; a blended combination of full-time (30 hours per week) and part-time personnel—must provide “affordable” health insurance or face stiff penalties that are increasing again in 2018.
For employers of fewer than 50 FTEs—small and midsized businesses (SMBs)—the mandate does not apply. However, other factors, such as the value workers place upon having company-provided health benefits, may incent the business owner to offer insurance, anyway. Here, we’ll discuss some of the factors in making this determination.
For Applicable Large Employers (ALEs)
- Although the health insurance mandates for companies may still be eliminated by Congress in the future, action appears to be off the table, at least for the foreseeable future.
- Companies that do not make accurate calculations and accidentally misreport may end up paying penalties unexpectedly.
- In 2018, large employers that fail to offer minimum essential coverage (MEC) to 95 percent of their full-time employees and dependents under 26 must a penalty of $2,260 per FTE, excluding the first 30 employees.
- For any full-time employee who receives a premium tax credit because the employer offered coverage that was unaffordable or did not provide minimum value, employers will pay $3,480, per employee that received the tax credit, in 2018.
- The two penalties are not cumulative, and the penalty is capped at the amount the firm pays (or would have paid) for breaking the “95 percent” rule.
- As reported in this SHRM article, some employers are choosing to pay the penalty rather than offer insurance. We urge employers to weigh all the factors before taking that path. In the next section, we review the major considerations.
For SMB Employers
- Health insurance has consistently remained one of the most coveted benefits stated by employees, with 60% giving it “heavy consideration” when evaluating a job offer or deciding to stay with an employer, and another 22% giving it “some consideration” in their decisions.*
- It costs SMBs much to provide a dollar of benefits than a dollar of compensation. Between worker’s compensation, taxes and other costs borne by both the employer and the company, a dollar of compensation is often worth less than 60 cents.
- If an employer provides insurance, the amount the employee pays for their contribution comes out of pre-tax dollars. When personnel purchase their own insurance, they pay with after-tax dollars.
- Based on current law, the individual penalty for not having health insurance will continue in 2018, as it is adjusted for inflation and is capped at the national average price of a bronze plan sold through the health insurance marketplace. This penalty will increase burdens for workers that do not purchase insurance on their own and do not receive it through their employer.
- Companies that do not want to pay for or manage group health insurance, but still wish to offer a benefit, can create a “healthcare reimbursement plan,” whereby they give employees an annual contribution towards insurance and out-of-pocket costs capped at an amount the employer specifies. These costs are fully deductible by the employer.
*Harvard Business Review survey