11/21/2012 Think Dropping Coverage To Pay The PPACA Penalty Is Cheaper? Think Again! Many employers have been hearing rumors that it would be cheaper to simply pay the penalty fine for not providing health care to employees under the Patient Protection & Affordable Care Act that is set to go into effect in 2014. However, research shows that this may not benefit employers at all. As 2014 begins, employers with a workforce of 50 or more employees working full time must offer what is called the minimum essential coverage. If they fail to do so, there is a fine of $2,000 per employee, but the first 30 employees are excluded. The study showing this finding looks at four design scenarios for benefits. In these scenarios, employers get rid of their coverage to see how they will benefit from paying the system instead of cooperating. This research project revealed the following key points: – Making employees whole will be more costly to employers when they shift benefits to a health coverage exchange instead of continuing with their existing health plans. – If employers choose to eliminate their group health benefits, they will not see an immediate or long-term cost advantage. – By dropping their insurance plans for employees, companies will see a great reduction in their employees’ overall compensation due to the benefit costs being shifted to those employees. In order to keep their skilled workers, employers must offer benefits and compensation. They will not simply be able to cut benefits and expect their employees to be able to pick up the costs of inefficient exchange-based coverage options. This highlights the two very important reasons why employers should discourage the idea of dropping group benefit plans: – Employees will not be able to pick up the cost of health insurance without receiving significant pay raises in exchange, and these raises would cost employers more. – Employers must pay the penalty fees for dropping coverage. As every employer knows, a healthy employee is an asset to the company. If employees cannot afford health care, they will not be performing at their best. The cumulative lost productivity costs will only compound the stress of paying the fine for dropping health coverage. This also means the more competitive companies that continue offering benefits will succeed. In a world where it is tough for businesses to survive, it is important to weigh all of the advantages and disadvantages before making a decision. There are plenty of affordable group health insurance options available. In some cases, employers may be able to find common ground by switching to a plan that still offers good coverage but is more affordable to the company.