To Provide Health Insurance or Not? That Is the Question

For Small Employers

Employers with 25 or fewer employees and an average yearly wage of less than $50,000 will get a tax credit of up to 35% of premium costs between 2010 and 2013, and 50% of premium costs after that. The maximum tax credit is available to employers with 10 or fewer employees and an average yearly wage of $25,000 or less. The credit will phase out if the employer expands or wages increase.

If the employer's plan is deemed too costly by the government, the employer must provide its employees with vouchers, equal in value to the amount the employer would have paid for coverage, so that the employees can purchase coverage through the insurance exchange. Such employees can receive a cash refund for the value of the voucher in excess of the premium obtained through the insurance exchange.

For Large Employers

Beginning in 2014, if large employers (50 or more employees) do not provide any coverage, they will have to pay a penalty of $2,000 per employee (the first 30 employees are excluded from the calculation, so if the employer has 55 employees, it will pay for 25 employees, or $50,000).

If the employer provides coverage but the coverage is deemed insufficient, or if the coverage is deemed too expensive for some employees, the employer will pay a penalty of $3,000 per each employee who has to obtain government subsidies to buy his/her own insurance, or $750 per full-time employee, whichever is less.

The voucher requirements will also apply to larger employers that have “costly” plans.

Penalties vs. Coverage

For some employers, paying the penalties may be less expensive than providing all of their employees with sufficient insurance coverage. But this decision may depend on more than costs. The decision is deeply dependent on the uniqueness of each employer. Consider for example:

• What message does it send to current employees if no health insurance is provided by the company?
• What kind of employees will you attract if you do not offer coverage?
• Is it part of your corporate responsibility to ensure that your employees are provided with sufficient health coverage or does using the insurance exchange meet your corporate responsibility?

The bottom line is that each employer must review the financial impact of this new mandate and decide if the choice will negatively impact the image of the company. And of course, we must all wait to see if any new amendments are implemented or if the November election so dramatically changes Congress that new legislation may replace this bill. Only time will tell.

Robert G. Brody is the founder of Brody and Associates, LLC. Sami Asaad is an associate with the firm. Brody and Associates represents management in employment and labor law matters and has offices in Westport, CT, and New York City.

The new healthcare bill will require employers to make a major decision: should they provide employees with “sufficient” healthcare coverage, or should they just pay the penalties? The decision will require a serious cost-benefit analysis. The bill, called the Patient Protection and Affordable Care Act (PPACA) of 2010, signed into law on March 23, 2010, and its accompanying “fixes,” will have both positive and negative implications for employers.

Insurance Exchange

The bill creates a new concept, called an insurance exchange. It will allow certain employees the option to take their employer's health insurance coverage, or go into the “insurance exchange” to find a cheaper rate. The exchanges will be marketplaces for individuals and certain employers to come together and negotiate cheaper rates with health insurance companies. Each state must set up its own exchange, or multiple states may create a regional exchange, to provide people with greater choice in coverage. The exchanges will be open to all people without qualifying coverage. Also, employers with fewer than 100 employees will be allowed to participate in the exchange. Starting in 2017, states may allow employers with 100 or more employees to participate in the exchange. The bill has different provisions for small and large employers.

For Small Employers

Employers with 25 or fewer employees and an average yearly wage of less than $50,000 will get a tax credit of up to 35% of premium costs between 2010 and 2013, and 50% of premium costs after that. The maximum tax credit is available to employers with 10 or fewer employees and an average yearly wage of $25,000 or less. The credit will phase out if the employer expands or wages increase.

If the employer's plan is deemed too costly by the government, the employer must provide its employees with vouchers, equal in value to the amount the employer would have paid for coverage, so that the employees can purchase coverage through the insurance exchange. Such employees can receive a cash refund for the value of the voucher in excess of the premium obtained through the insurance exchange.

For Large Employers

Beginning in 2014, if large employers (50 or more employees) do not provide any coverage, they will have to pay a penalty of $2,000 per employee (the first 30 employees are excluded from the calculation, so if the employer has 55 employees, it will pay for 25 employees, or $50,000).

If the employer provides coverage but the coverage is deemed insufficient, or if the coverage is deemed too expensive for some employees, the employer will pay a penalty of $3,000 per each employee who has to obtain government subsidies to buy his/her own insurance, or $750 per full-time employee, whichever is less.

The voucher requirements will also apply to larger employers that have “costly” plans.

Penalties vs. Coverage

For some employers, paying the penalties may be less expensive than providing all of their employees with sufficient insurance coverage. But this decision may depend on more than costs. The decision is deeply dependent on the uniqueness of each employer. Consider for example:

• What message does it send to current employees if no health insurance is provided by the company?
• What kind of employees will you attract if you do not offer coverage?
• Is it part of your corporate responsibility to ensure that your employees are provided with sufficient health coverage or does using the insurance exchange meet your corporate responsibility?

The bottom line is that each employer must review the financial impact of this new mandate and decide if the choice will negatively impact the image of the company. And of course, we must all wait to see if any new amendments are implemented or if the November election so dramatically changes Congress that new legislation may replace this bill. Only time will tell.

Robert G. Brody is the founder of Brody and Associates, LLC. Sami Asaad is an associate with the firm. Brody and Associates represents management in employment and labor law matters and has offices in Westport, CT, and New York City.