Obama Admin Delays Patient Protection and Affordable Care Act (“PPACA”) Implementation

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On July 2, 2013 the Obama Administration announced that it would delay until 2015 the implementation of the PPACA requirement that employers with at least 50 employees (The law elaborates on this definition but that’s enough for this news article.) who work 30 hours a week provide health insurance to their employees.  The published rationale for the delay was to allow those employers more time to comply with the law’s reporting requirements.

Let’s take a look at the “scorecard” for various provisions of the law:

  • January 1, 2014 is the date that the PPACA is to be effective but various delays in implementation have called that date into question.
  • If you think the delay doesn’t affect your business you should consider this:  Your business has 50 employees who work 30 hours a week under “ownership aggregation” rules.  Common ownership of,  say, 5 businesses with 10 employees each who work 30 hours a week (and remember this is different from most benefit plans that define “full time” as working 40 hours a week) results in application of the PPACA.  The 30 hour threshold includes Full Time Equivalents or “FTEs” so three people working 10 hours a week equals one employee counting toward the 50 employee threshold.  Failure to offer health insurance to those employees could result in huge penalties. The penalty is $2,000 per employee for employers with 50 or more employees who fail to provide affordable health insurance plans.  If those employees then receive tax credits for purchasing their own health insurance from the exchanges, the penalty goes up to $3,000.
  • “Guaranteed-issue” individual health insurance policies will be available in 2014.
  • The state health insurance Marketplaces will open October 1, 2013 for coverage beginning January 1, 2014 (for individuals and small businesses (less than the 50 employees as outlined above)).
  • Individual health insurance premium tax subsidies will start in 2014, probably lowering the cost of premiums purchased through the “Marketplaces” or “Exchanges” for most individuals.

Because there are no tax penalties for small businesses, the trend for small businesses may be to offer employee health benefits through a “pure” defined contribution health plan (in the past sometimes referred to as a “Medical Reimbursement Plan”). In other words, instead of offering a traditional group health insurance plan, the business provides employees tax-free health care “allowances” which employees then use to be reimbursed for individual health insurance policies.  Because some “small employers” find the cost of group health care prohibitive the “defined contribution” model allows an employer to feel comfortable that all employees will have access to health care insurance at an affordable rate due to the fact that individual policies will be “guaranteed issue” and subject to federal subsidies, thereby costing employers less.  Remember, there is no penalty for failure to provide employee coverage so long as the employer is a “small” employer as discussed above.

The downside to a “defined contribution health plan” is that the contribution levels may discriminate between different employees or not be sufficient to fully underwrite a particular individual’s health insurance premiums.

The delay in implementation of the PPACA for businesses not defined as “small business” (medium to large employers) may cause those businesses to cancel group health insurance and play the “defined contribution” gambit and offer “defined contribution” plans rather than group health insurance.  The demographics of the employer’s workforce may play a significant role in that decision.  In 2015, those businesses will have to conduct an analysis of their employee pool under several scenarios:

  • “Participate in the PPACA” or offer a qualified, affordable group health insurance plan to employees.
  • “Pay the consequences” or choose to not offer a group health insurance plan to employees and pay any applicable penalties without providing insurance to them.
  • “Pay differently” with a Defined Contribution Health Care Plan or choose to not offer group health insurance, pay any applicable penalties (starting in 2015), and offer employees a defined contribution health plan.  Many commentators say that this last method may be the one that many non-small business employers will adopt.