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A Better Partnership


Jun 2013
June 14, 2013

In or Out? Most Companies Say They’ll Continue Health-Care Benefits

When the play-or-pay provision of the Affordable Care Act takes effect next year, most companies are opting to “play” instead of “pay.”

In a recent Warner Norcross & Judd survey of HR professionals, 97 percent of the 131 respondents said they’ll continue offering health-care coverage to employees. In addition, 58 percent of the companies that will continue with coverage said their insurance plans won’t change significantly.

“The bottom line is that employers will continue offering coverage because that’s what they need to do to compete in the labor market,” said Norbert Kugele, a Warner attorney who specializes in health and welfare benefits. “Health-care coverage is a good tool for attracting and retaining workers. The ACA doesn’t change that. And employers benefit from this as well, because healthy workers are more productive than unhealthy workers.”

Many HR professionals echoed Kugele’s assertion, saying that their benefits packages make them more desirable places to work. Eliminating the benefits packages would affect employee morale and employee wellness.

“We’ll comply because it’s the right thing to do,” said one respondent. “And because having healthy employees is our goal.”

Not to say that all employers are happy about the requirement that they provide “affordable” coverage or face financial penalties. They aren’t. Some respondents pointed out that dropping coverage and paying the penalties might save them money, but really isn’t an option if they want to remain competitive.

“I am still trying to wrap my head around the fact that the government is dictating what benefits employers must now offer to our employees without regard to the impact it will have on the employers,” said one HR professional. Others complained that the play-or-pay requirements will stifle the growth of small businesses and will mean higher costs for both employers and employees.
The law calls for companies with 50 or more full-time-equivalent employees to offer health-care coverage or pay a fine that will support subsidies offered through the Health Insurance Marketplace (formerly known as the Health Care Exchange), where uninsured people can buy their own coverage. The penalty for failure to offer coverage is $2,000 per full-time employee (though employers may subtract 30 from the total number of full-time employees). Unlike expenses for providing health-care coverage to employees, the penalty is non-deductible.

Companies that hover near the 50-employee threshold and those in industries where pay scales are typically low (such as retail and service sectors) are among those thinking about paying the fine instead of offering coverage, Kugele said.

“At present, I don’t know of a single client who currently provides coverage and has decided to drop it altogether, although I have a couple of clients who are on the fence about it,” Kugele said.

He pointed out that people whose household income falls at or below 200% of the poverty level will likely find subsidized coverage through the Health Insurance Marketplace as an adequate replacement for employer-sponsored group health plans. But subsidies phase out as income rises, so people above that level may find that they will be paying more for coverage through the Marketplace than they would pay for coverage through an employer-sponsored group health plan.

More Comments From HR Professionals
  • “We’ve incorporated the required changes and will continue to offer great benefits for staff.”
  • “We need to continue to look at adjustments to our plan to control costs and require our employees to be more engaged in their health choices.”
  • “Our goal is to keep our plan, but we expect the price to be a potential roadblock. If that is the case, we will have to make modifications to the offering.”
  • “Everyone is going to pay more regardless of what the bureaucrats want us to believe.”
  • “Today, it would probably be less expensive for us to eliminate coverage and simply pay the penalty. But we expect the penalties to increase over time, so we don’t anticipate that will always be the case.”
  • “This will stifle small business growth for those companies around the 50 FTE mark.”
  • “I think it will level the playing field so smaller employers are paying similar rates to larger employers.”
  • "This will be an annual decision — whether to continue coverage or pay the penalty — but we don’t plan to eliminate coverage without a communication plan for our employees, which would allow them time to prepare for the change."
  • "Those who skimp on benefits are skimping on their employees — who can make or break their business."
  • "As our costs continue to increase, a larger share of the burden will be transferred to the employee."
  • "This doesn’t address the real issues with health care. It’s grossly unfair to push these taxes and requirements on the employers. The expansion of business is going to suffer greatly."
The Survey Says . . .

We recently surveyed clients to find out how they’ll respond to the Affordable Care Act’s requirement that businesses with 50 or more full-time-equivalent employees provide health-care coverage or face penalties beginning in 2014. Here’s how they responded:

Continue offering coverage with no significant changes to the plan 56%
Continue offering coverage, but with modifications to the plan 41%
Continue offering coverage for now, but if our competitors drop coverage we will, too 1%
Discontinue coverage for employees and pay the penalties 2%

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