Preparing for Health Care Reform: Why 'Play or Pay' Isn't that Simple

You may have heard the ‘play or pay’ term used in regards to whether or not an employer with 50 or more full-time or full-time equivalent employees will offer medical coverage or pay a penalty. Many of the organizations we talk to are frustrated about the complexities involved in making this decision, and are unsure of where to start.

Photo credit: Forbes

Here are 3 things to consider before deciding to pay rather than play:

Why do I offer benefits today? Employee benefits are generally considered to be part of an employee’s compensation package. A decision to not offer benefits may result in some unintended consequences. How may your decision change the way an employee views their compensation package?
There are lost tax advantages when you decide not to offer medical coverage. Employer contributions for health care coverage are not considered taxable income to the employee, and are deductible by the employer. Employee premiums that are paid through Section 125 plans reduce the employee’s taxable income, which reduces both the employer’s and the employee’s FICA tax.
New challenges with recruitment and retention. This relates back to # 1. Employers who opt to not offer medical coverage face new challenges when it comes to recruiting and retaining top talent. They may find it difficult to attract the right talent, or those employees may become more expensive due to a perceived “loss of compensation” with the elimination of benefits. Employees forced to use exchanges may also feel undervalued or abandoned by their employer, negatively impacting workforce morale and employee loyalty. This means that your decision to not offer medical coverage will require a strategic communication plan to help employees through the transition.

There are many other reasons why the play or pay decision is not a simple one. When it comes to play or pay there is no right or wrong decision, as each organization is unique. As always, as an AFG client, we are here to help you make these difficult and complex decisions for your organization.

For more questions and assistance in navigating Health Care Reform: