Health care costs continue to rise, and the Affordable Care Act (ACA) has begun to fuel changes that are difficult for businesses to ignore. As the time for certain employer requirements draws near, businesses face important decisions about workforce health care coverage and employer-sponsored benefits. Consider three essential questions to help make more informed decisions for your workforce and your business.
Essential Question 1: Should I offer employer provided coverage or not?
Most business leaders agree health benefits offer employees peace of mind and protection. Businesses large and small rely on health benefits to provide a unique competitive-edge in the battle to attract and retain talented workers.
Whether your business is a long-time employee benefits provider, or you are considering employer-sponsored benefits for the first time, with deadlines looming for health care reform now is the time to look at the size of your business, employee demographics, and the cost advantages and disadvantages of providing health coverage.
- Tip for small businesses: Employer-sponsored benefits may offer you a cost-effective way to boost employee compensation. Although employers with less than 50 full-time equivalents (FTEs) will not be penalized for not providing a health plan, still many small businesses realize health benefits are an important part of an employee’s total compensation package.
If you currently offer health insurance to employees, some individuals may be eligible for a tax-subsidy to purchase individual coverage through the federal and state Health Insurance Marketplace (employees with a household income between 100 and 400 percent of the federal poverty level [FPL]). In which case, it may be cheaper for them to purchase coverage through the Marketplace. On the other hand, employees not eligible for a tax-subsidy could benefit from employer-provided coverage as opposed to purchasing individual coverage through the Health Insurance Marketplace. The 2013 Aflac WorkForces Report revealed 78 percent of employees say their benefits package is important to their job satisfaction, and 65 percent say it is important to their loyalty to their employer.
78% of employees say their benefits package affects their job satisfaction, and 65% say it affects their loyalty to their employer. 1
- Tip for mid-to-large sized businesses: Starting in 2015, employers with at least 50 FTEs may be subject to penalties if they do not provide affordable and minimum value employer-sponsored health insurance. 2 The majority of employers (88 percent) say they will continue to offer health benefits to active employees in 2014. 3 As you consider whether to provide coverage, keep in mind that an employer’s contribution to a health benefits plan is tax-deductible, whereas the potential $2,000 to $3,000 per employee penalty for not providing affordable, minimum value coverage is not.
The majority of employers (88%) say they will continue to offer health benefits to active employees in 2014. 3
Essential Question 2: How much can my business afford to spend?
As you consider offering employer-sponsored health insurance, it is important to assess the amount your business can invest in workforce benefits.
- If your business already offers employer-sponsored benefits: You most likely have a good idea of how much your business can afford to pay. Take into consideration projected increases in health care costs, and your potential eligibility to take advantage of the Small Business Health Options Program (SHOP) in 2014. If your business is mid-to-large sized and rising costs are a concern, consider a private marketplace that offers fixed contribution options to help control costs.
- If you are considering offering these benefits for the first time: Discuss your options with your benefits consultant or broker to help weigh the costs. For instance, in 2013, health care costs are expected to increase per employee by 5.3 percent (0.6 percent lower than in 2012). 3 You can use cost estimates to determine approximately how much it will cost per-employee, as well as potential penalties for not providing employee health coverage. Additionally, you can estimate your eligibility for small business tax credits to help defray the costs associated with health care coverage through the Health Insurance Marketplace.
In 2013, health care costs are expected to increase per employee by 5.3% (0.6% lower than in 2012) The average expected un-subsidized costs of individual coverage is projected at $11,607 ($8,911 employer share, and $2,696 employee share). 3
Essential Question 3: Which strategy will I choose?
Employee benefits are a key indicator of employee satisfaction, retention and productivity. In fact, the 2013 Aflac WorkForces Report revealed that workers who are extremely or very satisfied with their benefits program are three times more likely to stay with their employer than those workers who are dissatisfied with their benefits program. 1 With many options to choose from, including traditional insurance, self-insurance, HMO, PPO, affordable coverage, or a combination of options, take time to determine your business strategy. A few strategies to consider include:
- Adjust current health plan: Talk with your broker or benefits consultant to understand how your current benefits work within new ACA standards. You may find that your benefits already meet or exceed federal standards, and can actually capitalize on going above and beyond to help protect workforce health and wellbeing. As you assess your current plan, keep in mind that employees may be eligible for tax subsidies through the Health Insurance Marketplace if their required contribution to employer-sponsored health insurance exceeds 9.5 percent of the employee’s annual household income or the plan pays less than 60% of covered health expenses. 4
- The Health Insurance Marketplace: The Health Insurance Marketplace (also called an exchange) is expected to offer competitive benefits options to small businesses and individuals. Additionally, small businesses participating in the Marketplace may be eligible for a tax credit of up to 50% of their premium payments if they have 25 or fewer full-time employees whose average annual wages are less than $50,000. 5
Note: As of 8/26/13, irs.gov. states that employers with fewer than 25 employees are eligible for these credits, however Internal Revenue Code Section 45R states that the term "eligible small employer" means an employer which has no more than 25 full-time equivalent employees for the taxable year. For more information about these credits, visit: irs.gov.
While it is still too early to tell exactly how competitive the Marketplace will be, tax credits coupled with options in the Marketplace may help your business to provide cost-effective workplace benefits. If you are considering shifting employees to the Marketplace, you may save on health care costs that could be allocated to supplemental benefits or employee salaries to provide increased value to your employees.
- Self-funded model: Self-funded health care insurance plans offer an alternative to traditional health care models. In a self-funding model, the company is responsible for covering all claims in the health care plan, but because these plans are excluded from some requirements of the ACA, employers can save costs related to premium taxes and state insurance regulations.
Self-funded plans tend to shift additional costs to employees, especially when an employer has a workforce with significant health care needs. Companies may also need to consider adding adequate stop-loss coverage to accommodate for annual and lifetime dollar limit restrictions. Still, these plans are becoming increasingly popular with small businesses and can help to reduce and manage employee health care costs, while still delivering the health coverage that their workforce demands.
- Defined contribution model: In a defined contribution model, employers give their employees a fixed amount of money and a list of health insurance options for employees to pick and choose. This helps employers to keep costs predictable, while also offering employees the option to “buy-up” to more robust insurance coverage. Since these programs require employees to make more informed decisions about health care, it will be increasingly important that they understand how an employer contribution works, and how to choose supplemental options to augment out-of-pocket costs.
2013 Aflac WorkForces Report, a study conducted by Research Now on behalf of Aflac,
January 7 – 24, 2013. 2
IRS (2013). Notice 2013-45. Accessed on August 9, 2013, from http://www.irs.gov/pub/irs-drop/n-13-45.PDF
Towers Watson, 2012 Health Care Trends Survey, accessed on November 8, 2012, from towerswatson.com/en-US/ Insights/IC-Types/Survey-Research-Results/2012/10/health-care-changes-ahead-survey-report
Congressional Research Service (2010). Summary of Potential Employer Penalties under the Patient Protection and Affordable Care Act (ACA), accessed on November 9, 2012, from ncsl.org/documents/health/EmployerPenalties.pdf
Internal Revenue Service (2013). Small Business Health Care Tax Credit for Small Employers. Accessed August 9, 2013, from http://www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-for-Small-Employers.
Disclaimer: This material is intended to provide general information about an evolving topic and does not constitute legal, tax or accounting advice regarding any specific situation. Aflac cannot anticipate all the facts that a particular employer or individual will have to consider in their benefits decision-making process. We strongly encourage readers to discuss their HCR situations with their advisors to determine the actions they need to take or to visit healthcare.gov (which may also be contacted at 1-800-318-2596) for additional information.