New rules under the Affordable Care Act (ACA) have created big changes and costs for employers and industries who haven’t provided group health benefits in the past. These include convenience retail, restaurants, home health care, nursing homes, staffing companies, security companies, and hotels and resorts/casinos. Employers are looking for Affordable Care Act strategies that work to save money and avoid penalties.
Employer Mandate Penalties
The ACA employer mandate requires employers with 50 or more full-time (or full-time equivalent) employees to offer affordable health insurance to at least 95 percent of all full-time employees or face costly penalties. Transition Relief was provided to those with 50-99 employees in 2015, but the mandate at 50+ returns in 2016. The monthly inadequate coverage penalty is equal to the LESSER of:
- a $3000 x 1/12 x # of months x # of FT receiving Marketplace subsidy OR
- a $2000 x 1/12 x # of months x (# of FT – 30 [ -80 in 2015]).
New Employer Mandate Fixes
Employers subject to the ACA employer mandate may think they have an easy fix with what’s being called a “MEC” (minimum essential coverage) plan. These plans help employers avoid the ACA’s employer penalty of $2,000 per full-time employee per year and help employees meet their obligation to buy coverage. MEC’s are also very affordable, but the skinny price matches the skinny preventative-only coverage. MEC plans usually have no coverage for hospital visits or other major medical problems that could arise, leaving the insured party with massive medical bills.
MEC plans that are self-funded preventative-only programs and are entirely employer-paid are the cheapest way for employers to meet some ACA compliance requirements. Self-funded plans are subject to Employee Retirement Income Security Act (ERISA) rules, and ERISA plans have provisions that insured and self-funded plans can’t impose annual or lifetime limits and that they must cover preventive care without deductibles or cost sharing. Therefore, MEC plans satisfy ERISA rules.
MEC plans, however, do not help employers avoid the second part of the ACA employer mandate penalty, which is a requirement to offer Minimum Value or pay $3,000 for every employee who goes out and gets a subsidy to help pay for insurance.
Minimum Value Coverage is a critical ACA requirement that really protects employers and employees. Health insurance that covers an average of 60 percent of medical costs and is affordable (defined as not costing the employee more than 9.5 percent of annual income) is needed for full protection from the employer mandate.
Without it, such as with a MEC plan, the employer is potentially exposed to the second tier employer penalty. This substantial ($3,000 annually) penalty takes effect if an employee goes out to the Exchange and gets a subsidy to help pay for insurance that covers their needs.
The Best Solution
The heart of the Affordable Care Act is to ensure all Americans have access to health insurance that provides essential coverage to prevent health issues and treat major health events, and limiting the amount of money that any consumer should be charged for this type of coverage. MEC plans do not get to the heart of the ACA, putting both employers and employees in danger of massive financial consequences.
When employers consider the right coverage for their organization and employees, it helps to know that the employer’s portion of premiums are a deductible business expense to the employer, and premium deductions from employees are often pre-tax, saving the employer and employee on taxes annually. The employer mandate penalties, however, are not deductible as business expenses.