Why Obamacare May Hurt Less Than You Fear
For employers with low-wage workers, a way around higher costs
By now, you surely know about the Affordable Care Act's employer mandate, which requires companies with 50 or more full-time employees to provide affordable health benefits or else face penalties. But what if you provide insurance, and your employees don't want it?
For some employers, that could be a kind of best-case scenario. By offering health benefits that meet the ACA's affordability requirement-;with no employee having to pay more than 9.5 percent of their W-2 income toward premiums-;they can avoid penalties. And if employees voluntary decline the coverage, they can also avoid paying premiums.
Why wouldn’t employees want to take benefits? In a word, arithmetic.
For someone making $25,000 a year, premium contributions for individual coverage could hit nearly $200 a month and still be considered "affordable" under the law. The "individual mandate" penalty for not having insurance in 2014, by contrast, is just $95, or 1 percent of household income over the tax filing limit. It's easy to see the financial incentive for someone who's feeling healthy, and lucky, to pay the penalty and pocket the difference.
Fast-food chains Popeyes and Wend'’s are two big employers that are counting on lower-wage workers to do just that.
In March, Popeyes's U.S. president, Ralph Bower, told the Huffington Post that many workers would rather pay the $95 fine (the penalty maxes out at $695 per uninsured person, or 2.5 percent of household income over the filing threshold, in 2016) than opt in to the company's coverage. Only about 5 percent of Popeyes employees, after all, had signed up for a high-deductible health plan offered by the company that cost just $130 per year. Meanwhile, in March, Wendy's cut its initial estimate of Obamacare-related health-care increases by 80 percent, primarily based on the expectation that many employees will decline insurance.
It's certainly not the scenario that policymakers intended, but it's a reality that could bring at least some relief to plenty of businesses beyond the fast-food industry. According to a recent survey of about 1 million U.S. employees by the benefits consulting firm ADP, participation in employer health plans starts declining sharply at income levels below $45,000. While 81 percent of employees making more than that participate in employer health plans, participation rate drops to just 37 percent for single employees earning between $15,000 and $20,000 per year.
"I have tons of clients who are banking on employees not taking the insurance and just paying the personal penalty," says Michael Bodack, president of York International, a benefits agency in Harrison, New York. Although you can’t financially induce someone to not buy insurance, you can-;and should-;clearly communicate the full range of options to employees. In their enrollment packages, says Bodack, "some firms are going to actually put choices A, B, and C, and one choice will be 'Go without insurance.'"
Employers with more than 200 employees will need to be especially vigilant. Starting in 2014, if they offer health coverage they will be required to automatically enroll full-time employees in a plan, even if they don’t choose one for themselves. Employees can still opt out, but it will up to the employer to make sure they know that.
Whether you're counting on employees to take benefits, or praying they won't, following the rules, and communicating the facts clearly, is your best course.
ADAM BLUESTEIN | Columnist
Adam Bluestein is a frequent contributor to Inc., writing about health care, innovation, and new technology. He lives with his wife and two children in Burlington, Vermont.
The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.