Last week we talked alternatives to traditional insurance plans like self-insuring for compliance under the Affordable Care Act. Unfortunately a large portion of employers have chosen to take a different approach…to do nothing. So you may be thinking, what are the consequences if you choose not to do anything?
For employers, the Affordable Care Act presents 2 possible penalties for not complying.
- The first is a $2,000 per employee penalty for not supplying a health plan offering 63 Minimum Essential Coverages. For our purposes we will call that Penalty A.
- The ACA also imposes a $3,000 per employee penalty if the employer supplies a plan but it does not offer coverage as generous as a Bronze Plan. We will call this one Penalty B.
To determine how much that really is, lets say your company has 200 full-time employees. If just one of those employees is not offered coverage and receives a subsidy or tax credit on the exchange, you are on the hook for Penalty A which equals $240,000! ($2,000 x (200 employees – 80 (the law allows for a deduction of 80))
You could end up paying this entire amount even if you are offering insurance to the majority of your employees. On top of Penalties A and B, there is a Catch-All Penalty of $100 per employee per day for numerous kinds of violations that do not fall under Penalty A or B.
There are multiple ways to trigger this Catch All Penalty:
- Your plan excludes people for pre-existing conditions or otherwise discriminates based on health status.
- Your “Out of Pocket” limits are higher than allowed by the ACA.
- You incorporate a waiting period of longer than the 90 calendar days without properly enacting and calculating an additional 30 day orientation period.
- Your plan includes annual or lifetime limits on essential health benefits.
- You are not properly offering dependent coverage to children up to age 26.
- You do not properly provide a Summary of Benefits and Coverage.
- You do not have adequate claims appeal and external review processes.
The Catch All Penalty would apply to every single affected individual as long as the violation exists. This is calculated on top of Penalties A & B. Calculated over an entire year, the Catch All Penalty would cost an employer $36,500 for one employee. Using our example above, if you have 200 employees and you are in violation for the entire year, your penalties would be too outrageous to even contemplate..over $7 Million! So what are the total amount of possible penalties and excise taxes employers could face per employee?
That is the $38k Question.
To make things worse, these penalties are excise taxes and are not tax deductible like health plan contributions would have been. Does it seem like it’s a good idea to choose not to do anything? It’s not to late to mitigate your losses, check out our previous post about Self-Insuring your benefits to begin exploring alternatives to traditional insurance and choosing not to do anything.