On March 25, the U.S. Supreme Court will take up a case that has brought to light the potentially high costs of not complying with the Affordable Care Act, otherwise known as Obamacare. The case was originally filed by Hobby Lobby, an Oklahoma City company that contends it would be violating its owners’ religious beliefs if it obeys the law’s provisions requiring companies to cover birth control. But by not providing such coverage for the more than 13,000 employees eligible for its health plan, the company contends, it could face up to $475 million in fines per year.
That’s an eye-popping penalty—but not entirely unrealistic considering the choices Hobby Lobby must make about how it will handle health insurance under the law. Indeed, all companies with more than 50 full-time employees will face financial penalties of one sort or another if they don’t comply. Some of these fees are baked right into the law, while some were in existence before. Before you decide not to comply, it would be wise to get a handle on what it will cost you.
Let’s start with two fines that are spelled out in the Affordable Care Act. Any company with more than 50 full-timers that doesn’t offer any health plan at all will pay a $2,000 fine per employee per year, for all but 30 people. The penalty will be levied in 2015 for companies with more than 100 full-timers and 2016 for those with more than 50. Hobby Lobby estimates that if it chooses that option, it will pay $26 million a year. (The company declined to comment, instead referring to the legal briefs filed in the case.)
There will also be a $3,000 penalty for companies that do offer coverage, but whose plans are deemed “unaffordable” under the law. “They have to cover 60 percent of what’s known as the essential health benefits, of which there are ten,” explains Craig Garner, an attorney and health care consultant in Santa Monica, CA. Those services include emergency healthcare, preventive physicals, and prescription drugs. “If they don’t cover those the employees can get a credit.”
But what Hobby Lobby is most concerned about is a separate fine that went into effect as of the 2012 plan year, which stipulates that health plans must cover contraceptives. That was among a string of health regulations passed prior to the Affordable Care Act that now carry fines for non-compliance. “We’ve had these mandates for a long time, and failing to comply generally results in a fine of $100 a day for each person who is eligible for that plan,” says Andrea Powers, a lawyer with Baker Donelson in Birmingham, AL.
That $100 per day would total $475 million a year, according to Hobby Lobby’s court filings. The company says it’s opposed to covering four contraceptives, including the so-called morning-after pill, because of its founders’ Christian beliefs. Problem is, under current U.S. law, the only companies that can avoid the fee are religious organizations such as churches.
The statute that Hobby Lobby is most concerned about imposes the $100 fine for failing to provide contraceptives and other mandated products and services to each “individual to whom such failure relates.” Problem is, it’s unclear if that means the fine will be calculated based on every employee who’s eligible for health insurance or based on those who are denied the product or service in question, says Susan Sonkin, a compliance specialist for EBS Capstone, a partner firm of United Benefit Advisors in Boston. “We don’t have clarification on determining who the affected individuals will be yet,” Sonkin says. Cases such as Hobby Lobby’s could help to better define how the fees for non-compliance will work going forward, she adds.
In the meantime, though, Sonkin advises companies to be prepared for the added costs that will come with Obamacare—whether they comply or not. For example, small companies could suffer the fallout from the annual “industry fee” imposed on health insurers that starts at $8 billion this year and rises to $14.3 billion by 2018. “The insurance companies will add those fees onto the premiums” they charge to companies they serve, Sonkin predicts.Then there’s the cost of putting in systems to track and report everything related to your health plan or lack thereof.
Ultimately the decision of whether or not to offer Obamacare-compliant insurance may be less about the financial penalties than it is about figuring out the right option for employee morale and retention. For many companies, offering a good health plan may be the only way to run a competitive business. “Mathematically speaking, most companies would actually save money by paying the [$2,000] penalty” for not offering any plan at all, Garner says. “But that doesn’t mean they should all shed their insurance next year.”