PAYDAY Workforce Solutions Blog

Hidden Costs of Health Care Reform

On May 16, 2013

Employers have long been watching the news about health care reform, concerned about the cost for providing insurance to each employee on the payroll. But insurance premiums aren’t the only cost businesses will incur as they implement the guidelines required by healthcare reform and avoid possible penalties that will go into effect for some companies in January 2014.

As employers prepare to comply with health care reform regulations, they should begin to take into account the possible costs associated with tracking and reporting employee healthcare costs. For some employers, this tracking could add hours of extra work to the payroll processing function, possibly draining resources unless action is taken now. Here are a few ways businesses can prepare:

Health Care Reform’s Impact on Part-Time Workers

Previously, many employers could choose whether or not to offer health coverage to full-time employees. New health care laws now require businesses to provide healthcare to any employee working an average of 30 hours per week or more. That means many businesses might be tempted to try to keep some part-time employees below the 30-hour limit. This is especially true for industry sectors that rely heavily on part-time employees, such as franchise retail operations, restaurants or other businesses that may use part-time workers to temporarily cover heavy customer volume. Employers should budget for increased costs associated with the new, federally mandated healthcare benefits.

Will Health Care Reform Raise Premiums?

Some employers have raised the concern that providing more healthcare coverage might actually have an overall detrimental impact in the long run. They say unnecessary medical tests and too many medical procedures may produce harmful effects on the system. Will employees start taking even more medical leave? Will employees start asking for CT scans when they aren’t necessary, or will extra doctor visits have unintended consequences? While experts agree that preventative health care can reduce overall health costs in the long run, many business owners are uncomfortable with the possibility of rising healthcare premiums. Will overuse of medical insurance drive up healthcare premiums? If so, how will they be able to keep healthcare deductibles low? These are highly debated issues and remain unknown.

Health Care Reform Reporting Requirements

Employers with more than 50 full-time and tull-time equivalents will be required to provide insurance for every employee working an average of 30 or more hours per week. The employee-paid premiums for these employees must total less than 9.5 percent of their total W-2 wages. Keeping track of this and reporting on it is the responsibility of the employer. For businesses with employees whose wages routinely change based on the number of hours worked, this can become a fairly tedious process if they try to manage this in house. Fortunately, PAYDAY Workforce Solutions automates this task for employers, making sure they remain compliant with this difficult federal healthcare law.

Penalties for Non-Compliance with Health Care Reform’s “Pay or Play”

Any businesses with 50 or more full-time employees (defined as 30-hour work weeks) will face possible penalties of $2,000 per employee if they fail to provide healthcare coverage when they are required to do so. However, employers are able to exclude the first 30 full-time employees when calculating their penalty. For example, an employer with 80 full-time employees and equivalents will face an annual penalty of $100,000. This is calculated by taking 80 full-time employees, subtracting 30 employee exemptions and multiplying the $2,000 penalty by the remaining 50 employees (50 x $2,000 = $100,000).

Businesses will have 90 days to issue health insurance benefits after a new full-time employee is hired. Even if you already offer insurance to your employees, carefully review your coverage to ensure you are providing the minimum requirement of health care mandated by the health care reform act and that your health insurance is considered affordable.

Many business owners are still learning the ways health care reform will affect their operations. But working with a technology savvy and service-oriented provider like PAYDAY Workforce Solutions will help you expertly navigate these complex waters.

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