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From Paul Keckley, Executive Director, Deloitte Center for Health Solutions
Yesterday, the U.S. Department of the Treasury confirmed that businesses with more than 50 full-time equivalent employees that do not provide employee health insurance coverage will not be penalized in 2014. The decision will come in regulatory guidance later this week. In February, the U.S. Congressional Budget Office had projected penalties of $5 billion would be paid by employers in 2014.
Background: the Affordable Care Act (ACA) includes financial penalties on businesses with more than 50 full-time equivalent employees (those who work an average of 30 or more hours weekly) that fail to provide health insurance that meets minimum standards and tests for affordability. This delay will allow simplification of reporting requirements by state and federal authorities and will give businesses more time to adapt their health insurance coverage.
My take: the “pay or play” provision of the ACA is one of the “big bets” in the law: companies that already provide coverage might conclude it cheaper to drop coverage and pay the penalty, pushing employees into the health insurance exchanges (HIXs) or in some cases leaving them to fend for themselves with or without coverage.
Understandably, smaller businesses that are already less inclined to provide coverage would have been impacted most. In the Deloitte Center for Health Solutions’ 2012 Survey of U.S. Employers, 9 percent of employers representing 3 percent of the civilian workforce said they’d consider dropping health insurance coverage in the next decade due to costs. Currently, 61 percent of employers with three to 199 employees provide employee coverage and 98 percent of employers with more than 200 employees provide employee coverage.1 Per Wharton economist Mark Duggan, 210,000 companies have more than 50 employees and about 10,000 of these would have been impacted by the penalty.2 So the delay represents an effort on the part of the Administration to respond to employer concerns about the sufficiency of the federal infrastructure to handle the employer “pay or play” provision, allows time for HIXs (individual and small group markets) to become operational and permits employers to plan accordingly.
Note: for more on this topic see the Deloitte Center for Health Solutions’ 2012 Survey of U.S. Employers. Also, be sure to review the Impact of Health Care Reform on Insurance Coverage: Projection Scenarios Over 10 Years – update 2012 for health insurance coverage projections on what will happen if employers drop coverage when HIXs are operational.
Paul Keckley, Ph.D., Executive Director, Deloitte Center for Health Solutions
1 Kaiser Family Foundation, “Snapshots: A Comparison of the Availability and Cost of Coverage for Workers in Small Firms and Large Firms,” December 2012
2 Washington Post, “Everything you know about employers and Obamacare is wrong,” May 24, 2013