- By not offering coverage. That penalty is $2,000 multiplied by the number of employees. Since that’s nondeductible, he said, the real value is higher — closer to $3,000.
- By offering coverage that falls below the law’s minimum standards. That penalty is $3,000, but only for each employee who gets a subsidy. Coverage is substandard when its cost exceeds 9.5% of household income or fails to cover at least 60% of medical claims.
It won’t always be obvious who must be offered coverage, Condeluci said, since not everyone works 30-plus hours weekly through the year. The law’s provision for a measurement period during which coverage need not be offered is an asset for businesses with seasonal or variable-hour employees. He recommended the maximum allowed — 12 months.
“Seasonal has not yet been defined,” Condeluci said. “Regulators have hinted that they’re likely to define it as someone who works less than six months. That’s a good thing for you. If you have someone who’s working more than 120 calendar days, which is the typical definition of seasonal, but less than six months, you can throw them into the measurement period and not offer them coverage.”
Variable-hour employees are more permanent but can also be placed in a measurement period.
For businesses with fewer than 50 full-timers, the choice can be simpler.
“If you’re not subject to the penalties and you have a low-income work force, it’s almost a no-brainer to drop coverage and send your employees to the exchange,” Condeluci said. “They’re probably better off because they’re getting subsidized, and you’re not paying for coverage. That’s what a lot of small employers are thinking.”
For larger companies subject to the mandate, the calculation may vary from year to year.
“Over time the penalty might equal the amount you’re paying for health insurance,” Condeluci said. “So if you drop coverage at some point, you might be offering it again. Or maybe health coverage costs continue to increase to such a great degree that it’s unsustainable and therefore you drop coverage and pay the penalty. These are the thought processes people are going through.”