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New health care law levies penalties on large firms that don’t offer affordable insurance

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To pay or play? That’s the question large companies must ask themselves when deciding how they will react to impending health care reform provisions.

The Patient Protection and Affordable Care Act is intended to expand access to affordable health coverage by way of mandates, subsidies and tax credits. Major provisions of the act will become effective Jan. 1, 2014.

Under the employer-shared responsibilities provision of the Affordable Care Act, employers with 50 or more full-time employees are compelled to make sure their employees have access to minimum essential coverage. Small businesses with fewer than 50 full-time employees are exempt from the shared responsibilities requirement.

The new federal guidelines say a large employer could be assessed a fine if full-time employees are either not offered the opportunity to enroll in an employer-sponsored plan that covers at least 60 percent of the actuarial value of the cost of benefits, or if the employer-sponsored plan is not deemed affordable relative to the full-time employee’s household income.

Affordability is defined as an employee’s premium can’t exceed 9.5 percent of their household income, according to an explainer from the Menlo Park-based nonprofit research organization Kaiser Family Foundation.

Large employers that opt to not offer coverage face an annual penalty of $2,000 for each full-time employee, not counting the first 30 employees. If a large employer offers insurance but an employee can’t afford it, that employee can receive tax credits to buy insurance on their own, triggering a $3,000 fine against the employer.

“The way to think about it is, if an employer doesn’t offer insurance, they pay $2,000 per full-time employee, but the first 30 employees are free,” explained Ken Jacobs, chair of the UC Berkeley Center for Labor Research and Education. “If insurance is offered but some don’t take up the offer because they can’t afford it, the employee goes to the state insurance exchange. Then it’s a $3,000 penalty (for the employer) for each of those employees.”

“Most firms with 50 or more employees offer coverage, so for most firms there’s very little impact, if any. For the minority of firms that don’t offer coverage, they’ll either pay the penalty or offer coverage,” Jacobs said.

San Diego companies have been trying to gain a greater understanding of what health care reform means to their businesses. The San Diego Regional Chamber of Commerce, in partnership with the insurance firm Barney & Barney LLC, have been holding monthly workshops to educate its business members about the specifics of the Affordable Care Act.

Diana Twadell, a principal with the San Diego office of insurance brokerage Barney & Barney, said she fields a lot of questions about ACA because it’s a complicated law with a lot of room for interpretation.

“There’s so much confusion out there, quite honestly,” Twadell said. “A lot of companies are just now starting to think about how it will affect them as they hear more about it.”

Employers must determine what constitutes a full-time employee, and what the federal government might deem a full-time equivalent when part-timers’ hours are aggregated, Twadell said. Also, if a business owner has several companies, but with fewer than 50 employees each, would the federal government consider the business owner a “large employer” if those headcounts are aggregated?

The companies that might have the greatest difficulty determining their requirements under the ACA are in the restaurant, retail, hospitality and staffing industries, Twadell said. Those industries tend to have large work forces with varying, and sometimes seasonal, work hours.

Twadell said companies that might opt to either cut hours or incur penalties to dodge provisions of the ACA should consider that health care benefits are often necessary to attract top talent, and the penalties are not tax-deductible, while health care costs are.

“It’s a good idea for companies to do some modeling to see what the impacts are,” she said. “They need to ask themselves, ‘What kind of talent do I want to attract? Why am I offering benefits? What does my industry require to attract the employees I want?’”

For more information:

San Diego Regional Chamber of Commerce health care resources page: http://www.sdchamber.org/membership/member-resources/healthcare-resources.html

Kaiser Family Foundation explainers: http://kff.org/health-reform/

UC Berkeley Labor Center explainer: http://laborcenter.berkeley.edu/healthpolicy/ppaca12.pdf

California-specific Health Law Guide for Businesses: http://www.healthlawguideforbusiness.org/


-McEntee is a San Diego-based freelance writer.

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