In earlier posts, we looked ahead to 2014 to consider who will pay for coverage, focusing first on the individual mandate, the government subsidies and the employer mandate. We explained that employers may want to consider how these provisions may affect their employee population. In today’s post, we consider how the vouchers will work in 2014.
Although only large employers (50 or more employees) will be subject to employer penalties, ALL employers who offer coverage and pay part of the cost – both small and large – will be subject to the vouchers (See PPACA Section 10108). In addition, vouchers apply to all employees – both full- and part-time.
As with the government subsidies (and effectively, the employer mandate), eligibility for the vouchers is limited to employees with household income less than 400% of the federal poverty level ($89,400 for a family of four in 2011). In addition, the employee must opt out of employer coverage and the employee’s annual premium contribution for the least expensive self-only coverage must be between 8% and 9.8% of annual household income.
By way of example, if an employee with household income of $30,000 enrolls in the Exchange, and the premium for the least expensive self-only coverage through the employer is between $2,401 and $2,940, the employer will be required to offer a voucher. The voucher must equal the amount the employer would have paid for the employee if the employee had elected the highest cost health insurance coverage option available through the employer. Unlike the “free rider” and “pay or play” penalties, the voucher is tax deductible to the employer and tax-free to the employee.
If the premium is between 9.5% and 9.8% of household income, ($2,850 and $2,940 in this example), the employer may pay a voucher rather than the Unaffordable Coverage Penalty, but will not be required to pay for both the voucher and the Unaffordable Coverage Penalty. Also, employees are not eligible for government subsidies in any month they receive a voucher. Additional guidance is needed to clarify who chooses between the employer penalty or voucher – the employee or the employer. Commentators have suggested that the 9.8% figure for vouchers was a mistake and that it was intended to be 9.5%, in coordination with the Unaffordable Coverage Penalty. However, to date, there has been no technical correction or other revision to this amount.
Our next post will summarize and compare how the individual mandate, government subsidies, employer mandate and vouchers interrelate. Employers should review each of these elements in planning ahead for 2014 and deciding how to set a long-term health care strategy.
Postscript 4/19/11: See blog post regarding the repeal of vouchers.
Today’s post was contributed by Maureen Maly and Megan Hladilek.
Could you please double check the statement above: “The voucher must equal the amount the employer would have paid for the employee if the employee had elected the highest cost health insurance coverage option available through the employer.”
It is my understanding the amount of the voucher is based on the lowest cost employer sponsored plan.
Thanks for asking; this can be confusing. The Unaffordable Coverage penalty and government premium tax credit look at whether the required contribution (employee portion of the lowest cost self-only premium) is more than 9.5%. Code section 36B(c)(2)(C)(i)(II), referencing Code section 5000A(e)(1)(B)(i) and PPACA section 1411(b)(4)(C). In contrast, the voucher looks at the employer portion of the coverage “to which the employer pays the largest portion of the cost of the plan” based on the level of coverage elected by the employee. PPACA section 10108(d)(1)(A)
Could you please double check the statement above: “The voucher must equal the amount the employer would have paid for the employee if the employee had elected the highest cost health insurance coverage option available through the employer.”
It is my understanding the amount of the voucher is based on the lowest cost employer sponsored plan.
Thanks for asking; this can be confusing. The Unaffordable Coverage penalty and government premium tax credit look at whether the required contribution (employee portion of the lowest cost self-only premium) is more than 9.5%. Code section 36B(c)(2)(C)(i)(II), referencing Code section 5000A(e)(1)(B)(i) and PPACA section 1411(b)(4)(C). In contrast, the voucher looks at the employer portion of the coverage “to which the employer pays the largest portion of the cost of the plan” based on the level of coverage elected by the employee. PPACA section 10108(d)(1)(A)
“The voucher must equal the amount the employer would have paid for the employee if the employee had elected the highest cost health insurance coverage option available through the employer.”
I’m confused. What if the employer does not offer health insurance. Say it is a small company with less than 50 employees so the pay or play penalty does not apply? What would the voucher cost be based on?
Ooops. I just re-read that. The voucher system only applies to employers who pay part or all of the insurance cost. It sounds like businesses with less than 50 employees will have no cost impact if they do not offer insurance.