The Patient Protection and Affordable Care Act, affably known as Obamacare, may be the law of the land in healthcare, but that doesn't mean it's well understood.
Education remains a major hurdle for Obamacare
Despite being more than five years since President Obama signed the PPACA into law, a majority of respondents in a survey conducted by PerryUndem Research/Communication for Vox Media still don't have a good grasp of Obamacare. Specifically, the 1,067-person survey showed that 57% of respondents didn't believe they had enough information to sufficiently understand the law – and that's a big problem when one of the basic premises of the law was to allow consumers to make more education decisions with regard to their medical care.
One of the bigger challenges to understanding Obamacare is that not all facets of the law went into effect at the same time. The medical device excise tax, a 2.3% tax on all medical devices, went into effect in 2013. The individual mandate -- the actionable component of the PPACA requiring individuals to purchasing health insurance or face a penalty come tax time -- wound up going into full effect on Jan. 1, 2014. Finally, the employer mandate is being phased in over two years in 2015 and 2016.
Chances are with consumers being exposed to the ins and outs of the individual mandate for close to two years, they're beginning to get a better understanding of this aspect of Obamacare. However, with the employer mandate being only partially phased in this year, and fully phased in next year, my guess is that most Americans are lost as to what it does and how it might affect them.
With that in mind, today we'll take a closer look at what the employer mandate actually is, how it's being phased in, how it could affect you, and what businesses may do in response to the changes being enacted by Obamacare.
What is the employer mandate?
Simply, the employer mandate is the actionable component of the PPACA that requires employers to provide health coverage options to full-time equivalent employees and their dependents ages 26 and under. A full-time employee is defined by Obamacare as someone who averages 30 or more hours of work per week, or 130 hours in a month. What this means is businesses are not required by Obamacare to provide healthcare coverage to employees working less than 30 hours per week or 130 hours in a month.
There are other caveats as well. The health plans provided by employers need to provide coverage for at least 60% of total allowable medical costs (i.e., essentially what a bronze plan covers on the individual marketplace exchanges), and meet Obamacare's beefed-up minimum essential benefit requirements. Furthermore, if the cost of a full-time employees' premium is equal to or greater than 9.5% of his or her income, then the employer will be responsible for stepping in and providing a subsidy to ensure their employee(s) can afford the coverage.
What happens if employers fail to provide health plans that cover a minimum of 60% of allowable medical expenses, or don't provide a subsidy to lower-income full-time employees? They get fined between $2,000 and $3,000 per non-compliant employee (although a few caveats apply -- businesses can exclude 30 employees from their penalty calculation for plan years beginning in 2016 or later, and 80 employees for plan year 2015).
How is the employer mandate being phased in?
In 2015, the employer mandate was phased in for large businesses with 100 or more full-time equivalent employees, or FTEs. Under the PPACA, employers are required to offer coverage to at least 70% of FTEs and their dependents ages 26 and under in 2015. By 2016 and after, large business employers are expected to offer coverage to 95% of FTEs or face a per employee penalty for non-compliance.
Midsized businesses get a little more time to adjust to the new law in 2015. This year the employer mandate doesn't qualify for businesses with 50 to 99 FTEs, but like large business with 100 or more FTEs, they'll need to offer coverage to 95% of FTEs in 2016 and beyond to be compliant with the law.
Finally, small businesses with 49 or fewer FTEs are exempted from the law in 2015, 2016, and beyond. This means these employers are not obligated to offer health coverage to their FTEs, and they won't be penalized in choosing not to do so. About 96% of all business in America are considered small businesses, and will therefore not fall under the scope of the individual mandate.
How the employer mandate could affect you?
Within the U.S., some 137 million workers and their dependents are covered by health insurance provided by an employer. While the emphasis of Obamacare has largely been on the individual mandate over the last couple of years, it's employer-sponsored healthcare that absolutely dominates the health insurance landscape for most workers.
The assumption here is that as the employer mandate is rolled out in full, it'll require employers to offer coverage to full-time employees who may not have previously been offered health coverage before. Insurers thrive on the idea of spreading their medical expenses out across as many members as possible, so the addition of more workers under the umbrella of "fully covered" may help keep premium costs under control.
Additionally, the more transparent nature of Obamacare could give businesses of all sizes more bargaining power with insurers, thus driving the cost of health insurance lower, or at least taming premium cost inflation for workers.
Small businesses can also make the choice to offer health coverage to their full-time employees by shopping for group plans on the Small Business Health Options Program, or SHOP. A SHOP is part of each states' marketplace exchange, and it can allow businesses that aren't bound by the employer mandate to qualify for tax credit or subsidies for covering their full-time employees.
It's worth noting here that just because your employer is offering you coverage, it doesn't mean you have to take it. You can always seek out health insurance with a private insurer or on the Obamacare health exchange in your state.
How businesses are reacting
For some businesses the employer mandate changes little. Companies such as Costco Wholesale will continue to provide health coverage to full- and part-time employees just as it's done for many years prior.
However, the cost to cover subsidies for full-time employees, or even to offer health coverage options, is being viewed as an added expenses by other businesses. These businesses are working many different angles in order to keep their costs down as the employer mandate rolls out.
One method of reducing costs is simply to reduce hours or headcount. National theater operator Regal Entertainment cut thousands of its workers' hours from full-time to part-time to avoid the employer-mandate penalty, while other businesses have decided to lay off workers to reduce their expenses.
Second, employers can choose to pare down your healthcare coverage options to a smaller preferred network. Smaller networks do come with the probable benefit of lower premium costs for the consumer and business, but at the cost of less choice. Workers may discover that a narrow preferred network means they have to switch to a new primary-care physician.
Finally, some employers are moving their workers to private health exchanges. Doing so moves the financial risk of providing health insurance to workers from the employer to the insurer. Under a private network, employers offer an annual subsidy to their workers to be used toward their health plan. Workers get full choice over what plan they choose, and they can add additional cash out of their own pocket if they want better coverage. Moving workers to private exchanges could save large companies a substantial amount of money.
As with the individual mandate, it's likely going to take a little while for workers to familiarize themselves with the employer mandate transition. But this should give you a pretty good head start in understanding what the employer mandate is, how it's being implemented, and ultimately how it could affect you and your employer.