Delaying the Employer Mandate Has Minimal Impact on ACA

 So what is the employer mandate and what does it involve?  Rather than relying on articles and talking points that can be easily biased for or against the ACA, let’s take a look at what’s actually written in the legislation.  The ACA is a very long document, so here are the three pages that contain the wording about the employer shared responsibility for health coverage.  And since the ACA wording is rather convoluted and full of legalese, here’s an excellent summary from Cigna that explains it in more clear language.

As I explained in a post last week, the employer mandate will impact a very small percentage of businesses in the US.  That’s because 96% of businesses with 50 or more employees already offer health insurance.  And businesses with fewer than 50 employees aren’t required to offer health insurance under the employer mandate.  The vast majority of companies in the US have fewer than 50 employees.  Out of the roughly 5.9 million US firms that have employees, only 635,162 have 20 or more employees (many of these – the ones that have more than 20 employees but fewer than 50 – are not impacted by the employer mandate).  So for most American companies, the employer mandate is a non-issue (on the other hand, the ACA-created tax credits that help small businesses pay for health insurance should be of interest to a lot of those small business owners who are not required to provide health insurance but might want to anyway).

So the employer mandate really only becomes an issue for large employers who are not already offering health insurance to their employees.  But what does it mean?  What exactly do they have to provide in order to avoid a penalty?  And how much is the penalty?  Here are the highlights:

• The employer shared responsibility mandate applies to employers with 50 or more full time or full time equivalent employees.  “Full time equivalent” applies when a business has part time employees:  The total amount of hours worked per month by all of the part-time employees is added up and then divided by 120 to get the number of “full time equivalent” workers.  So if you have 100 workers who each work 80 hours per month, you have 67 full-time equivalent workers (8000/120).
• The requirement to offer coverage applies to all full-time workers, which is defined as 30 or more hours per week.
• The coverage has to cover at least 60% of total allowed costs, which is comparable to the bronze level of coverage in the individual market.
• The coverage has to be “affordable”, which means that the employee contribution (for the employee’s coverage only, not counting dependents) cannot be more than 9.5% of the employee’s wages.
• Coverage has to be offered for the employee and any dependent children up to age 26 (employees are not required to keep their children on their policies until age 26, but they have to be given the option to do so if they want).  But the calculation to determine “affordability” of the premiums is based on the employee’s coverage only.
• Employers are not required to pay for coverage for a spouse.  Employees can choose to add their spouse to their plan if they want (this is no different from the way employer coverage currently works), but the employer is not required to contribute financially towards the spouse’s premium.  So total employee contributions can exceed 9.5% of wages if the employee opts to add family members to the plan, and the coverage would still be deemed “affordable”.
• If a large employer does not offer 60%+ actuarial value, “affordable” health insurance to eligible workers and at least one worker ends up getting individual health insurance through a state exchange and getting premium subsidies or a cost-sharing reduction on their policy, the penalty will be applied to the business.
• The details of the penalty assessment are explained on the first page here, but they’re much more clearly illustrated in the example that Cigna put together (see page 3). The amount of the penalty depends on whether the employer isn’t offering coverage at all, or if they’re offering coverage that isn’t up to the minimum standards and/or affordability requirements.  For the purpose of penalty calculation, the first 30 employees are subtracted from the equation (so if you have 150 employees, the penalty is calculated based on 120 instead).

I’ve heard some people say that the employer mandate requires employers to pick up the entire tab for employees’ health insurance, and this is incorrect.  I’ve also heard people who are obviously confused about the scope of the mandate and think that it will apply to all businesses – this is obviously false, as most businesses have too few employees to fall under the provisions of the employer shared responsibility portion of the ACA.

As far as the dollar amounts go, let’s take a look at average premiums to see how much employers are likely to have to pay for coverage and how it compares with what they pay now.  This Kaiser Family Foundation study looks at average total health insurance premiums and average worker contributions for employee-only coverage and family coverage in 2012.  They made the distinction between large and small businesses at 200 workers, but the numbers are in the same basic range either way (keeping in mind that this is only representative of businesses that do provide health insurance – businesses with fewer than 50 employees are far less likely to do so than larger companies).  Under the heading of “Premiums”, the KFF study includes a chart that shows average employee-only premiums of roughly $5,600, with employees contributing only about $1,000 or less per year (the employer pays the rest).  For family coverage, the total premiums are in the $15,000 to $16,000 range, with employee contributions in the $4,000 – $5,000 range.

These are national averages, and they do vary from one state to another.  Some states have laws setting minimum requirements for employers that offer group health insurance (In Colorado, for example, employers who offer group coverage have to pay at least 50% of the employee’s portion of the premiums, but many employers exceed this amount.  And while there is no state law in Colorado requiring employers to pay for dependent coverage, many employers pay at least a portion of that coverage too).  But it would appear from the KFF numbers that employers who offer health insurance are already probably meeting the “affordability” requirement of the employer mandate.  For employee-only coverage, if the average employee contribution is around $1000, that would meet the standard for any employee who is earning at least $10,526/year (contributions cannot be more than 9.5% of wages).  For family coverage, we have to keep in mind that family coverage often includes a spouse.  And under the employer mandate, the 9.5% cap on employee contributions only applies to the employee and dependent children, not a covered spouse.  If employees are paying in the range of $4000 – $5000 for family coverage, not all of that amount will be taken into consideration to determine “affordability” of the coverage.

So it’s likely that most of the employers with 50+ workers who are currently offering health insurance to their employees are already meeting the affordability” guidelines.  As far as the coverage minimum value requirements, there are absolutely some businesses that have been providing their employees with “coverage” that isn’t worth much.  Mini-med plans aren’t a good substitute for health insurance, but they will hopefully be going away soon.  If we remove those from the equation, most employer-sponsored group health insurance is pretty solid coverage that would likely meet the minimum coverage requirements going forward.

The employer mandate was delayed via an announcement from the Department of the Treasury.  This should not be confused with the bills that were recently passed in the House to delay both the employer mandate and the individual mandate for a year, which are unlikely to pass in the Senate and would be vetoed if they did.  The employer mandate will go into effect in 2015, with two primary goals:  To encourage large employers to provide health insurance for their workers instead of shifting the responsibility onto tax-payers via the exchange subsidies, and to generate revenue (from penalties) to help fund the rest of the ACA.  It’s not a universally popular aspect of the ACA, but understanding more of the details should help people judge it on its actual merits and flaws rather than broad talking points that may or may not be factual.