Even before the Affordable Care Act (ACA), employers had their hands full trying to figure out how best to manage the cost of providing health benefits to their employees.
That challenge has not changed for employers with the passage of health care reform.
Health benefits in the age of health care reform
Before the ACA, an employer might have approached health benefits from a business perspective. That is, can we afford to provide health benefits? That is still where many employers may start. However, their answer now may need to take ACA rules into account.
Under the ACA, employers — whether big or small — are not required to provide health coverage to their employees. The consequences of not providing insurance are different for large and small employers.
An employer with fewer than 50 full-time employees is considered a small employer under the ACA. There is no penalty or consequence for small employers not providing health coverage.
The ACA does provide a tax incentive to employers with 25 or fewer full-time employees that choose to provide their employees with health coverage through the Small Employers Health Options Program (SHOP), the government’s online insurance program for small businesses. The incentive can amount to as much as a 50-percent tax credit on the premiums paid by the employer.
There are some restrictions on who gets these incentives. For example, the incentive is only for companies paying their employees about $50,000 a year.
The ACA has specific definitions for who is considered a full-time employee, and how to determine the total number of full-time employees.
Anyone working 30 hours or more is considered a full-time employee. However, if you have a whole bunch of part-time workers and no one working 30 hours or more, you may still be classified as having some full-time employees.
That’s because the government is using full time equivalents (FTEs) to estimate the total number of full-time employees. It works like this: Add up the hours all your part-time employees work, then divide by 30 to get to an estimate of full-time equivalent workers.
If you have 50 or more FTEs, you are defined as a large employer for ACA purposes. Large employers are not required to provide health benefits. However, for employers who don’t provide health insurance, the ACA will impose certain penalties starting in 2015.
Some employers may weigh the penalty versus the cost of the health benefits and then make a decision. If they do decide to provide health insurance, they don’t have to purchase it through the Marketplace (the government’s online health care shopping site). They can buy it on their own, use an agent or broker, or buy it directly from an insurer.
Public and private health exchanges
While most attention has been focused on the government’s online health care enrollment system, there has been a parallel development in the private sector — the emergence of private health exchanges.
A private health exchange can take several forms, but the two most common ones are either those that offer health plans from a variety of insurance companies, or an exchange that exclusively offers plans from one insurer, but may offer a variety of plans.
For an employer who wants to use a private exchange — and some employers already offer them — the advantage is that they can provide more choice to employees and maintain control over costs.
As an example, a company with employees and retirees in multiple locations across the U.S. can use a private exchange that offers plans with medical provider networks in different states. In this case, the employer doesn’t specify which insurance plan an employee picks, but does specify what the employer will pay towards the cost of health benefits — often referred to as a defined-contribution model.
Another type of exchange is one in which an employer offers multiple plan options from a single insurer. The plans could differ in cost.
For example, a single-insurer exchange might include an HMO plan and a point of service (POS) plan. The HMO might have a narrower network of medical providers, and feature a lower premium. The POS plan would offer a broader network of providers, but employees would pay a higher premium.