The total cost of paying the employer penalty and providing defined contributions will be less than the total cost of providing “affordable” group health insurance.
(PRWEB) July 09, 2012
Zane Benefits, which provides businesses with comprehensive and flexible health benefits alternatives, today published information for employers who are analyzing their current health benefits strategy. This information comes after the recent announcement that the Supreme Court had upheld the Affordable Care Act, scheduled for implementation beginning January 1, 2014.
In 2014, defined contribution health plans, Zane predicts, will become the ideal solution for most (if not all) U.S. employers.
Beginning January 1, 2014:
(1) INSURANCE CARRIERS MUST ACCEPT ALL APPLICANTS for individual health plans, regardless of health status.
This change minimizes the moral obligation of employers to offer health benefits to employees with pre-existing conditions. As a result, the decision to offer health benefits will become purely an economic business decision.
(2) EMPLOYERS WITH MORE THAN 50 FULL-TIME EQUIVALENT EMPLOYEES (FTEs) must sponsor an “affordable” and “qualified” group health plan, or else pay a tax penalty capped at $2,000 per FTE.
The penalty does not apply to companies with less than 50 FTEs.
(3) IF THE EMPLOYER DOES NOT OFFER AN "AFFORDABLE", "QUALIFIED" GROUP HEALTH PLAN, employees may qualify for federal subsidies (based on income) through their state’s American Health Benefits Exchange.
Individuals with household incomes below 400 percent of the federal poverty line (approximately 68% of the U.S. population) will receive subsidies that cap their out-of-pocket health insurance expenses as a percentage of income on a sliding scale. As a result, most employees will be able to obtain identical health coverage, at a substantially lower cost than group health insurance, on the individual market through their state exchange.
(4) "QUALIFIED" INDIVIDUALS MUST PURCHASE HEALTH INSURANCE, or else pay a tax penalty roughly equal to the cost of coverage minus the subsidy.
In many cases, a household's tax penalty will roughly equal the household's cost of the minimum “essential” individual health insurance (minus subsidies) available in the Exchange. In most cases, it will make most economic sense to purchase health insurance vs. paying the penalty. As a result, with proper education, adverse selection in the individual market should be minimized.
CONCLUSION: WHY IS DEFINED CONTRIBUTION THE ANSWER?
In 2014, defined contribution health plans will become the ideal solution for most employers due to the following:
(A) Individual policies will become guaranteed issue, and eliminate the non-economic (i.e. moral) factors from an employer’s decision-making process.
(B) Most employees will pay less for health insurance on the individual market due to federal subsidies.
(C) For most employers, the total cost of paying the employer penalty (assuming the employer has more than 50 FTEs), and providing defined contributions to keep employees whole, will be less than the total cost of providing “affordable” group health insurance.
About Zane Benefits, Inc.
Zane Benefits, Inc, a software company, helps insurance brokers, accountants, and employers take advantage of new defined contribution health benefits and private exchanges via its proprietary SaaS online health benefits software. Zane Benefits does not sell insurance. Using Zane’s platform, insurance professionals and accountants offer their clients a defined contribution plan with multiple individual health insurance options via a private health exchange of their choice.