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Seemingly small pay changes can have significant ramifications for employers and employees alike
Many big retailers including Target, Home Depot and Wal-Mart recently announced moves to drop health benefits for their part-time employees, claiming the move is better for workers now eligible to receive federal subsidies or tax credits under the Affordable Care Act (ACA) for policies purchased through a public insurance exchange.
With every passing day, more of the nation’s employers move closer to facing their own “play or pay” decisions—whether or not they will offer health benefits or (if they employ 50 or more full-time employees or part-time equivalents) pay a penalty instead. Many major provisions of the ACA have been phased in as of January 2014, while the remaining provisions are expected to take effect by 2020.
These decisions are far from easy; the ensuing financial, legal and competitive implications are profound, and the clock is ticking.
Some employers believe that the play or pay mandate will raise their costs and force them to make workforce cutbacks. As a result, they’re considering the “pay” option—i.e., eliminating their health care coverage altogether and paying the penalty on their full-time employees. Others are leaning toward “play,” which means they’ll offer employees health coverage that meets the ACA's requirements. While employers should look carefully at both options and do their best to calculate the outcomes, the likely solutions will be creative combinations of approaches, making some reductions to benefits while enhancing others.
Under the ACA, seemingly small decisions on compensation can have significant ramifications for employers and employees alike. Consider the following:
For those employees who qualify for a subsidy, the value can be tremendous. As a result, subsidies can significantly change the value employees place on employer-based health care plans, depending on their family income and specific circumstances.
Consider that employers who seek to avoid ACA penalties by offering a health benefit covering 60 percent of health costs (the minimum under the ACA) may create retention issues when employees realize what they are not receiving. For example:
Bottom line, the minimum offering strategy can eliminate an employees’ ability to get subsidies for themselves and their families.
As a result, health care coverage may not be the retention tool it once was. The upside: Employees with health issues may not feel forced to stay in their jobs. The downside: Employees may change employers more freely, thus creating serious retention issues. A “total compensation” approach may be warranted.
Continuing to offer health benefits spouses may be more harmful than helpful, given that employers are not required to offer spousal coverage. If spouses are eligible for subsidies, then purchasing coverage on a public exchange may be less costly for them than an employer's plan that requires spouses to pay the majority of the premium rate.
It’s important to remember who can get a subsidy:
While employers may be required to cover more people as a result of the ACA, they have options for reducing coverage costs. For example:
Choosing to drop coverage for any population, however, has other financial implications. For instance:
As with many other workforce-related decisions employers make, the main objective will be to remain financially competitive while still attracting and retaining the employees they require.
Seeking professional guidance and benchmarking company plans against competitors within a region, industry and business size remain the best long-term solutions for controlling health care costs and making strategic decisions that move beyond ACA compliance into true cost control territory.
Rob Calise is board chairman of
United Benefit Advisors. This article was adapted from
The Employer’s Guide to ‘Play or Pay, a UBA white paper. © 2014 United Benefit Advisors. All rights reserved. Republished with permission.
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