Taking the Obamacare Penalties Might Be Best Option for Businesses
While Obamacare’s individual mandate has individual Americans stressing out about penalties, the section of the Affordable Care Act causing the biggest concern for businesses is the Employer Shared Responsibility (ESR) provision, which mandates the “large employers” must offer coverage to its employees.
The ESR originally applied to large employers with 50 or more employees that work an average of 30 hours or more per week or 130 hours per month. Under an IRS guidance issued in February, employers with a monthly average of between 50 and 99 workers can apply for transitional relief – if the employer meets three criteria:
- Maintain an average of 50 to 99 employees
- The workforce cannot reduce in size or hours of service worked between February 9 and December 31, 2014.
- Health care coverage that was offered to employees as of February 9, 2014 cannot be reduced or eliminated.
The Two Penalties
For the large employers with 100 or more employees and those large employers that do not meet the above criteria, there are two potential penalties. The first penalty is for large employers that do not choose to offer insurance. The penalty goes into effect when the first full-time worker signs up for coverage through the Health Insurance Marketplace and qualifies for a cost-sharing premium or tax credit and was not offered coverage. In this case, the employers would be penalized up to $2,000 for each full-time employee.
The second ESR penalty is for large employers that do not offer affordable coverage that includes 10 essential benefits. Affordable coverage is described as costing the employee no more than 9.5 percent of their household income. For violating this provision of the ESR, an employer will be penalized up to $3,000 per for each employee receiving an “applicable premium tax credit or cost sharing reduction with respect to that employee’s purchase of health insurance exchange.”
When Taking the Penalties is the Best Option
Despite these stiff penalties, some large employers are opting not to either offer their employees coverage – or not offer them “affordable coverage.”
Rick Levi, owner of an Iowa-based cafeteria company, told the Wall Street Journal last year that the total penalties he would absorb under the ACA is still less than the premiums he would have to pay to cover all of his 102 employees -- $500,000.
"I've never made a profit in any year of the company that has surpassed that amount," he said. "I don't make enough money."
Other companies may want to follow suit and take the penalties just so they can remain in operation. Small-businesses with less than 50 employees would not be subject to a penalty. We here at Health-Life-Dental-Insurance have a team of experienced agents who will calculate potential penalties you may face and determine what's the best health insurance strategy given health care reform. Visit our website or give us a call at 1-800-257-1723.