Photographer: Andrew Harrer/Bloomberg
A loophole touted as a way for employers to wiggle out of the Affordable Care Act’s insurance mandate has been closed. What happened?
Officials got wind that some employers planned to bypass the mandate by giving their workers bonuses, asking them to decline company-sponsored insurance and sending them to the Obamacare marketplaces to buy subsidized policies. Nudging sick workers, in particular, onto the exchanges could save employers’ health plans money and shift the cost onto publicly subsidized plans. The Labor Department published new guidelines in November to explicitly forbid that practice.
Why did employers think they could get out of a federal mandate?Officials got wind that some employers planned to bypass the mandate by giving their workers bonuses, asking them to decline company-sponsored insurance and sending them to the Obamacare marketplaces to buy subsidized policies. Nudging sick workers, in particular, onto the exchanges could save employers’ health plans money and shift the cost onto publicly subsidized plans. The Labor Department published new guidelines in November to explicitly forbid that practice.
“Brokers were running around selling this idea that employers could give everybody a raise and say, ‘Go, get the tax credit, knock yourselves out,’ and
they wouldn’t pay a penalty. Go figure—the IRS got wise to that,” says Keith McMurdy, a partner in the employee benefit division at Fox Rothschild, a law firm in New York City.
Hasn’t there been confusion around the employer mandate in general?
That probably hasn’t helped. Under the Affordable Care Act, so-called large employers—those with more than 50 employees—were supposed to offer insurance or pay penalties starting this year. But the Obama administration pushed that deadline back repeatedly after the bungled rollout of health insurance exchanges in late 2013. In fact, those delays are being challenged in the Republicans’ recent lawsuit against the administration.
So which companies are mandated to offer insurance—and when?
Companies with 100 or more full-time employees (or the equivalent in part-timers) must offer health insurance starting on Jan. 1, 2015. Those with 50 to 99 workers will fall under the mandate in 2016. Businesses with fewer than 50 workers have always been exempt.
How many companies thought they could take advantage of the loophole?
The vast majority of businesses with more than 50 employees already provide insurance. But there were business owners planning to give employees raises and send them to state or federal individual insurance marketplaces, McMurdy says. “More than I anticipated, based on the feedback I got. You cannot believe the number of people who called me” after a newsletter in which he wrote about the guidelines was published. “It was like, ‘Holy c––– —this screws up my whole plan!’”
Why so much effort trying to skirt the mandate—why not just bite the bullet and buy the insurance?
McMurdy has asked the same question at the seminars he does for business owners in New York and New Jersey. “There’s been a lot of resistance because they’re starting from the proposition that this [mandate] will kill them. I tell people if they spent as much time figuring out how to comply as they did avoiding compliance, they wouldn’t have an issue.”
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