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.
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.
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.