What Is Your Contribution Philosophy?
No, this isn’t a question about the difference between Plato and Aristotle. But it is something to do some serious thinking about. It comes down to the basic reason that you are providing health plan coverage to your employees. For the last five years, employers have been dealing with multiple complicated decisions for compliance with the Affordable Care Act (also known as Health Care Reform, or Obamacare.) Not the least of these is how to make your offer of health care coverage “affordable” under the regulations.
The simplest definition of “affordable” coverage is if the employee’s required contribution for self-only coverage does not exceed 9.5% of household income for the taxable year. Employers can use several methods of projecting affordability in order to satisfy the requirement, but on an individual basis, it is impossible to know the actual household income of any specific employee, as everyone’s household is unique. (If you want all of the gory details on how to calculate affordability under the regulations, please click this link to get a detailed Keenan Briefing on the topic)
Employers need to know whether their offering is “affordable” because this is one of the key protections against incurring a penalty tax under ACA. Some employers may then need to model changes in their premium contributions to see if there is a better way to satisfy the requirement. But before you begin that process, you may want to step back and get philosophical for a moment.
There are many ways to share the cost of health care coverage, and none of them meets the needs of everyone involved. Some contribution philosophies are easy to communicate, but raise issues of equity between single employees and employees with families, or equality of cost between higher and lower paid employees. Some contribution philosophies smooth out equity issues but have to be tweaked every year in order to stay in touch with cost changes. These issues are real, and should be carefully considered by all stakeholders.
To help in this process, Keenan has prepared a discussion chart which contrasts the four most common contribution philosophies, and lays out the Pros and Cons of each method. As I said earlier, there is no method of cost sharing which satisfies everyone, but talking through these different ideas with stakeholders is a good idea while you are also going through the process of reviewing your ACA compliance and projecting future costs. As for the philosophers, Plato’s focus was on Logic and Ethics, while Aristotle’s favorite topics were Justice and Virtue. People have been debating their viewpoints for 2,500 years, while learning from their differences.