On July 3, 2013, the Obama administration announced they were delaying the "employer mandate" until 2015. This is a huge opportunity for businesses with over 50 employees who, until last week, were preparing to either offer affordable, qualified group health insurance by 2014 or be subject to tax penalties. Large employers now have until 2015 before the tax penalties come into play.
Many businesses feel unsettled by the news... it disrupts a major provision of the ACA that businesses have been strategically planning for. Many businesses also feel a huge relief.
Businesses should view the delay in the employer mandate as great news. Here's why.
Guaranteed Issue, Marketplaces, and Tax Subsidies Still A Go for 2014
With the employer mandate being delayed, what else is changing? At this point, all of the other fundamental ACA provisions impacting employers and employees will still take effect January 1, 2014:
-
Guaranteed-issue individual health insurance policies will start in 2014.
-
The state health insurance Marketplaces will open October 1, 2013 for coverage beginning January 1, 2014 (for individuals and small businesses). Find details on your state Marketplace here.
-
The individual health insurance premium tax subsidies will start in 2014, lowering the cost of premiums purchased through the Marketplaces for most Americans. Learn more about premium tax credits here.
These key ACA provisions, minus the penalties, create an opportunity for better benefits in 2014.
Small Businesses Stay the Course
The recent delay in the employer mandate has no impact on small businesses.
There is no ACA provision for small businesses (with less than 50 employees) to offer health insurance coverage, so the delay in the mandate and penalties has no impact.
Because there are no tax penalties for small businesses, the prevailing trend for small businesses is to offer employee health benefits through a "pure" defined contribution health plan. Instead of offering a traditional group health insurance plan, the business provides employees tax-free health care allowances. Employees use these allowances to be reimbursed for individual health insurance policies.
Small businesses are rapidly adopting this type of defined contribution model because it makes sense for both the small business and employees. Why?
-
The cost of group health insurance is prohibitive for many small businesses. Experts agree this will not change with health care reform. Defined contribution is a cost-effective solution to define and control all health benefits costs -- while taking care of employees.
-
Individual policies will become guaranteed issue in 2014, so small businesses can feel assured that all employees will be able to get affordable individual health insurance coverage.
-
Most employees will pay less for health insurance on the individual market due to federal subsidies.
-
For small businesses with under 50 FTE employees, again there is no employer mandate and no penalties. And, the only way for employers to give employees access to the individual premium tax subsidies is by not offering group health insurance.
Why the Employer Mandate Delay is Great for Medium and Large Businesses
The delay in the employer mandate will cause more businesses to cancel group health insurance in order to create better benefits with the premium tax subsidies and defined contribution.
Because the employer mandate and penalties are pushed to 2015, many medium and large businesses are expected follow the trend of small businesses and offer defined contribution health benefits. As outlined above, the combination of defined contribution and the premium tax subsidies for employees enables a business to create better employee health benefits, at a lower cost to both the business and employees.
What about 2015? Looking ahead, even when the employer mandate and penalties take effect in 2015, businesses with 50+ employees will need to conduct a cost analysis to decide their course of action. Larger businesses will need to compare the cost of three options:
-
"Play:" Offer a qualified, affordable group health insurance plan.
-
"Pay:" Choose to not offer group health insurance plan, and pay any applicable penalties starting in 2015.
-
"Play Differently" with Defined Contribution: Choose to not offer group health insurance, pay any applicable penalties (starting in 2015), and offer employees a defined contribution health plan.
Many businesses with 50+ employees will find that "playing differently" with defined contribution will be a more cost effective and better benefit program for employees in 2015, even with the penalties.
With the delay of the ACA employer mandate and penalties, why wouldn't a business cancel group health insurance and offer better health benefits with defined contribution? Let us know your thoughts below.
