Why Some Workers Will Be Glad You Dropped Health Coverage
The federal government's decision to hold off on enforcing the Obamacare large-employer mandate until 2015 has been almost universally hailed as good for business. Employers with 50-plus full-time-equivalent workers now have another year in which they don't have to incur additional costs, in the form premiums or penalties, plus more time to make sure they're ready for the not-insignificant administrative burdens of complying with the Affordable Care Act. They also have time to figure what's emerging as a significant concern for employers with a lower-wage workforce: Could your employees be better off if you didn't offer health coverage?
On the surface, the question seems ridiculous. Of course an employee is better off getting affordable health coverage from their employer than buying it for himself, right?
If an employer pays 100 percent of premiums for the worker and his or her family, it's a no-brainer. But that isn't usually the case. Most employers require workers to contribute something toward premium costs. In 2013, covered workers contribute on average 18 percent of the premium for single coverage and 29 percent for family coverage, according to Kaiser Family Foundation's 2013 Employer Benefits Survey. In dollar terms, that is an average $999 for single coverage, and more than four times that, $4,565, for family coverage.
The Affordable Care Act caps what an individual worker can be made to contribute to an employer-sponsored health plan--the employee's share cannot legally be more than 9.5 percent of their individual W-2 income. There is, however, no affordability cap on coverage for additional family members.
Say one of your workers makes $35,000 year, has a non-working spouse and two kids. Average-priced employer coverage for her whole family would eat up about 12 percent of household income. If this same family went to the public health-insurance exchange, though, they would qualify for subsidies based on household--not individual--income. (Individuals and households with income up to 400 percent of federal poverty would typically qualify for some kind of subsidy.) As a result, they could buy a Silver-level family plan for just $1,373 per year, or about 3.9 percent of household income after subsidies.
That's a huge difference for a family at this income level. The only problem: If one of the adults in the family has an offer of affordable coverage through work, they can't get qualify for family subsidies on the exchange.
Unless you plan to subsidize family coverage at government-level generosity--and have your competitors look at you strangely--it could actually help low-wage workers with families if you don't offer any health coverage. "I don't think for a second that this is what Congress intended," says Sheldon Blumling, an attorney with national labor and employment law firm attorney Fisher & Phillips. "It might actually be a disincentive for low-wage employees to work for you if you offer affordable coverage.
Of course, if you're a large employer who doesn't offer affordable coverage in 2015, you'll get slapped with a $2,000 annual penalty per full-time-equivalent employee (excluding the first 30 employees). Unlike money paid toward employee health premiums, the penalty is not tax-deductible. On the other hand, it's a lot less that you have to shell out in the first place. And unless regulators figure out a way to close this odd loophole in the coming year, being "stingy" by withholding benefits for low-wage workers might be the most generous thing you can afford to do for them.