“Pay or Play” Mandate
to Cover Employers
with 50 or more FTE
Congress, for the First Time
Sets Floor for Minimum Coverage
Under the health care reform legislation that is moving forward to eventual passage, an employer with fifty or more employees must offer a minimal coverage plan or face the assessment of fees. Other versions of the bill require employers to participate based on $500,000 annual payroll, but we believe the final version – similar to the Senate version of the bill - will be based on head count of an amount ranging from 25 to 50, and not annual payroll. The fees would be assessed as a head tax, based on the payroll population of full-timers.
The minimum coverage – to be specified in a the final version of the legislation – would require “essential benefits” such as medical, surgical, and hospitalization. Prescription coverage is also possible, but dental and psych are not in either version of the law. Annual cost-sharing maximums for individual and family coverage would be $5,000 and $10,000 respectively. Contribution minimum percentages for employers would be 72.5 for individual coverage and 65 for family coverage.
Note that part-timers need not be provided the coverage, but will be included for purposes of full-time equivalents to determined the applicability of this “Pay or Play” tax to the employer. Hence, as an employer with fifty full-time employees would be covered, so would an employer with forty full-time employees and twenty part-timers if the latter group’s hours equal the hours for ten full-timers.
The fee chargeable to the employer would be a percentage of each worker’s wages, and although the proportion ranges from 2 to 8%, we forecast that a public reaction against the legislation may swell such that a 2 to 3% assessment will be the final provision.
If the employer offers unaffordable coverage (with payroll contribution rates, for example, that are exorbitant for many employees), some workers may be forced to go to a state exchange that the law will set up. If this happens, the employer will pay fines.
The Pay or Play provision would go into effect in 2014, concurrent with the establishment of the state exchanges.