Will Employers Stay Large? Obamacare Outcomes!

This is the second article by my colleague and guest blogger, Carolyn McClanahan, MD, CFP, with Life Planning Partners, Inc located in Jacksonville, Florida. The article covers will your employer remain large in employee size or start reducing their workforce with part time employees.

Following the creation and implementation of Obamacare is better than any soap opera available. We are now three years into the show, and I especially love to make predictions about future installments. My prediction of the day involves large employer reactions to coverage.

One bone of contention with many is the large employer mandate – companies with greater than 50 full time equivalent employees must offer affordable coverage to their full time employees or pay a fine. Many will continue to offer coverage if it is truly affordable, and that “truly affordable” part remains to be seen. Others may try to play games and reduce the number of full time employees to whom they offer coverage. How will this work

First, let’s go through the steps of how a company is counted as a large employer.

Step 1. Count true full time employees

A full time employee is anyone working an average of over 130 hours per month. Based on a 52 week year, this is the equivalent of 30 hours per week. Count each month for the past twelve months.

Step 2. Count “full time equivalent” employees

For anyone working less than 130 hours per month, add up all the hours worked in the month. You can add actual hours, count one day as eight hours, or count one week as 40 hours. Any of the three methods can be used for any of the employees. Divide the total by 120 to obtain the full time equivalent.  For example, if you have 70 employees who work a total of 2950 hours for the month, you have 24.58 employees. Count each month for the past twelve months.

Step 3. Add the full time employees and the full time equivalent employees for each month

In December, if you had 24 true full time employees and 24.58 full time equivalents, you have 48.58 employees for that month.

Step 4. Add all twelve months and divide by twelve to obtain the average number of monthly employees.

If that number is 50 or more, you are a large employer.

Here is an example in table form for those who like visuals:

This company will be treated as a large employer. So now what happens?

  1. This company must offer affordable coverage to only full time employees and their dependents (but not their spouse – I’ll discuss this in another post.)
  2. The insurance must provide minimal essential coverage (another post for another day.)

If the company does not offer coverage that is affordable and meets minimal requirements, they will pay a fine if any of their full time employees qualify for a premium tax credit (another topic for the future!) The fine is $2,000 per employee over 30 employees. So if a company does not have more than 30 full time employees, they will not have to pay a fine.

So what will large companies do?

Remember, large companies have to offer insurance only to their true full time employees. I see so many opportunities for “innovation” on their part. A couple of scenarios to chew over…

A company could have hundreds of employees work a 28 hour work week and have less than 30 full time employees. The company would count as a large employer and is required to offer insurance to the full time employees. However, since they have less than 30 full time employees, their fine would be zero if they do not offer insurance. Companies that could fit this model are fast food chains, retail stores, and construction companies. I’m certain there are plenty of others.

For the employer to pay a fine, an employee has to qualify for a premium tax credit. Well, an employee would only qualify for a premium tax credit if their income falls below 400% poverty level. For an individual, that equates to $44,680 income per year. For a family of four, that equates to $92,200 income per year for the entire family. An employer could theoretically make only their valuable “high earners” full time employees. It would be difficult to track family income to make certain the employee stays above 400% poverty level, but this maneuver is possible.

I’m certain there are multiple scenarios I haven’t thought of – I would love for readers to share more. We have until March 18th to comment to the IRS about these proposals. The release from the Department of Treasury shares all the details. You are free to comment on your own at the regulations.gov website.

In my Quest for Simplicity, this part of the Affordable Care Act does not meet the test for simplicity. Employers should not be in the business of providing health insurance and maybe this complexity will push them over the edge to where they leave the market. Either a single payer model or guaranteed issued individual insurance would have been a much simpler solution. It may happen by default as individuals flock to the exchange or maybe one day our politics will make single payer possible.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

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