The Employer Mandate – What the Delay Means

A lot of people are criticizing the administration’s decision to delay the employer mandate – better known as the “play or pay” rule – until 2015. But most employers are actually happy about the decision since it gives them an extra year to figure out what they’re going to do when the penalties kick in. But what will they do in 2014? That’s the real question.

For the past three years, we’ve been trying to predict how employers would respond to the new government requirement that they provide qualified, affordable health insurance to their employees. We’ve developed play or pay calculators to help them figure out which would cost less – the premium or the non-tax-deductible penalties. We’ve talked with them about the value of employee benefits and how it can help them attract and retain employees. And we’ve discussed the premium tax credits and how their plan could block some employees and their family members from this financial assistance.

Ultimately, most employers are concerned about more than just their bottom line. They want to make sure their employees are taken care of. In fact, in a recent survey, 44% of employers say that they offer health insurance because they feel “morally obligated.” How will these employers respond when they learn that offering coverage could actually hurt some of their employees?

The problem, of course, is that there’s no win-win for employers. Offering coverage hurts the lower-paid workers but could be crucial to retain their more valued employees. And dropping coverage would hurt their higher-paid employees but would allow those who earn less than 400% of the FPL to access the government subsidies.

This decision is complicated by the fact that most employers don’t know the household income or family size of their workforce, and they don’t know if their employees would actually sign up for the subsidies or not. The bigger the employer, the less they tend to know about their employees. So they’ve been trying to guess.

The good thing about the mandate being delayed, though, is that they no longer have to guess – they can find out for sure. In other words, without the mandate compelling them to purchase group health coverage, large employers can use 2014 as an experiment. They could drop coverage and see what happens. Of course, they’ll want to give their agent access to the employees because this is how they’ll find out what the employees actually do. The agent can sit down with each employee one-on-one, see if they qualify for a subsidy, and help them apply if they’re interested. From this process, the group will learn how many workers are qualified a tax credit and how many actually take advantage of it, and this data will be useful in making their 2015 decision.

If, for instance, the employer learns that very few employees actually qualify for a subsidy – either because their income is too high or because they have access to affordable coverage through their spouse – that’s a good reason to offer group coverage in 2015. On the other hand, if a lot of employees sign up for a subsidy, the employer probably won’t want to offer coverage in 2015 since he’d be taking away a valuable benefit from them. If, however, a lot of employees are eligible for a subsidy but choose not to sign up, that’s a sign that they don’t value health insurance and the employer doesn’t need to factor the impact on employees into his 2015 decision – instead, he can search for ways to minimize the impact on his bottom line.

Unfortunately, employers who do offer coverage in 2014 won’t get to experiment – instead, they’ll likely hear complaints from the employees they end up blocking from the subsidies. Hopefully they won’t learn it as the employees are walking out the door…

Download the Private Exchanges 101: The Essentials on Understanding, Using, and Selling Them whitepaper now and see how you can take advantage of this opportunity to help your employer groups save money while offering more options for their employees.

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