Pros and Cons of Paying the Fine
The employer mandate is designed to make the employers provide affordable health insurance to their full-time or full-time equivalent workers. If the employer fails to achieve this mandate then he will be penalized. The penalty, usually referred to as a free-rider penalty, is triggered when an employee opts to obtain the government’s subsidized health care coverage rather than the coverage offered by his employee. The company has decided not to comply with the law and instead pay the fine of $750 for each employee that opts out of its Tier 1 coverage plan. This decision is beneficial in a number of ways.
For starters, the total cost of paying the fine is significantly smaller than upgrading each full-time employee to a Tier 3 health coverage plan. Instead of tying all those funds to covering the full time employees, the company can use the additional money for other profitable purposes. In addition, the company can also retrench some of its workforce under the guise of cutting costs on medical coverage. Human resource is the biggest expense that a company has and retrenching some of the ‘non-essential’ workers can help free up money to be invested elsewhere. Another advantage of paying the fine instead of complying with the law is the fact that the liability of the business when it comes to employee health is curtailed. Unnecessary trips to the doctor will reduce because the employees are now going into their pockets to pay for the doctor’s visits although these expenses have been discounted by the government.
There are also significant drawbacks of not complying with the law. Qualified and talented employees will not be drawn to a company that does not offer sufficient health coverage to its employees. Benefits such as dental and premium health care coverage attract the most qualified people. These are the people with the biggest talents that could give the company a competitive edge in the market. Denying such people the required health coverage will make them seek better pastures whereby they are covered the way they deem fit. The penalties also increase the company’s current liabilities, which will definitely have a negative impact on the company’s bottom line. The profit margin will be substantially lower while the company’s debt seems to be growing. On that same note, the penalties will increase with increase in benefits’ status. When employees are promoted, their benefits and allowances also increase. If the company continues to refuse to pay for increased coverage of its full time employees, then the benefits’ increase will lead to an increase in penalties. The firm might soon find itself flooding in penalty arrears to the government as a result.