Part Two:  The Five Biggest Mistakes Brokers Are Making About Obamacare

2.  “Don’t Worry, It is Unlikely that Penalty B Will Never Be Triggered” (And Other Such Strategies That Suck)

Brokers need to be extremely careful when advising employers on strategies that could end up costing employers hundreds of thousands of dollars. One common misconception among large employers with low-wage workers is that Penalty B will never be triggered because low-wage workers will never want to or be able to pay even a cheap premium toward an insurance plan. This reasoning is flawed and here is why:

The idea is that if an employer offers a skinny plan (which satisfies the $2,000 per employee A penalty) but nothing to deal with the B penalty, the odds are good that the B penalty will never be triggered. The B penalty is $3,000 x the total number of full-time employees who qualify for subsidies or tax credits on the exchange.

First of all, an employee making up to 400% of the federal poverty level ($94,200 for a family of 4) is eligible to receive a subsidy or tax credit. Individual subsidies vary based on the cost of insurance in each state but overall are much higher than most of us anticipated. Because the subsidies are making comprehensive insurance plans affordable for low-wage workers, it is not reasonable to simply assume that no employees, especially parents or individuals with pre-existing conditions, will not apply for subsidized health insurance on the exchange.

To make it even more likely that employees will trigger the B penalty, the US government is doing everything in its power to get individuals enrolled on the exchanges. Having as many people as possible enrolled in the exchange is vital to the success of the ACA and to avoiding the risks and cost associated with adverse selection. Just this past week, the US Department of Health and Human Services released proposed regs for auto-enrollment onto the exchange for current marketplace consumers.

To sum it up, every decision has consequences. Employers have to think through all of the implications of strategies like this because one miscalculation can have a disastrous impact. There are a number of such strategies like this that employers are using and brokers are advising. Here are a few more and some things to consider:

  • Pay the penalty. – Penalties are not tax deductible and end up costing an employer much more than the $2,000 or $3,000 per employee stated in the law. Offering insurance can, but does not always, cost much less, offer tax benefits and provide employees with coverage options. Employers have to do the analysis on their own data to figure out what is best for them.
  • Make everyone part time. – If employers did not already do this prior to February 9, 2014, any attempt to do this without a bona fide business purpose will be disregarded by the IRS. An employer attempting this will not realize it is in violation of the regs until it has already been in violation for a very long time. With a bit of planning ahead of time the employer could have avoided a $2,000 per employee per year as well as ERISA violations for cutting hours to avoid paying benefits. I would hate to be the broker who told them that was a good idea.
  • Make everyone part time. – If employers did not already do this prior to February 9, 2014, any attempt to do this without a bona fide business purpose will be disregarded by the IRS. An employer attempting this will not realize it is in violation of the regs until it has already been in violation for a very long time. With a bit of planning ahead of time the employer could have avoided a $2,000 per employee per year as well as ERISA violations for cutting hours to avoid paying benefits. I would hate to be the broker who told them that was a good idea.
  • Offer a walk-away plan. “If” you can find an insurance company that will allow this and employers do not offer an affordable alternative, employees who walk away will still be subject to the individual mandate. Not only that, employers often “think” their insurance company is allowing this but they did not read the fine print of the contract and learned too late that the employer is guaranteeing a minimum participation.

There are many more like this. The important thing for brokers is to be careful when giving advice. There are implications to every decision, and not just related to the ACA. Before you advocate or bless a certain strategy make sure you understand the risks involved.

The Employers Guide To Obamacare

The Affordable Care Act (ACA) is one of the most confusing and difficult laws US employers have ever had to face. It is thousands of pages long and changes constantly. The Congressional Budget Office has estimated that the IRS will collect approximately $130 Billion dollars from employers who fail to comply with the law over the next 10 years. Fortunately, the Employer’s Guide to Obamacare is here to help business owners navigate the minefield.

 

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