Coming to Grips with the Health Benefits ‘Pay or Play’ Decision – Part 2

In our last post on “Pay or Play” – we discussed the first question an employer needs to resolve:  Whether or not your employee count will make you subject to the pay-or-play requirement (also known as the employer “shared responsibility” requirement). This post, we’ll examine the “Value” Test part of the equation.

Passing the “Value” Test

Another decision you have to clear on in complying with the “Patient Protection & Affordable Care Act”, is whether your employees receive a minimum value for healthcare benefits coverage. Providing minimum essential coverage to employees, requires you to pay at least 60 percent of the cost of the benefit. A parallel test is whether the employee cost is deemed “affordable” to the employee. A “safe harbor” standard is whether or not it exceeds 9.5 percent of the employee’s household income.

If either the “value” test or the affordability test is not met, something called a “Subsection (b) penalty” kicks in. It is calculated as $250 per month for each FTE employee who enrolls in a health exchange and is eligible, based on income, to receive federal tax credits.

Eligibility for tax credit and subsidies ends at 400 percent of the U.S.official poverty level. Eligibility starts once an individual, who does not have access to a qualified affordable plan through employment, is deemed to be able to afford insurance with an exchange credit (approximately 100 percent of the poverty level).

If you determine that based on your current health benefits package you won’t meet the employer responsibility standards of the Affordable Care Act next year, the financial dimension of the decision you’ll face is whether it’s less expensive to drop benefits and pay the penalty, or improve benefits to meet the requirements. In many circumstances the penalty would be cheaper.

Next post, we’ll look into the financial implications. If your organization could use help deciphering implications of the Affordable Care Act, or benefit from working with HR professionals, PayVision Online has Human Resources Professionals, Health Insurance Brokers and Accounting Professionals that are great resources for your questions about Health Care Reform.