Is It Better To Pay The PPACA Penalty Or Continue Offering Health Coverage?

Posted by on Feb 5, 2013 in Broker Development, Employee Benefit Program, Health | 0 comments

Is It Better To Pay The PPACA Penalty Or Continue Offering Health Coverage?


When 2014 arrives, employers and their workers must be prepared for the changes the Patient Protection and Affordable Care Act brings. New laws will require employers with a workforce larger than 50 employees to either pay a penalty or offer medical coverage to employees. This is why it is important for employers to start making their plans as quickly as possible. Many employers have reported that this new law will increase their expenses, which will result in the need to reduce workers’ hours or lay off employees. Many employers are favoring the idea of eliminating their health insurance offerings. Although paying the penalty may seem like the right answer for some employers, there are several reasons to reconsider.

Reporting Requirements
If employers eliminate their health coverage offerings, they will be subject to federal reporting rules. The reason for this is to determine the amount of the company’s penalty fee. In addition to collecting more data from employees, employers will have to deal with the hassles of inquiries from exchanges.

Losing A Tax Break
Employers offering health coverage qualify for several tax breaks. However, those who do not extend coverage will not qualify. Employee premiums paid through Section 125 plans do not count toward an employer’s taxable income, and contributions are not classified as taxable income for employees.

Coverage Costs Are Adjustable
Although employers may face the possibility of covering more workers, they will have options for lowering their coverage costs. Lowering coverage to hover just above the required minimum value of 60 percent is one option, and reducing workers’ hours to make them part-time employees is another choice.

Difficulty Recruiting And Keeping Top Talent
If employers make too many cuts to their health programs or choose not to offer coverage, they will make their companies less attractive to the best potential employees. Workers who are considered top talent may start looking elsewhere for employers offering health benefits. Tarnishing the company name by driving good workers away is not something that will benefit companies on a long-term basis. The costs of hiring new workers, compensating for lost productivity and paying the costs associated with business disruptions could cost more than a reasonable health plan would.

Variable Financial Complications
When employers decide to drop coverage, they will likely see employees start demanding other forms of compensation. Since they will be expected to use their own money to pay for exchange-based coverage, employers should expect employees who are put in such a situation to be unhappy. To make matters worse, employers without preformed plans to pay the nondeductible penalties may make their own financial situations even worse. It is important to remember that penalties will increase over time.

Counting Difficulties
It will be difficult for most employers to form a final count of their staff. Classifying part time and full-time employees is not an easy process. In 2012, the Internal Revenue Service released a set of rules that are not completely clear about what constitutes part-time status. If employers miscalculate how many part-time workers they have, this mistake could be costly.

The PPACA will bring big changes for both employers and employees. As employers develop their plans before 2014 approaches, it is important for them to keep workers informed. There are still affordable coverage options, which can be explained by an agent. For answers to any other questions, discuss concerns with an agent.