Important Health Care Reform

In July 2013 was announced a major change to the health care reform regarding “pay or play” penalties and effective date of this provision moved to January 1, 2015.

By January 1st 2015, the Patient Protection and Affordable Care Act (PPACA) will take effect, which will require companies with more than 50 full-time equivalent employees to provide coverage for health insurance. Optionally, they can send their employees to an Exchange, making the company subject to a penalty of $2,000 per employee per year. However, there is an exemption to said rule, excluding the first 30 employees of a company, if at least one employee goes to an Exchange and receives subsidized coverage. Alternatively, companies are free to develop their own, new, hybrid health insurance plans.

However, if employers decide to provide health insurance for their employees, they should make sure the coverage is sufficient. If an employee would find otherwise, and therefore would still be in need to receive Exchange subsidy, the company would be subject to a $3,000 penalty for any such employee. In that respect, “Unaffordable coverage” is defined as the employee’s “self-only” premium, that exceeds 9,5% of the employee’s earnings.

As part of the reform, states are required, either on their own or in cooperation with other states, to establish the operation of a health care Exchange to provide affordable health care insurance plans. The Exchange will provide individuals who meet income guidelines with subsidies for premium plans.

These new legislation puts companies in the difficult position to now choose whether or not to extend coverage to all employees, not to provide coverage at all and face annual penalties or whether it makes business sense to develop a hybrid plan. They also have to provide quite a bit of hindsight, as they will have to predict how many of their employees would be eligible for the subsidies offered by the Exchange, and plan accordingly.

As dropping company coverage for healthcare can be perceived quiet beneficial by companies, there is a certain fear that companies might cancel their coverage and simply opt for the penalties.

Best regards
und viele Grüße aus Charlotte
Reinhard von Hennigs