The clock is ticking very loudly on the mandatory health coverage demanded by the Affordable Care Act, also known as "Obamacare." These coverage requirements will apply to health insurance in 2014. That may seem a safe distance away, but consider that the rules are supposed to be in place for the annual enrollment process. This will begin as early as July or August at some employers, and later in the fall at most organizations.
By the time the 2014 enrollment season gets underway, employers are supposed to have already communicated clearly what their employees' health insurance options will be, and what these options might cost. They are nowhere close to being able to do this. And the required date set in Washington for this crucial communication has been deferred from an earlier March 31 deadline to an unknown date. Failure to comply with the law could expose employees and employers to financial penalties.
ADP, the big payroll and employment services company, has roughly 600,000 clients and it has surveyed its enormous databases of what these employers pay people and of their historic health-insurance choices. It knows how many employed people now choose to be covered under their employer's group health policies. And because it knows how much wage income these people make, it can take a pretty good stab at whether employers' current health insurance programs are in compliance with the Affordable Care Act.
Amidst the confusion, there are some key numbers in the law, and the ADP research that can help make sense of the 2014 health insurance requirements:
50. That's the number of full-time employees that determines whether an organization is a small employer under the law. Smaller firms do not have to offer health insurance and their employees will presumably get individual coverage directly from private insurers or from the new state insurance exchanges.
30/130. Employees with more than 30 hours of service per week or 130 hours of service per month must have access to employer-sponsored health care benefits at companies with 50 or more full-time employees and full-time equivalents (FTEs), ADP says. Otherwise, employers will face a penalty of $2,000 per employee (minus the first 30 employees) if at least one full-time employee receives subsidized coverage through an exchange.
That's $2,000 a head for all employees even if just one receives subsidized insurance through a state exchange. The flip side of this onerous burden is that employees at large employers who are in compliance with the law are not likely to qualify for coverage from an exchange. They won't get subsidies and will face a penalty themselves if they reject participation in their employer's health plan.
9.5. The law says employer-offered health insurance is not affordable if the cost to purchase coverage totals more than 9.5 percent of an employee's wage income per a W-2 statement. This test applies to even the lowest-paid qualifying employee. "Employers offering health benefits will face a tax penalty of $3,000 for every full-time employee who receives subsidized coverage through an exchange," ADP says, "and who would have been required to pay more than 9.5 percent of their wages toward self-only coverage under the employer's lowest cost plan that provides minimum value." Note that the test only applies to what it would cost the employee to get coverage only for himself or herself, not the coverage he or she would elect to buy as part of a family plan.
45,000. This is the annual income level that ADP finds separates employees who generally buy health insurance from those who don't. The percentage of employees who buy health insurance is basically the same at higher income levels regardless of how much they earn. The percentage of people who don't buy health insurance significantly drops when earnings are below $45,000.
8.6. In its research, ADP found that 8.6 percent of the single employees in its client companies had to pay more than 9.5 percent for health insurance. Nearly all of them had dependents on their policies even though they were single. "Only 1 percent of single participants paid more than 9.5 percent of income for self-only coverage—the criteria established by the IRS to trigger a tax penalty to employers," the study said.
These figures do not include employees who chose not to buy health insurance and thus understate employers' exposure to affordability problems. Only 37 percent of full-time eligible employees making $15,000 to $20,000 in base pay bought health insurance. Among those earning $20,000 to $25,000, 58 percent purchase health insurance.
Reaching lower-income employees to inform them about their health reform insurance choices will be a major challenge, says Christopher Ryan, an ADP vice president and the company's primary researcher on the effects of health reform. "Educating someone about this is fairly complex."
Employee subsidies in state insurance exchanges, for example, are based on measures of taxable income that include more than W-2 statements, and may require the help of a tax professional to calculate. "A key challenge for employers is going to be, 'How do we reach out and engage people'" who have not purchased health insurance before. "How do you make that information simple ... but also precise and complete?" Ryan says.
In addition, he notes, lower-income employees will need to know a lot about their household cash flows to determine how to best fulfill their new mandatory insurance requirement. Insurance subsidies are linked to percentages of little-known federal poverty levels that change with family size.
David Marini, vice president and head of ADP's strategic advisory services to clients, is more blunt. "The fear that's out there is that some people just think they're going to get health coverage and haven't thought about where they're going to get it or how they're going to pay for it," he says. "It's going to be a huge communications issue."