How a company complies with health care reform should be determined by what kind of employer it is, how exclusive its workforce is, and how important its benefit package is seen as an aid to recruitment and retention. Only after that analysis should an employer look at whether gains can be made by, say, reducing benefits, accentuating part-time labor or restricting eligibility.
Employers should fashion their responses to reform after taking into account business strategy, HR strategy, preferred approaches to rewards and compensation; and attitudes about health benefits, according to Gary Kushner, Kushner & Co., Portage, Mich., speaking March 18 at the Society for Human Resource Management 2014 Employment Law & Legislative Conference in Washington, D.C.
A second important point to realize is that companies in different sectors need specific approaches to compliance with the Affordable Care Act.
For example, companies trying to attract older professionals and retain them until retirement tend to offer a benefit package with complete health benefits.
Businesses using unskilled labor, such as fast-food restaurants, may not need expansive health benefits to attract people to fill jobs.
- In businesses with high worker turnover, where replacement workers are easy to find and train, it may be less important to have thorough health benefits.
- In businesses with young, healthy populations, “skinny,” bare-minimum plans that allow more money to go to salaries than to health premiums would be appreciated by those workforces.
Eliminating Health Plan Could Cost More
So the best answer for each organization might not be to eliminate the health plan, cut back health benefits or restrict eligibility. Balance the importance of recruitment and retention, and then decide what kind of action you want to take on health reform, Kushner advised.
Another example involved a business owner who thought it would be good to stop sponsoring family coverage that cost $15,000 a year, of which employees paid $3,000. Instead the company would pay a $3,000 penalty to the government per covered life. It appeared to be a “no-brainer;” an easy way to save $12,000 a year per employee. But losing the employer contribution impacted workers, who now have to pay expensive premiums all by themselves, and without those contributions were no longer exempt from taxes.
The employer then ran into the fact that it could not afford to lose this workforce, so it had to pay those workers more to cover their new liability of paying for health coverage.
In order that each worker could cover the new premiums (plus the worker would have to pay new taxes on the insurance he buys — employer-sponsored health benefits are still not taxable), it would have be necessary to pay an extra $12,000 in salary. Then both the worker and company have to pay Medicare and FICA on that new salary.
Kushner said trying to make the worker whole after cancelling coverage would cost $17,609 (up from the previous employer contribution of $12,000), factoring in salary adjustment, payroll taxes and the new excise tax under the reform law.
Don’t Be Rash
Kushner listed a set of failed strategies employers should not use to skirt ACA requirements.
- Start the plan year in December to get around the ACA for 11 extra months. That would not be allowed because an employer needs a bona fide business reason to change the plan year, he said.
- Divide the large company into smaller sub-companies with 49 workers, then call each a separate company and avoid the employer mandate completely. A variant of this is to divide into several subsidiaries (maybe larger than 49 workers), so the employer can at least subtract the first 30 workers several times in order to minimize the no-coverage penalty. Neither of these are allowed under IRS rules on controlled groups, which have been in effect since 1949, he said.
- Cut worker hours to less than 30 hours a week. That is not okay if those people had been employed by the company and historically worked 30 hours a week. This could be a violation of ERISA Section 510, which prohibits employment-based actions meant to interfere with a benefit the employees otherwise would have attained.
You could lay off some workers to fall under the 50 worker large-employer threshold; that would be compliant, Kushner said. But, he added, an employer’s mission is not primarily avoiding compliance; it remains perhaps profit for some; helping the needy for others; or serving association members, as the case may be. So he reached same conclusion: address your organization’s strategy first.
For more information on health care reform’s employer mandates, see Section 410 of the New Health Care Reform Law: What Employers Need to Know.