Posted: 1:16 p.m. Wednesday, March 27, 2013
By Gene Marks
On January 1, 2014, the Affordable Care Act will require businesses with 50 or more full-time employees to offer health insurance. What if you have fewer than that?
The third anniversary of the Affordable Care Act, also known as Obamacare, came and went last week without much fanfare. But think about it: health care reform has been a reality for three years now. And it's about to become even more real for every business owner in nine months.
That's because on January 1, 2014 all individuals will be required to have health insurance. Those who don't will pay a penalty. Or fine. Or tax. Or whatever it's being called. By 2019 that penalty will be $695 or 2.5 percent of an individual's income, whichever is higher. And if you run a business with more than 50 full-time equivalent employees (a calculation based on full and part-timers) you also must either offer qualified health insurance to your full-time employees or pay a penalty. Or fine. Or tax. Or whatever that's called. That penalty is $2,000 per employee by 2019, and you can exclude the first 30 employees from the calculation.
A lot has been said about how this affects small business. And it does affect all businesses. But in reality if you have fewer than 50 full-time equivalent employees, you're exempt from the law, plus you get a tax credit (if you're eligible). So don't sweat it too much.
But what if you do the math and you find that you're one of the "lucky" people running a business with more than 50 full-time equivalent employees? Do you emigrate to Canada? Close up shop? Of course not. The Canadians have their own worries and the last thing you want to do is be associated with a country that produced Justin Bieber. And you're not going to shut down your business either. Nice try.
So what are your options? It's not as complicated as you think. In fact, you really only have three.
1. The Dude Option
You are the dude. You are laid back. You will stay the course. You will keep the same health insurance plans that you have in place now and make sure they're covering your full-time employees (those working more than 30 hours a week). Like most plans, it will likely qualify under the Affordable Care Act. It will probably be a "bronze" plan, which is the cheapest acceptable plan allowed by the law. The plan will have its own deductibles and co-insurance, cover 60 percent of the costs of health care for your employees (you won't have to make this calculation, don't worry), and come with a maximum out-of-pocket amount. You will also have to make sure that your employees are not spending more than 9.5 percent of their household income on health care. (Good luck with that. But don't worry, there are "safe harbor" rules to help you disclose this in case you don't know.)
If you're super generous you may offer a "silver," "gold," or "platinum" plan. These have the same benefits but cost your employees less (and you more). Either way, you'll likely have to help your employees who find themselves below four times the poverty level get federal assistance. You'll chill out, cross your fingers, and hope that the premiums don't rise any more than what you've experienced in the past. But it's cool. You'll go with the flow.
2. The Mr. Burns Example
You are a ruthless, vindictive, petty, selfish scoundrel (like the boss on The Simpsons) who cares nothing for his employees and chooses instead to hole yourself up in your castle of a home except when you emerge to fire someone eating donuts instead of working. You choose the nuclear option: you get rid of your health insurance plans altogether and feed your employees to the state health "exchanges," where they must buy their own insurance. You do not care about offering competitive compensation packages. You are purely bottom-line profit driven.
Sounds harsh. But boy is it enticing. The savings could be substantial. Say you have 60 full-time people working more than 30 hours a week. I bet your current insurance plan is probably costing you somewhere around $400,000 to $500,000 per year, based on the studies I've seen. If you take the Mr. Burns approach and decide to just pay the penalties, your annual cost by 2019 would be reduced to $60,000 (that's 60 employees less the 30 employee exemption times $2,000 per employee). No, I am not kidding. Wow. There will be more than a few business owners that will go this route and pocket the difference. Pretty attractive isn't it? Smithers, where are you?
3. The Godfather Move
As Emilio Barzini once said: "...after all, we are not communists." Yes. We are businessmen. And this is business. And many companies I know, both big and small, are choosing a more business approach to deal with the Affordable Care Act.
Consider this: if you're the guy running that 60 person company and you choose not to offer health insurance then you pay the $60,000 penalty. And then (at least for now) the government doesn't really care what you do. So instead of throwing your employees out in the street to buy insurance on their own, you offer them an allowance to help them pay for their health insurance. An extra few bucks in their paycheck. Call it a bonus if you want and offer that allowance to whomever you want. The government (at least for now) won't care about that either.
The Godfather option is truly an offer they can't refuse. If you do the math right then the allowance your people receives should result in them not paying any more for health insurance than they were before (make sure you consider taxes too, because this is extra income to them). And maybe, just maybe, when you combine the cost of these allowances with the penalties you're paying, your final expense is no different than it was before either. Aside from the paperwork that will always be required, you've essentially removed yourself from dealing with the legislation. Your employees theoretically have more choices with the health exchanges. Your internal administrative time dealing with your benefit plans goes away.
It's not personal; it's strictly business. I've talked to many benefits consultants and no one could come up with a reason why this allowance approach wouldn't work. It would take some calculating. And, like any form of compensation, you have to come up with a policy for how you offer and administer it. Companies like Sears and Darden Restaurants are reportedly considering "defined contribution" plans to accomplish something very similar. But I'm not convinced that a small business needs to formally set up a defined contribution plan. (Can't this just be done through a bump in salary, or a bonus?) Talk to your benefits consultant. Just make sure he's not like Fredo.
Are you the Dude, Mr. Burns, or Godfather? Take your pick. You only have these three options. But choose now. Because you can't make your decision in December. Your employees need to know. And smart business people, whether stoners, cartoon characters, or mafia dons, are always thinking ahead.