How to handle pay or play, increased health insurance record keeping

Richard Croghan, tax partner, Moss Adams LLP

Richard Croghan, tax partner, Moss Adams LLP

Businesses with 50 or more employees are weighing whether to continue offering health insurance in 2014, or not. Every situation is different, and companies are working to apply the required coverage provisions, or employer mandate, to determine its impact.

“I haven’t seen many companies finalize that decision yet. I think people are still processing it,” says Richard Croghan, tax partner at Moss Adams LLP. “It will take a few years to work itself out.”

However, he says it’d be surprising if many companies stopped offering health insurance, at least initially.

“Companies don’t want to be an outlier,” he says.

Smart Business spoke with Croghan about the impact of health care reform and how companies are deciding if they will continue to offer health insurance.

How do you know if you’re a small or large company, and why does it matter?

It has to do with the number of full-time equivalent employees, which is based upon the number of employees working more than 30 hours. If you have 50 or more full-time equivalent employees, then the pay or play provision will impact your company in 2014. You have to provide qualified coverage or be subject to certain penalties.

How is pay or play impacting large employers?

Companies currently are deciding whether it’s cheaper to pay the penalty rather than provide health insurance coverage. However, it’s not just a cost-benefit analysis of the penalty versus the cost of coverage; businesses need to consider the non-financial impacts, such as their ability to recruit and retain people. In San Francisco and the Bay Area, there is always competition for good employees, so companies are pretty cognizant of doing the right things to attract and retain personnel.

It also depends on the industry. Some, like retail, have thin profit margins, which may make the decision more focused on the economics.

How do the health care exchanges and the uncertainty surrounding them play into this?

That’s partially holding up some of the final decisions because people don’t know what the exchanges are going to look like and what will be the costs. In some situations, it may make sense not to offer health insurance, especially if the exchange cost-effectively offers good, comparable coverage. They’re also not sure how the overall cost of health insurance will be impacted once these exchanges are up and running, and if there will be more competition for health insurance coverage.

What challenges are accounting and HR departments facing?

There has been confusion with the full-time equivalent employee calculations. If you have people working 32 hours a week, you don’t have to count each as one full-time equivalent employee.

It’s even more complicated if you have someone working full-time and then part-time for a few months, before coming back to full-time. Perhaps your business has seasonal needs or this is necessary because of an individual’s specific situation. The detailed recordkeeping and administration is causing a lot of questions and headaches. Additionally, there are specific rules about when you need to start covering new hires.

How are businesses handling tracking these concurrent tests?

Large companies are better off because they usually have HR departments that are well versed in all the intricacies. However, midsize companies with more than 50 full-time employees that aren’t large enough to support a full HR department are getting squeezed. One solution to handling the complicated record requirements is investing in some of the outsourced HR solutions that are gearing up to assist these companies.

What about small employers that don’t need to worry about pay or play?

Some with 25 or fewer employees have been taking advantage of tax credits. These will continue in 2014 with the exchanges. For example, in 2014, employers with 10 or fewer employees receive a 50 percent tax credit for the employer contribution when employers purchase coverage for their employees.

Richard Croghan is a tax partner with Moss Adams LLP. Reach him at (415) 677-8282 or [email protected]