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Retail and Consumer Products: The Affordable Care Act: It Doesn’t Have to Be Painful


The cornerstone of the Patient Protection and Affordable Care Act (ACA)—mandatory healthcare coverage for most legal citizens—begins January 1, 2014. As part of this goal, the Act imposes penalties on most employers with more than 50 full-time employees who do not provide affordable coverage and penalizes most individuals who do not purchase health insurance. In response, some retailers with more than 50 full-time employees have been reducing full-time workforces and adding more part-time workers to mitigate potential penalties.

This may not be the best approach.

The ACA offers three main paths for obtaining affordable health insurance: expanding Medicaid eligibility at the state level, creating state-based health insurance exchanges that offer individual coverage and provide tax credits and subsidies at certain income levels, and employer-sponsored coverage. To comply with ACA, retailers do not have to offer health insurance to full-time employees. They have other choices.

  • If you do not offer health insurance. Retailers that do not offer coverage to 95 percent of their full-time employees and their children, and that have at least one full-time employee who receives a tax credit or subsidy on the exchange, face penalties of up to $2,000 per year per full-time employee, minus the first 30 full-time employees.
  • If you offer health insurance. To avoid potential penalties, the coverage must have a “minimum value” and be “affordable” based on a percentage of the employee’s salary. If you offer such a plan and an employee still chooses to purchase insurance on the health insurance exchange, the employee generally is not eligible for any tax credit or subsidy. If, however, the plan does not meet the definition of “minimum value” or “affordable,” and an employee seeks coverage on the exchange and is eligible for a tax credit or subsidy, then the employer faces a $3,000 annual penalty for each such employee.

The cost estimates many retailers initially received from health insurance advisors to comply with the ACA have, in some cases, been astronomical. In fact, the costs are far beyond the level the retailer can support without dramatically raising prices or cutting staff. However, in most cases these estimates are based on every employee enrolling in the employer health plan, or, if the employer chooses not to offer health insurance or affordable plans, every employee turning to the health insurance exchanges and receiving subsidies or tax credits.
Both scenarios are highly unlikely for several reasons:

  • Many employees may currently be eligible for Medicaid (or may be eligible in 2014 if the state expands eligibility) as well as Medicare, Tricare, and other government-sponsored programs. They may also be covered by a partner’s policy and, therefore, would not need additional employer-sponsored health insurance.
  • Employees who do not file tax returns do not qualify for federal assistance.
  • Employees who would have to pay more than 8 percent of their household income for health insurance are not penalized for failing to purchase health insurance.

These caveats, then, can reduce your potential liability even if you do not provide health insurance coverage.

Accordingly, it is important that, before retailers reduce their full-time workforces in response to controlling ACA costs, they should first identify a realistic number for enrollment and/or penalty risk and consider all the stipulations listed above. This will provide a more realistic assessment of the potential cost.

CohnReznick recommends that our retail and consumer products clients educate their employees about the cost of healthcare coverage under ACA and advise them of their options. Retailers should then survey employees as to whether they intend to enroll in the employer-sponsored benefits plan or seek coverage from the exchange.

Retailers may want to consider highlighting these three primary options for their employees:

  • Employer-provided coverage. The ACA defines a plan as “affordable” if the employee portion of the premium for single coverage does not exceed 9.5 percent of the employee’s wages. However, there is no such limit on family policies. Therefore, an employee may opt out of coverage if they don’t want to reduce their pay by 9.5 percent of their income.
  • Health Insurance Exchange. Employees may opt out of the employer plan and purchase insurance under the state health insurance exchange instead. Credits or subsidies may be available to help reduce premiums and out-of-pocket costs for those with incomes falling between 100 percent and 400 percent of the federal poverty level. However, as noted earlier, if the employer offers affordable insurance and the employee still chooses an exchange-based option, they may not be eligible for any subsidies or credits. Therefore, the employer would not incur any penalties.
  • Forego coverage. Employees can choose not to purchase coverage. However, if they make this choice, they may then have to pay a penalty of $95 (up to $285 for a family or 1 percent of family income over their tax filing threshold, whichever is greater) that begins in 2014 and increases thereafter. We recommend that you advise your employees to look beyond the first year penalty to the potential cost of the penalty, plus medical costs, not covered by insurance before they choose this option.

At the same time you clarify the number of employees who are likely to purchase health insurance, you should also compare your own potential liabilities to the tax advantages you now receive for this benefit. This includes the less-tangible, but just as important, advantage it provides in attracting highly qualified employees.
There is no doubt that the ACA is complicated. That’s why it is important for you, as a retailer, to discuss the potential implications for your business with a trusted advisor. Once you understand your workforce and the opportunities to mitigate any potential costs, you will have a better sense of the actions you need to implement to best comply with the ACA while maintaining profitability.

What Does CohnReznick Think?

Is the Affordable Care Act the most easily digestible healthcare regulation? Absolutely not. However, retailers can take certain actions to make it easier to comply with the Act and for their employees to make the right choices for their coverage. They need to educate employees about what the ACA means to them, survey employees to gain a level of expected participation, and subsequently analyze the numbers. Incorporating these simple action items will enable retailers to make proactive decisions on how to better control their health care insurance costs. In the final analysis, it may be that, once employees realize that employer-sponsored healthcare is not free, they may prefer to pay the minimum $95 penalty and opt out of coverage.


For more information, please contact Richard Schurig, CohnReznick Partner and Retail and Consumer Products Industry Practice Leader, at 973-364-6670.

To learn more about CohnReznick’s Retail and Consumer Products Industry, visit our webpage.

Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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