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The Hidden Impact Of Delayed ACA Health Penalties On Business

Conceding, in effect, implementation problems with the Affordable Care Act, the Obama administration is delaying enforcement of a key provision of the new health-care law that requires large employers to provide coverage for workers or pay a penalty in 2014, the biggest revision so far to the federal health-care overhaul. The knock-on effects for business may prove significant.

Passed in 2010, the ACA –Obamacare–requires companies with the equivalent of 50 or more full-time workers to offer health benefits starting on Jan. 1—or pay a penalty of at least $2,000 per employee. The delay, announced by the Treasury Department in a blog post on July 2, means that penalty won’t kick in until 2015—well after the mid-term elections.

Even the New York Times described the move as “a significant setback for President Obama’s signature domestic initiative.”

Employer groups welcomed the news of the concession, which followed complaints from businesses that find provisions of the law unworkable. According the New York Times, “While the postponement technically does not affect other central provisions of the law — in particular those establishing health insurance marketplaces in the states, known as exchanges, where uninsured Americans can shop for policies — it threatens to throw into disarray the administration’s effort to put those provisions into effect by Jan. 1.”

The move won’t affect most of the nation’s small employers, nearly all of which have fewer than 50 employees. Some large employers that currently offer skimpy coverage might have to pay penalties, but they too get a delay until 2015. Companies that are on the cusp of expansion into becoming mid-sized firms will get a reprieve. Importantly, the Republican will likely make Obamacare a campaign issue during the mid-term elections calling into doubt whether other provisions might be delayed, or whether more waivers will be requested. The provision of the law that requires individuals to carry health coverage or pay a fine, starting next year, remains in effect. The delay only applies to the business penalties.

According to the Wall Street Journal, companies in such lower-wage industries such as restaurants, retail and agriculture had asked for more time, citing difficulties posed by the law’s requirements, have objected most strenuously to Obamacare. Some companies were talking about cutting back workers’ shifts so they worked fewer than 30 hours a week and wouldn’t be counted as full-time employees subject to the law. The delay gives these companies more time to sort through their options.

Survey results from the National Center for the Middle-Market at Ohio State University show that 89 percent of mid-market companies acknowledged the cost of doing business or uncertainty about government action is a key challenge. Healthcare costs, as usual, topped the list of severe worries, with more than half reporting that the rising cost of healthcare will negatively affect their business prompting many to have hiring freezes.

The delay in Obamacare’s key provision will likely have additional unintended consequences. For example, employers with more than 50 employees must provide affordable and comprehensive coverage to all full-time employees (i.e., 30+ hours per week). What does affordable coverage mean? According to the ACA, it means that insurance premiums must not exceed 9.5% of an employee’s family income. If the premiums exceed the 9.5% level, the employee may purchase insurance through a Health Insurance Exchange, where the employee might be eligible for subsidies.

If employers who want to provide employer-sponsored insurance (ESI) to their higher income employees, but not to their lower income employees, Obamacare provides a perfect solution. Companies simply need to ensure that the insurance they provide is sufficiently expensive so that it is above the 9.5% threshold for at least the lower income employees.

Obamacare allows for employees who face this expensive coverage to opt out of their ESI and purchase insurance through an exchange, but only the lower income employees will receive a subsidy, so they will be the only ones who will likely opt out, leaving the higher income employees to remain with the ESI. Companies face a $3,000 annual penalty for each of employee who drops out, but that’s far below the approximately $10,000 that ESI will have cost.

Employers wanting to provide ESI to the company’s top talent only can easily do so. Interestingly, even employers who wants to provide ESI to all employees will find that the economics are strongly against them. Those employees who earn less than 400% of the federal poverty level may save money on the exchanges courtesy of subsidies from U.S. taxpayers. The economics of Obamacare may force the employer’s hand in this matter.





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