Select Page

Pay or Play Part 3:

Tom’s Approach to the Employer Mandate


Tom's King of Wings

Tom’s King of Wings explores the options to offer coverage


Example:    Tom’s King of Wings is a quick-serve restaurant that does not offer coverage.

Tom’s King of Wings has 15 store locations averaging 11 true Full-Time Employees per store.    11 x 15 = 165 Full Time Employees

165 Full Time Employees – Minus 30 “Freebies”  =  135 Employees x $2,260 = $305,100  Penalty “A” fine could be assessed.

We’ve established Tom’s cost of not offering coverage is estimated around $300K+

Check back to Day 10 for a recap

Offering Full Coverage a.k.a. “Minimum Value” can be Complicated


When you have 50+ employees, you have to worry about employee participation.  Low enrollment (participation) can create a surcharge from your future Health Insurance.

In Texas, our alpha-dog insurance company surcharges at the following levels:

Final Participation Level is 71% to 74.9%: Surcharge applied to final rates will be 5%
Final Participation Level is 61% to 70.9%: Surcharge applied to final rates will be 10%
Final Participation Level is 51% to 60.9%: Surcharge applied to final rates will be 25%
Final Participation Level is 41% to 50.9%: Surcharge applied to final rates will be 35%
Final Participation Level is 25% to 40.9%: Surcharge applied to final rates will be 50%
Final Participation Level is <25%: Surcharge applied to final rates will be 150%

Pricing is also dependent on good health history or bad health history for these employees considered “Large,” as well as any employer looking to start a “Level-Funded” or “Self-Funded” health plan.

This can be achieved by using your current data on health claims, member-level Rx data, or old-fashioned employee health questionnaires.  This can be very hard for companies just starting to offer coverage for the first time.

It becomes really easy to see why an employer would choose to not offer coverage.


Tom’s gave up looking at $1000 per month for Employee Coverage


When offering a health plan to his employee’s last year, only 30 Employees wanted the coverage.

Tom was going to get hit with the standard $400 rate plus the 150% poor-participation surcharge.

Wait?  $400 + $600 surcharge was $1000 per employee–and Tom could only charge $92 per month with low-wage, tipped employees?

Isn’t the fine of not offering coverage in 2017 only $188 per month?  Why spend $908 per month?

Tom’s King of Wings just looked at these numbers and gave-up.  They said it was “too-expensive” to offer coverage.


Enter the “MEC” plan as your Hero

A What Plan?

A Minimum Essential Coverage plan.  Some call it a “MEC Plan”; Some call it a “Skinny Plan”

It’s important to know that a “Minimum Value” plan is [by definition] a “MEC” plan, but a “MEC” plan is not necessarily a “Minimum Value” plan.

A MEC plan IS NOT a full-blown health plan.

A MEC plan DOES meet the criteria for the Employer Mandate for the Part “A” or 4980H(a) penalty for an “Offer of Coverage”


How much does a “MEC” plan cost, and how does it satisfy the “B” penalty?


“MEC” plans have a wide range of costs.  Some plans run $40, some plans run $80, and some plans run $400.

We typically see very strong, high-value plans with a history of stable experience right at $120 per employee per month.

By offering a MEC plan, you as the Employer are penalized only for each specific employee who receives subsidized coverage through the Federal Exchange ( or a State-Based Exchange (think Covered California).

How Tom’s saved $132K with a MEC


Tom’s knew they couldn’t afford the the Part “A” penalty under the employer mandate for a 2nd year.  After reviewing the MEC plans, they took to the following strategy:

  • Tom’s King of Wings began offering a MEC plan for 2017.
  • To make it a successful offering, they chose a plan with some really valuable features beyond just preventative care.
  • Tom’s also paid the full $120 for Employee Coverage, as they wanted to ensure enrollment in their plan, as well as create good feedback and satisfaction from their employees.
  • To ease administration and ensure his the 95% offer metric, Tom’s auto-enrolled everyone and allowed employees to Opt-Out.

Here’s what happened

  • 130 Employees were enrolled and Tom’s King of Wings paid the full cost @ $120 per employee per month
  • 20 Employees opted out for Spouse Coverage @ $0 Cost to Tom’s
  • 15 Employees waived coverage to keep Obamacare @ $282.50 per month cost in Penalty “B” to Tom’s

Tom’s will Spend $238,000—but the MEC health plan is tax deductible–and Tom’s King of Wings has a very typical 35% corporate tax rate.

That means, Tom’s King of Wings really only spends $172,530 by offering a MEC plan.

This is $132,570 better than paying the Penalty for not offering coverage.



Tom’s King of Wings experienced something unexpected

The employees were very interested in this new “Free” Health plan.

They quickly found out about the convenience of the added Tele-Medicine feature, got their free check-up, and saved on their prescriptions.

A few employees even found out that their doctor’s visits for illnesses were less expensive for routine illnesses than their old $6,000 deductible plan had been.

Employees gained confidence in their Employer!

Employees who have confidence in their employer provide better customer service.

As customers, we all love eating at Tom’s King of Wings.  Especially with the great service — and those fries are still amazing.

Pay or Play Calculator

Download our Calculator

[formidable id=14]
Bret Brummitt

Bret Brummitt

Senior Consultant

About the author: An avid learner and resourceful leader with a passion for problem solving, Bret is a calming force in the chaos and fast paced evolution of health insurance, employee benefits, and the growing burden of regulatory compliance. He helps people develop the confidence to see beyond the problem at hand and start to re-imagine their goals. Whether he’s helping a client or a colleague, Bret believes a successful interaction is one that allows us all to dream a little bigger when we’re done.

About AG Insurance: AG Insurance ( helps employers and their employees with solutions focused on positive organizational impact and improved employee experiences.