Two giant reform requirements are forcing employers to reconsider how they’ll offer health care coverage and whether it’ll be cheaper just to drop their plans.
Employers already have been complying with a number of health care reform laws. But the most concerning – ones that have long-term implications – are the so-called “pay or play” and “Cadillac tax” provisions. These will be effective in 2014 and 2018, respectively.
Under “pay or play,” employers with 50 or more full-time employees (those working 30 or more hours per week) must provide plans that meet minimum coverage levels – at least 60 percent actuarial value – or face penalties. If they decide not to provide group health coverage and at least one full-time employee (FTE) receives federally subsidized coverage through a health exchange, the employer will have to pay a $2,000 “free rider” penalty for each FTE. The employer does not have to pay penalties for the first 30 employees, however.
If employers decide to offer coverage, they must follow certain criteria or face more penalties. If, for example, their plans are less than the 60 percent actuarial value, they’ll have to pay $3,000 for each employee that is receiving subsidized coverage in an exchange. Otherwise, that number again is $2,000 per FTE.
What’s more, premium costs for single coverage must not exceed 9.5 percent of an employee’s household income.
Then there’s the “Cadillac tax” – plans with especially high premiums. Employers will be hit with a 40 percent excise tax on the value of total health care premiums in excess of fixed threshold limits of $10,200 per employee per year for individual coverage and $27,500 for family coverage.
Employer and employee contributions to medical and pharmacy benefits, flexible spending accounts, employer contributions to health savings accounts or health reimbursement arrangements, and benefits obtained at worksite clinics are all subject to the tax.