What are the Implications to a Business Owner of Opting In or Out of Healthcare Reform Requirements?
By Sharron Ngatikaura, SPHR
Human Resources Director, Employer Solutions Group (ESG)
: Healthcare reform is a hot topic for any business owner. However, not many understand the implications of opting in or out of the legislation’s requirements. Although there is no actual mandate for employers to offer health insurance, there are financial repercussions for employers that include not only potential tax credits and penalties, but also effects on competitive advantages in hiring and retaining talent.
Potential Tax Credits for Small Employers
Small employers with less than 25 fulltime equivalent (FTE) employees (30 hours a week will be considered fulltime) may receive two years of tax credits for offering health insurance, assuming annual wages average less than $50,000. Through 2013, the maximum credit is 35% for small businesses and 25% for small tax-exempt employers, increasing in 2014 to 50% and 35%, respectively. There are no tax credits for large employers to offer health insurance.
Potential Penalties for Larger Employers
In 2014, employers with at least 50 FTE employees must offer at least the “minimum value” health coverage (in Utah, this means at least 70% of the plan’s total allowed costs) AND make it affordable, meaning employee-only coverage must cost less than 9.5% of the employee’s income. If not, these employers will face a penalty if any employee purchases coverage through the health exchange and receives a subsidy. The employer penalty, which will be treated as an excise tax and cannot be written off, will be the lesser of:
• $3000 per employee receiving a subsidy to purchase coverage on the exchange, OR
• $2000 per full-time employee, excluding the first 30 employees.
Individual Mandate: Implications for Hiring and Recruitment
By 2014, employees who are not offered group insurance by their employers will still be under an individual mandate to be insured, meaning they will have to purchase insurance through the exchange or face an individual penalty. In other words, employees will have to use their take-home, post-tax pay to purchase health insurance if not offered coverage from their employers. The only side option would be for the employer to provide an Outside Health Premium Flexible Spending Account to have premiums withheld pre-tax, with the employee then submitting for reimbursement.
Benefits have historically been a major attraction for talent (consistently ranked as “highly important” to employees) and will very likely continue to be a major competitive advantage for hiring and retaining key talent. In 2014 and beyond, the individual mandate will only reinforce the competitive importance of offering health coverage.
Still a Good Solution: Health Savings Accounts
Working with over 400 client companies, I have the unique opportunity to witness healthcare trends and have seen firsthand that consumer-driven healthcare options (high-deductible health plans with a health savings account, or HSA) are a win-win for employers. Besides being less costly, HSAs have consistently shifted healthcare behavior by putting consumers, or employees, in the driver’s seat. HSA participants are more likely to set aside money for potential medical costs, get second opinions for medical procedures, shop for lower prescription drugs, and altogether engage in healthier lifestyle choices; all of which help reduce health plan costs over the long-term. Moreover, the majority of participants admit that controlling their own health costs is extremely important to them, contributing to their overall satisfaction.
Although many companies have dropped or significantly cut back employer-sponsored benefits in response to a difficult economy, they may soon discover that they have lost much of their competitive advantage for hiring and retaining key talent. Whether or not you are in favor of healthcare reform, offering benefits will, if anything, speak more loudly and be much more meaningful to employees under the new requirements.