By Linda Koco
SAN ANTONIO – Even though employers caught a break with the one-year postponement on the new “pay or play” tax under health care reform, employers still have oodles of Affordable Care Act (ACA) issues and possible strategies on their plates.
For instance, when the new tax goes into effect in 2015, should the employer stop offering coverage and therefore pay the tax, or perhaps provide the coverage as specified under the ACA? Are there alternatives they could consider? If so, where are they and what is the cost?
Anthony Boquet raised those and many other questions in an ACA workshop here during the annual meeting of National Association of Insurance and Financial Advisors (NAIFA).
Advisors need to make it simple so people understand, he indicated. But that’s not always easy, as many things about the law are not yet known or certain aspects don’t add up.
“The regulations are still being written,” pointed out the vice president and executive director of the Penn Mutual Center for Veteran Affairs through The American College.
For advisors who have employers among their clients, this might be a good time to offer education on what is known about ACA so far and what various experts are thinking about strategy for employers.
Agents can also help by letting Congress know what is not working, Boquet indicated.
He pointed to one part of the law — a section entailing an honor system—to illustrate the hurdles that lay ahead. He urged the NAIFA members to tell people about the problems — tell Congress people and tell clients who can also tell their Congress people, he suggested. “They need to hear it from us!”
The honor system comes into play when people go to exchanges and claim that they have no health insurance at their place of employment. The problem is, there is no system in place to track whether a person already has affordable health insurance, Boquet said. Instead, the exchanges will use the honor system in making subsidy decisions, he said.
It could work out that people will get perhaps $6,000 to $7,000 in subsidy from an exchange under the honor system, Boquet said.
The next year, authorities will do an audit, he said. But if it’s discovered that the person did in fact have affordable coverage, the law only allows for recovery of the subsidy up to a maximum of $2,500, he said. And the recovery will only be made from the person’s tax refund that year. If there is no refund, then no recovery, he said.
Only the 17 state-run exchanges are able to pay out subsidies, he pointed out, noting that ACA prohibits federally-run exchanges from granting subsidies. (The federally-run exchanges operate in states that did not set up their own exchanges.)
The employer “pay or play tax,” which has been delayed to 2015, could mount up to substantial sums in some cases, Boquet said.
The tax will apply to employers who do not offer health care coverage, or offer minimum essential coverage that is considered unaffordable. The tax is $2,000 a year per full-time employee. (“Unaffordable coverage” is defined as health insurance where the premium is 9.5 percent or more above the family adjusted gross income. “Essential health benefits” are those mandated by ACA.)
Boquet pointed out that in 2015, when the tax goes into effect, it will apply to employers with 50 or more “full-time equivalent employees.” Full-time, for purposes of the law, is considered to be 30 hours per week, and when a firm also has part-time workers, calculations must be done to determine the full-time equivalence of all the part-time work combined.
It could be that an employer will have 40 full-time workers but also have enough part-time workers to put the firm over the 50-employee level once the calculation is performed, he indicated.
Boquet named several strategies that employers can consider. Advisors might want to discuss these with their business clients. They include:
· Continue to offer coverage that meets ACA standards. The employers won’t get a penalty this way, and their very low income workers won’t be eligible for a subsidy, he noted.
· Drop coverage. The employer would have to pay the tax if the firm has enough workers to meet the minimum full-time worker requirements.
· Send employees to the exchanges. (Several states have established SHOP exchanges; these are online marketplaces for small businesses, Boquet said. The firms can send their employees to those exchanges to get health insurance.)
· Do a combination. Some big firms are thinking about not offering coverage to very low income workers and thus becoming subject to the pay-or-play tax on those workers, while also providing the rest of the workforce with ACA compliant coverage. If a firm would otherwise be paying $6,000 a year for coverage for those low income workers, the employers could end up saving money even after paying the tax, Boquet said, noting that there are already calculators available for use in calculating scenarios. This approach will be tested in the courts, he predicted.
Increase employee salaries so the workers can go out and buy their own insurance. The employer would have to pay the tax, he cautioned.
· Offer voluntary benefits through a defined contribution plan or cafeteria plans. This approach is popular now and will likely be more so in the future, he predicted. Boquet predicted that agents will move from only selling health insurance to selling voluntary benefits like critical illness coverage.
Linda Koco, MBA, is a contributing editor to InsuranceNewsNet, specializing in life insurance, annuities and income planning. Linda can be reached at firstname.lastname@example.org.
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