Breaking down the financial impact of providing a group health care plan for your employees

As we head into 2013 and the third year of the Patient Protection and Affordable Care Act (PPACA), construction business owners need to be aware of the additional fees that will be assessed on insurers and employers that provide self-insured plans. These fees will increase the cost of providing a group health plan for your employees.

Fees to Fund Research on Patient-Centered Outcomes
PPACA created the Patient-Centered Outcomes Research Institute (PCORI), which is charged with funding research that will provide patients, their caregivers and clinicians with the evidence-based information needed to make better-informed health care decisions. PCORI is to be funded in part by a fee, commonly referred to as “comparative effectiveness fee” or “PCORI fee,” assessed on health insurers and sponsors of self-insured group health plans.

The PCORI fee will first be assessed with respect to plan or policy years ending after September 30, 2012. The fee is equal to $1 multiplied by the average number of covered lives (employees and dependents) for the first plan or policy year ending on or after October 1, 2012. The fee will be equal to $2 multiplied by the average number of covered lives for policy or plan years ending after September 30, 2013.

If a group health plan is insured, the health insurer is responsible for calculating and paying the fee. If the company sponsors a self-insured plan, the company is responsible for paying the fee.

Transitional Reinsurance Fee
The transitional reinsurance program established by the PPACA will require health insurance issuers, as well as certain plan administrators on behalf of self-insured group health plans, to make contributions to a transitional reinsurance program for a three-year period beginning January 1, 2014. The transitional reinsurance program is intended to reduce the uncertainty of insurance risk and to stabilize premiums in the individual market during the first three years of operation of the state health insurance exchanges, 2014 through 2016, by making payments toward high-cost cases as a result of adverse selection.

For purposes of employer-sponsored plans, this appears to mean that a plan’s total reinsurance contribution is based on the number of enrollees covered under the plan. In other words, the fee does not apply solely to the employee participant, but it also applies to all dependents covered under the plan.

Health and Human Services (HHS) has yet to confirm the amount of the per capita fee that will apply for each reinsurance contribution enrollee. However, it appears that some insurers have estimated the fee could range from $61 to $105 per reinsurance contribution enrollee. To the extent that this is the case, this fee will result in a significantly greater fee liability to the plan than the PCORI fee.

The final regulations make clear that the reinsurance contributions are to be collected on a quarterly basis beginning on January 15, 2014. Penalties will apply to a health insurance issuer or a group health plan that does not remit the required transitional reinsurance contributions to the state or HHS, as appropriate. In general, the maximum monetary penalty that may be imposed appears to be $100 per day per affected individual.

Pay or Play Penalties
In 2014, large employers with 50 or more full-time equivalent employees could be subject to two potential penalties: the No Coverage Penalty and the Unaffordable Coverage Penalty. The No Insurance Penalty subjects certain employers to a $2,000 per full-time employee penalty, excluding the first 30 full-time employees, under specific conditions. The Unaffordable Coverage Penalty applies if an employer offers its full-time employees the opportunity to enroll in coverage under an employer plan that either is unaffordable (relative to an employee's W-2 income) or does not provide minimum value. This penalty is $3,000 for every full-time employee who receives a subsidy for coverage in a state exchange.

The factors that affect the onset or avoidance of additional costs under the pay-or-play provisions of the ACA are the following:
•    Number of full-time employees currently waiving health insurance:
The individual mandate requires everyone to be enrolled in some basic level of health insurance coverage starting January 1, 2014. Therefore, individuals who have foregone coverage in the past have an incentive to obtain health insurance. If employer-sponsored insurance is “affordable” for these individuals, this will increase employee participation levels in the employer’s program in comparison to current participation levels. For example, if an employer is currently paying $6,000 for single coverage and there are 50 employees who have waived coverage in the past but choose to take the employer-sponsored insurance in 2014, the additional cost to the employer will be $300,000.

•    Employer contributions to health insurance premiums: 
Employers who pay all or a significant portion of the premium costs for their employees are less likely to have full-time employees qualifying for exchange subsidies, since the premiums will be affordable (less than 9.5 percent of their W-2 wages). This reduces or eliminates the likelihood that the employer will be assessed penalties under the ACA if the company maintains insurance coverage.

Note that construction companies benefit from deductibility of their contributions to employee premiums. There is a break point at which it is more financially advantageous for a construction company to pay insurance premiums than to pay the penalties. Premium payments, unlike ACA penalties, are deductible on a company’s tax return. Employers who contribute more than $3,000 annually toward employee premium costs will save money for every employee who goes to the exchange and receives subsidies.

•    Overall premium costs and affordability: 
Construction companies with employees earning less than 400 percent of the federal poverty level will be disadvantaged in 2014 if they offer high-premium plans to their employees, because the plan will not be affordable unless the construction company covers all or most of the cost. If the available plans are unaffordable for employees in this income range, they will be eligible for exchange subsidies, and the employer will be assessed corresponding penalties.

If a company’s wages for each of its full-time employees exceeds 400 percent of the federal poverty level, it will pay no penalties but may see more employees enroll in employer-sponsored insurance.

•    Employers who drop health insurance coverage: 
In most cases, it will cost less for a construction company to drop health insurance coverage and pay the $2000 penalty for each full-time employee after the first 30. However, full-time employees whose wages exceed 400 percent federal poverty level will be disadvantaged in this situation; they will not be eligible for exchange subsidies and will have to pay 100 percent of the premium costs in the exchange. The construction business owner should consider the additional compensation necessary to attract and retain management employees in this scenario. For example, if the employer is currently paying $6,000 toward the cost of insurance premiums for 20 employees in this category, the additional compensation cost to the employer could be $120,000 plus payroll and other taxes.

Many provisions in the PPACA impact the cost to provide health care coverage for employees. Construction business owners should be aware of these additional fees and penalties and work with their benefit consultants to determine the financial impact of health care on the company.