Healthcare “Play or Pay” Mandate Delayed– July 03, 2013 by Maura Corrigan

But tough decisions shouldn’t wait.

The Treasury Department has announced that healthcare reform’s “play or pay” mandate requiring all employers with 50 or more employees to offer health insurance, or face a penalty, has been delayed until 2015. It’s important to note that other key elements of reform remain in play or on schedule, such as fees and taxes applicable to self-funded and fully funded health plans, health insurance coverage-related tax credits for small employers and the implementation of state healthcare exchanges.

Another important component that has not changed with the Treasury’s latest announcement is the need for employers to consider the significant impact of the business decisions associated with reform — sooner rather than later. Individuals, employers, insurance providers and business advisors need to be fully integrated in the process of determining which health insurance options to offer, or not, and understand the related tax and business ramifications.

Large Employer Considerations

Generally speaking, an employer with 50 or more full-time equivalent employees (FTEs) is considered large for purposes of health care reform. Large employers must decide whether to “play or pay;” meaning will they or won’t they offer healthcare coverage to employees? This, of course, includes running the financial calculations outlining what it will cost to offer health insurance coverage to employees versus the cost of not offering coverage. A large employer will be assessed a nondeductible excise tax, or “penalty,” IF it decides 1) not to offer coverage (maximum annual penalty tax of $2,000 per FTE, minus the first 30 employees); OR 2) offers coverage that is deemed “unaffordable” under reform (maximum annual penalty tax of $3,000 per FTE).

But even though penalties won’t go into effect until 2015, the business implications and intangible costs of restructuring coverage will need vetting well beforehand. While non-covered employees will have the option of shopping a state exchange system that will serve as a marketplace for health insurance options, the answer is not that easy. Employers should ask themselves questions such as:

  • How will not offering coverage impact the company’s culture, both for current employees and in the recruitment of new ones?
  • How will the ability to attract and retain top talent affect the company’s profitability in the long run?

These intangible calculations should be scrutinized by management and business advisors, and communicated to employees, well before any changes occur. Regardless of the final decision, early and frequent communication with employees will be key in helping them understand the company’s decisions and to, ideally, feel good about them.

Small Employer Considerations

Generally, if an employer has fewer than 50 FTEs, coverage is not required for employees, and employers are exempt from penalty tax.

However, there are still important intangibles, and opportunities, for small businesses to consider. Healthcare reform provides small businesses with easier access to healthcare coverage so they can compete with large employers. Accordingly, healthcare reform states that if an employer has fewer than 25 employees with average annual salaries of less than $50,000 and provides health insurance coverage, the employer is entitled to a federal tax credit of up to 50% (35% in some cases) of the premiums paid. While the tax credit has been available in its current form since 2010, for tax years beginning after 2013, the criteria to qualify for the credit will change.

Beginning in 2014, the state exchange system will be available to employees of small companies as well. However, beginning in 2015, employers with fewer than 100 employees will be able to access health coverage for their employees on the Small Business Health Options Program (SHOP) Exchanges. SHOP will allow employers to select amongst several health insurance providers at cost-competitive premiums similar to those of large employers. This will allow small employers to better compete for top talent.

As with any legislation of this magnitude, there are myriad rules and decisions that business owners need to understand and make — and timelines will continue to change.

We are staying up to date as developments occur. Stay tuned to our blog or contact Maura Corrigan at mcorrigan@cohencpa.com with additional questions.

This communication is for information only, and any action should only be taken after a detailed review of the specific situation and appropriate consultation.

Notwithstanding that these materials do not constitute legal, accounting or other professional advice, as may be required by United States Treasury Regulations and IRS Circular 230, you should be advised that these materials are not intended or written to be used, and cannot be used by you or any other person, for the purpose of avoiding penalties that may be imposed under federal tax laws. No written statement contained in these materials may be used by any person to support the promotion or marketing of or to recommend any federal tax transaction(s) or matter(s) addressed in these materials, and any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor with respect to any such federal tax transaction matter.