Photo: Jeff Papa
Special Report: Health Care Insurance
An Affordable Care Act case study
To illustrate the choices that companies face under the Affordable Care Act, consider a hypothetical firm, Florida Inc., that employs 52 full-time employees with an average salary of $55,000. Currently, the firm offers health care benefits only to 10 senior managers, paying 100% of premiums at an average cost of $5,500 per manager.
Under the Affordable Care Act, companies with more than 50 workers are classified as large businesses and are required to either offer comprehensive coverage health coverage to all full-time workers or pay a penalty.
What are Florida Inc.’s options in complying with the new law?
The company could simply choose to insure its 42 uninsured workers.
» At an estimated average cost of $5,500 per employee (not including family plans), the company would have to absorb the full $231,000 cost or pass along part of it to the employees.
To get under the 50-employee threshold and avoid the cost of insuring the workers or paying a penalty, the company could lay off three workers.
» The company would save $165,000 in salaries but would have to consider the effects on employee morale and whether it would have enough workers to keep up with the work.
To get under the 50-employee threshold the company also could make three employees part-time workers, leaving it with 49 full-time workers.
» The company would save about $82,500 in salary costs but would likewise have to consider the effects on morale and productivity.
Provisions in the ACA create benefits for small businesses. Companies with fewer than 25 employees with average salaries of less than $50,000 are eligible for a tax credit of 50% of the cost of insurance.
» To be eligible, Florida Inc. would have to cut the pay of senior management so that its average wages come under $50,000 and then lay off 28 employees.
The company could leave its non-management employees uninsured or underinsured and just pay the penalty.
» To calculate the penalty, the company has to decide whether it will offer health insurance that doesn’t meet the law’s standards for affordability or minimum benefits or not offer any health insurance:
• If offering coverage that doesn’t meet the standards of the law, multiply the number of employees who qualify for subsidies (based on income) by $3,000. Florida Inc. has, we’ll say, five employees who would qualify for subsidies, meaning the company would face a penalty of $15,000.
Bottom Line for Company
Hypothetical firm Florida Inc. can maintain the status quo — continuing to insure its 10 managers and not insuring the other 42 workers — by paying the $15,000 penalty. Other options involve increasing its costs substantially or materially changing the way it does business, either through downsizing
drastically or shifting to a smaller full-time work force.
Bottom Line for Workers
If the company chooses to insure them, the currently uninsured workers will either have to pay part of the premiums that come with the insurance plan, seek insurance on one of the federally mandated health care exchanges or go without insurance that meets federal requirements and pay a $95 penalty.