In recent months, several well-known employers have garnered national attention for floating the idea of reducing hours or keeping staffing levels low to avoid government-mandated penalties on companies with more than 50 employees that fail to insure workers who put in at least 30 hours a week.
But experts say more firms are likely to drop health insurance coverage altogether — even for employees already enrolled in company plans — because it’s less expensive than buying insurance or paying the penalties called for under the Patient Protection and Affordable Care Act.
“Whether they’re over 50 or under 50 employees and exempt from the law, the financial incentive under the Affordable Care Act is for employers to have their employees take up Medicaid (if they qualify) or obtain the subsidized exchange coverage,” said Miami University economics professor John Bowblis, referring to the state-based insurance exchanges expected to go online next year.
Bowblis said the penalties for not offering insurance —from $2,000 to $3,000 per person — pale in comparison to the company share of most employer-sponsored plans, for which annual premiums, on average, range from about $5,000 for single coverage to just over $13,000 for family coverage, according to the 2011 Ohio Employer Health Benefits Survey.
Bill Lukens, chairman and CEO of Stillwater Technologies machining and fabrication company just north of Dayton, said the company pays about 60 percent of its employees’ health insurance premiums, and allowing some of its workers to obtain coverage outside of the company plan could dramatically reduce labor costs.
While the decision to drop the company plan would be left strictly to individual employees, the benefits for the company are obvious, he said.
“From what we understand, it does sound like during the first year (of the Patient Protection and Affordable Care Act) it might make sense for some folks to go out on their own,” Lukens said, noting that government subsidies offered for health exchange plans could lower the cost of insurance for some of his workers. “Looking at it as a business decision…we can go ahead and let that happen and pay the penalty and be better off.”
Mike Suttman, president of the Dayton-based employee benefits brokerage, McGohan Brabender, doubts there will be a mass exodus from the company-sponsored insurance plans offered by about 60 percent of Ohio employers, mainly because most companies offer health insurance as a way to attract and retain the best talent.
“The thing you have to keep in mind is that employers provide coverage right now for people at great expense when there is no penalty for them not doing it,” Suttman said.
But companies operating with thin profit margins and looking for ways to shave labor costs might view offering health insurance as a luxury they no longer afford, especially when their employees will have new options under the health care reform law.
“Every employer is going to figure out what’s best for their businesses to be successful,” Suttman said. “I don’t think employers, en masse, are going to stop offering coverage. But there will be pockets of it, where some companies will say this is what I’ve got to do.”
Retailers and restaurant operators — some of the local area’s largest employers — are likely to be among the first to move away from company-sponsored health insurance because they typically employ a large number of low-wage workers who would easily qualify for health coverage under a proposed new Medicaid expansion in Ohio or for subsidized coverage through the health exchanges, according to Bowblis.
But many of those workers will be in for a rude awakening if they’re dropped from company plans.
“For a set of people, Medicaid and the exchanges may provide better benefits at lower costs to the person,” Bowblis said. “But for most people, the private insurance that they’re offered is generally much more generous.”
In addition to higher-quality benefits, most people shifting from private to subsidized insurance will also sacrifice access to care, Bowblis said, noting that most primary care physicians will be reluctant to accept patients with subsidized plans because they generally reimburse doctors at lower rates than private insurance.
“If you’re on a private insurance plan, you have a greater ability to access more doctors than if you’re on Medicaid,” he said. “And when it comes to the exchanges, we don’t really know what the exchanges would look like right now. If they look at lot like Medicaid, they might suffer from the same issues Medicaid suffers from when it comes to access to care.”
Most companies are likely to adopt a “wait-and-see” attitude when it comes to making changes to their company health plans, Bowblis said, but if and when changes do occur, they’re likely to spread quickly.
“Nobody wants to be the first to drop health insurance….because there’s a lot of negative PR,” he said, pointing to Red Lobster owner Darden Restaurants Inc., which cut short its experiment with cutting back on full-time staffing last year after a flood of negative publicity. “But once one company starts doing it, it makes it a lot easier for the second, third and fourth company to follow.”
Employer rules, benefits and penalties under the Patient Protection and Affordable Care Act beginning in 2014:
The law does not require employers to offer insurance coverage to their employees, and penalties do not apply to employers with fewer than 50 full-time workers (defined as employees who work 30 hours or more a week).
- Employers with 25 or fewer employees and an average wage under $50,000 that offer group coverage may be eligible for a health insurance tax credit.
- The penalty for not offering insurance is $2,000 annually times the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums.
- The penalty is $3,000 annually for each full-time employee receiving a tax credit, up to a maximum of $2,000 times the number of full-time employees minus 30. The penalty is increased each year by the growth in insurance premiums.
Source: The Henry J. Kaiser Family Foundation