To Pay or Play: What’s the Real Cost of Offering (or Not Offering) Health Benefits?

health-benefits

At this point, to say health coverage costs a lot is to state the obvious. That’s a problem. In fact, it’s why the Affordable Care Act exists. The goal of the law was to make health insurance affordable and available to everyone, yet while the problem of availability has largely been solved, affordability remains a source of stress to many – both individuals and employers.

Availability, affordability: we’ve seen progress, but not solutions

Since the ACA took effect, many previously-uninsured people have been able to get health coverage. The U.S. Census Bureau reported that in 2009, about 15.7 percent of the population was uninsured. When the CDC conducted a study six years later, the uninsured rate was down to 9.2 percent, marking the lowest uninsured rate in 50 years.

This is one of the great accomplishments of the ACA. Even for those with pre-existing conditions, if you want insurance, you can have it. But there’s a caveat buried in that statement. You can have insurance, that is, if you can afford it.

There’s the kicker. Despite the ACA, Americans remain heavily burdened by medical debt. According to the Consumer Financial Protection Bureau, medical bills represent 52 percent of collection accounts on credit reports, “far outpacing all other types of debt,” Forbes said.

Meanwhile, narrow networks have emerged as an unanticipated side-effect of the ACA, forcing patients to play what Forbes called “financial roulette.” Because they can’t guarantee their care will be provided by an in-network doctor – even when admitted to an in-network hospital – they could face stiff, uncapped out-of-network costs.

Businesses as well as individuals struggle with affordability

Most business owners would prefer to offer generous and competitive benefits to their employees. However, faced with skyrocketing prices, whether or not they can do so is another question, and the available answers can be bleak.

Companies with fewer than 50 full-time (FT) or full-time equivalent (FTE) employees have the option to offer benefits or not. For those with 50 or more, however, offering benefits is mandatory. If you’re an Applicable Large Employer (ALE), you can choose either to offer benefits or pay the IRS a fine. Either way you slice it, you have to spend money.

How much money? That depends. Penalty A under the ACA, which applies to businesses that fail to offer benefits, is $2,160 per FT employee per year in 2016, with an exception of up to 30 FT employees. For example, if you have 75 FT employees, your fee would be $2,160 x 45, or $97,200 in total.

To avoid Penalty A, you could offer minimum essential coverage. But you could still get hit with Penalty B, which amounts to $3,240 per FT employee in 2016 who’s enrolled in coverage through the exchange and receives a subsidy.

The only way to avoid both penalties would be to offer a medical plan that meets the minimum value and affordability requirements under the ACA, and pay whatever that price may be. For some businesses, though, that’s money they don’t have – especially for those who fall between the 50 and 100 mark for FT and FTE employees.

Many of these companies, including those in agriculture, manufacturing and the food industry, find themselves between a rock and a hard place. Which is more affordable, the IRS fee or the health plan? For those compelled to choose the fee, will the IRS target them for audit due to non-compliance?

Clearly, health reform has a ways to go, and for the time being, defining your ACA strategy is anything but simple. There are so many areas to discuss when deciding what you will and won’t offer your employees. But there is at least one bright spot: BeaconPath is here to help businesses shine a light on every last option out there and create a clear path forward in your benefits plan strategy. For guidance in your decision, contact us today and subscribe to our blog.

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