Pay or Play? How Business Owners Can Navigate the Affordable Care Act

If you employ fewer than 50 full-time workers including part-time equivalents, there is no penalty for not offering health insurance as a benefit. Some project the “50” threshold will be reduced over time. If you’re a larger employer and do not offer health insurance, think of the $2,000 penalty as the cost of the government subsidies offered to your employees who purchase insurance on the Marketplace exchanges.

The $2,000 penalty will rise over time, and yet is far lower than the cost of subsidizing health insurance premiums, since the maximum contribution allowed is equal to 9.5% of an employee’s income. An employer whose average single premium cost is $5,000 per year will spend net about $3,000 once average payroll contributions and tax deductibility is factored in.

So the math proves it is cheaper to pay the penalty.

Since employers can charge up to $90 per bi-weekly pay for employees who earn $25,000, which is more than double the current payroll contribution average is $40 per pay (Kaiser/HRET study), those who currently offer health insurance as a benefit are likely to increase payroll deductions first before dropping coverage, plus adding higher deductible plan options with lower premiums.

Employers who have not had to offer health insurance as a benefit will pay the penalty as an increased cost of business. It will be a slow “bleed” before employers who offer health insurance drop the benefit as there are new arrows in the quiver available to lower costs while still offering coverage.