Financial Consequences of Play-Or-Pay Health Care Mandate

For employers, the most important provision in the Affordable Care Act will be the play-or-pay mandate. It requires employers with the equivalent of 50 or more full-time employees to provide adequate and subsidized group health plan coverage to all full-time employees and their dependents.

This requirement was originally scheduled to take effect in 2014 but was postponed to January 1, 2015. Even though the new effective date is more than a year away, it is important to start modeling the impact of this mandate. There are a lot of calculations to perform to determine how much playing or paying will cost.

The play-or-pay provision applies to employers with the equivalent of 50 or more full-time employees in the prior calendar year. The author outlines the process by which an employer can determine if it falls within that guideline. If the provision applies, the employer must offer “minimum essential coverage” which provides “minimum value” at an “affordable price” to substantially all of its full-time employees (not full-time equivalents), or risk paying an excise tax.

For a plan to provide minimum value, it must pay 60 percent of the claims incurred by participants (including co-pays, deductibles, co-insurance, etc.). The IRS and HHS offer an online minimum value calculator to determine if a plan provides minimum value.

Failing to satisfy the “play” requirement will subject an employer to a non-deductible penalty (the “pay”), which could have a significant economic impact.