Editor’s Note: This blog originally published at HealthPartnersAmerica.com on July 3, 2013.
Birmingham, Alabama July 3, 2013 — The big news of the day — and maybe the year — is that the White House and the Department of Treasury have decided to postpone the employer mandate, the rule that says large employers with 50 or more full-time equivalent workers must offer qualified, affordable coverage or pay a penalty.
While some are focusing on the political motivation of this move and what it will mean for the mid-term elections, at Health Partners America we believe the decision will cause more employers to drop their group health insurance and send their employees to the individual market to purchase coverage.
Prior to this announcement, small employers (those not subject to the mandate) were already trying to decide whether to offer coverage next year or abandon it so that their employees could access the generous government subsidies through public and private exchanges. With no employer mandate to force them to offer insurance, small employers are making their decision in part because of cost and in part because offering group health coverage could hurt workers and their family members by blocking them from the government tax credits.
Large employers will also hurt many of their employees by offering coverage, but they’ve been “stuck between a rock and a hard place” since they faced severe penalties of $2,000 per full-time worker if they failed to provide coverage. With that threat removed, large employers can now make their decision the same way small employers will — based on what’s best for the employees. “Employers offer benefits for a variety of reasons,” explains Josh Hilgers, president of Health Partners America, which has developed private exchange technology to help individuals access the premium tax credits, “but the number one reason is to attract and retain quality employees. The problem is that next year, group health benefits may no longer be beneficial for a large percentage of employees — in fact, some workers may actually seek out companies that do not offer group health insurance.”
What Hilgers is referring to is the fact that offering coverage that is affordable for the employee blocks all “related individuals” — generally, the spouse and tax dependent children — from accessing a government subsidy. And the bar hasn’t been set very high: if the employee would not have to pay more than 9.5% of his household income for his portion of the single (employee-only) premium on the employer’s plan, his entire family is firewalled off from getting the subsidy.
It really doesn’t make any sense. The IRS has concluded that congressional intent was to block these individuals from obtaining the tax credits. Instead of basing the affordability determination on the cost of the family premium, they’re basing it only on what the employee would pay, which means that coverage will be considered affordable for most employees and their family members will be locked into the employer’s plan, even if it’s significantly more expensive and the employer isn’t contributing to the dependent premiums.
Many experts believe that, as employees learn how the tax credits work, they may ask their employers to stop offering health insurance altogether so that they can afford coverage for their families. And a lot of employers won’t have to be asked twice.
“When you look at the numbers, it’s clear that most employees will do better with a subsidized plan,” says Hilgers. “That’s because the amount a family would pay is limited to a percentage of its income. The less people make, or the more children they have, the more affordable the subsidized coverage becomes.” As it turns out, nearly two-thirds of U.S. households earn less than 400% of the federal poverty level, the cutoff point for the subsidies.
To highlight Hilgers’ point, here are some sample monthly premiums for plans purchased in the silver level of the individual marketplace. Coverage in the bronze level — the lowest tier where individuals can purchase qualified coverage — will be even less costly.
In contrast, the employees’ share of the premium on their employer-sponsored plan is often higher than the entire household premium for families receiving a subsidy.
Employers simply won’t be able to compete. The subsidies are too rich, so many employers will conclude that it’s best to let the government take care of the health insurance. That will free up money that employers can use to purchase other valuable group benefits like dental and life insurance or pass on to employees through a cafeteria plan so that they can choose from other qualified coverage options. They’ll do this by accessing the private exchange site set up by their benefits broker.”
And now, with no penalty standing in the way, employers of all sizes can decide for themselves what’s best for their employees.