Play, Pay, or Play Differently? The Pros and Cons

Employers with over 50 employees are trying to figure out how to deal with the Affordable Care Act's 2015 "employer mandate" which requires applicable large employers to either offer health insurance, or else pay a tax penalty. While the employer mandate has been delayed until 2015, many employers are strategizing their approach now - asking "Should we play, pay, or play differently?" and "What are the pros and cons to each strategy?"

What is Meant by Play, Pay, or Play Differently?

• To Play: Offer minimum, affordable group health insurance in 2015.

• To Pay: Do not offer minimum, affordable group health insurance in 2015, and pay any applicable penalties.

• To Play Differently with "Pure" Defined Contribution: Do not offer group health insurance in 2015, pay any applicable penalties, and offer a pure defined contribution plan (healthcare allowances employees can spend on individual health insurance).

Reminder: Employers with fewer than 50 FTE employees are not subject to the employer mandate "play or pay" decision or penalties.

The Pros and Cons of Playing

Here are pros and cons to playing (offering affordable, minimum group health insurance coverage). 

Pros for Playing 

• The business satisfies the employer mandate provision and will not be subject to penalties (aka employer shared responsibility payments).

• Health benefits are an important part of the compensation offered to employees. Employees value health insurance as the number one fringe benefit.

• Tax savings on the group premiums for the business and employees.

Cons for Playing

• Group health insurance is expensive; cost prohibitive for many businesses.

• By offering group health insurance, employees are disqualified from the individual health insurance subsidies. If family coverage is offered, employees' families are also disqualified from subsidies.

• Employees have less choice in plan selection or coverage.

• Employees lose coverage when they terminate employment.

The Pros and Cons of Paying

Here are pros and cons to paying (not offering affordable, minimum group health insurance coverage and paying applicable penalties if an employee purchases a subsidized plan through the Individual Health Insurance Marketplaces). 

Pros for Paying

• By not offering group health insurance, employees and their families access to health insurance subsidies. They may pay less for health insurance than what they pay for health insurance premiums through the company (especially for family coverage).

• Your business gets out of role of selecting and administering health insurance benefits.

• Employees are giving a full choice of health insurance plans and plans are portable.

• The cost of penalties in 2015 is generally much less than group health insurance premiums. Many businesses see paying the penalties as their contribution to employee's subsidies - subsidies they are allowing them to get by not offering group health insurance.

Cons for Paying

• Not offering a formal health benefits program may negatively impact recruiting, retention, and morale. This is especially true if the business has offered health benefits in the past, and is canceling them.

• Employees may worry about their job security.

• Employees will need help purchasing individual health insurance on their own.

The Pros and Cons of Playing Differently with Defined Contribution

Here are pros and cons to playing differently with "pure" defined contribution health benefits (not offering affordable, minimum group health insurance coverage, paying any applicable penalties, and offering health insurance allowances employees can spend on individual health insurance). Playing different offers a middle ground between playing and paying.

Pros for Playing Differently

• It is a formal health benefits plan employees value, and like traditional health insurance it contributes to recruiting, retention, and positive morale.

• Using individual health insurance as the foundation of health benefits saves employees and employers a combined 50% on health insurance costs.

• A "pure" defined contribution approach gives employees a full choice of health insurance plans. Employees receive better, more flexible health insurance options.

• Penalties have been delayed until 2015.

• The cost of penalties in 2015 + defined contribution allowances may be less than group health insurance premiums (a cost analysis is needed).

• Employees and their families are not disqualified from the health insurance subsidies.

Cons for Playing Differently

• Some employees need extra education purchasing individual health insurance (this is new to them).

• Cost of penalties in 2015 + defined contribution allowances may not be less than group health insurance premiums (a cost analysis is needed)