It's been more than three years since President Obama signed the Patient Protection and Affordable Care Act, which requires companies to provide affordable insurance to their workers or pay tax penalties. That means there are fewer than seven months before the bulk of the law's provisions go into effect. Like many business owners, you may be eyeing the approaching deadline the way a nail eyes an approaching hammer. But new research suggests that certain costs may not be as high as businesses anticipated.
Some winners and losers are clear: You are no doubt keenly aware that if you have fewer than 50 full-time employees--or an equivalent combination of full-time and part-time workers--you have little to fear under the new law. If, on the other hand, your company is larger and doesn't offer health benefits, you will have to pony up in 2014. But if you already offer health insurance, as do more than 90 percent of large companies, things may look worse than they really are, according to a new study conducted by ADP, a large benefit and payroll processing firm based in Roseland, New Jersey.
Most of the uninsured are low-wage earners, who are less likely to join an employer-sponsored plan, according to ADP, which examined payroll and benefits data from 300 companies. ADP predicts that an unmarried employee who earns less than $22,000 a year will probably find cheaper insurance through a government-run exchange than through an employer-sponsored plan.
Of course, this doesn't let you off the hook, because if one of your workers takes a government subsidy to buy insurance on an exchange, you could face a tax penalty of $3,000. However, ADP's research suggests that few companies would incur this penalty. Here's why: If the worker who receives a subsidy could have purchased health insurance from you at a cost of 9.5 percent or less of his wages, there's no penalty. And, according to ADP, the vast majority of company plans already meet this threshold. On average, employees who earn from $15,000 to $20,000 a year and participate in their companies' health care plans pay just 5.7 percent of their incomes for insurance. ADP calculates that just 1 percent of single employees are paying more than 9.5 percent of their wages to insure only themselves.
And most companies should be able to avoid another penalty as well. Despite the law's requirement that companies with 50 or more employees offer insurance to dependents, you are not required to foot the bill for your workers' children. As long as you offer a plan for dependents, you won't face penalties, even if you pass the entire cost of the plan on to employees. And the cost of dependents' care doesn't factor into the 9.5 percent rule.
For now, the biggest question mark is how the new law will affect insurance premiums. Because carriers can no longer base premiums on an individual's or group's preexisting conditions, businesses may see big price changes, particularly in states where that practice was previously allowed. That could be good news for some companies and bad news for others. "Companies that have healthy employees may see increases, and those with sicker employees may see decreases," says Alan Cohen, chief strategy officer for Liazon, a private health care benefit exchange in New York City.
Many companies are hoping for the best and expecting the worst. Brad van Dam, the CEO of Marich, a candymaker based in Hollister, California, already pays about $800,000 a year to cover his 130 employees. Like many employers, van Dam has seen annual double-digit increases in health insurance premiums over most of the past decade. Recently, van Dam has had frequent discussions with his broker about compliance and next year's rates. "All indications are that costs will increase," says van Dam. "I can't venture a guess at this time, but we are assuming it will be lower double digits, at a minimum."