New Rule Saves Companies $100k

It’s a little weird that this isn’t being talked about more in the insurance community, but the final rules on the employer shared responsibility requirement, a.k.a. the employer mandate, which were published in the Federal Register on February 12th, include some transitional relief for companies with 100 or more full-time equivalent employees (FTEs) that don’t currently offer or choose to stop offering group health insurance to their employees.

Found in section XV of the regulations, this relief applies to 2015 only and is available to big companies that don’t offer employer-sponsored health insurance. As we all know, the fine for not offering qualified coverage to at least 95% of full-time workers (70% in 2015) is $2,000 per full-time employee with the first 30 full-time workers excluded from the calculation if even one employee who averages 30 hours or more per week receives a premium tax credit in the individual marketplace.

The transitional relief, though, changes that number to 80. This has HUGE implications for large employers.

For example: Suppose a company has 80 employees who average 30 hours per week or more. Each of those employees counts as one. Suppose the company has another 40 employees that each work 15 hours per week on average. Each of those employees counts as one-half of an employee when determining if the group is an applicable large employer, so together these 40 part-timers would add up to another 20 FTEs. The full-time employees plus the full-time equivalents equal 100, so this company is required to offer health insurance in 2015. If it doesn’t, though, there will be no penalty.

Under the original rules, which are set to kick in in 2016, this company would only have been permitted to exclude the first 30 full-timers, so the penalty would have been $100,000.

This is a game changer for companies in the 100-200 employee range. Many of those employers have been busy doing the “play or pay” calculations to determine if it would make more sense to offer health insurance or pay the employer shared responsibility penalty. For many of these companies, it already made sense to “pay” rather than to “play”, but now it makes even more sense. When a company’s employees are being blocked from the subsidies by the group health coverage, killing the group plan is a no-brainer if it also saves the company money. And killing the group plan creates a special enrollment opportunity for the employees in the individual market, giving brokers with a private exchange solution a whole bunch of individual leads.

WARNING: Brokers that market to employers in the 50 to 100 FTE segment need to be aware that this transitional relief does not apply to this size group. These smaller large employers have some relief of their own in 2015 if they weren’t already offering group health benefits, but a group that drops its coverage can only exclude the first 30 employees from the count. It may still make sense for these groups to drop coverage, but they do need to understand the implications.

Want to take advantage of this and the other transition rules for 2015? You can. Knowing how to explain these new rules to employers can get you in a lot of doors, and the Insight Catalyst Report (ICR) can provide you with the analytical information you need to properly advise employers and recommend the best solution for them and their employees.

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