Posted February 20, 2013 by Ken Braun in Daily Blog

How ObamaCare Leaves Your Boss No Choice But to Slash Your Health Care

February 20, 2013

by STEVE MILLER

Employers will soon face a moral dilemma with their employees. The headlines will read “Evil companies make insurance for children & families unaffordable.” The blame will be aimed largely at employers simply complying with the new Affordable Care Act, or Obamacare as it is commonly referred to.

Employees thinking that the passage of ACA meant free healthcare for them and their families are also in for a rude awakening. At the end of January, the White House issued a statement confirming that employers presently offering coverage will find it extremely difficult to continue doing so at the present benefit level.

It seems like just yesterday that President Obama was saying, “If you like your doctor or your healthcare plan, you can keep it.” The ACA was touted as a bill to help control soaring healthcare costs and bring affordable care to all Americans. Unfortunately, what this bill will actually do couldn’t be farther from the pretense from which it was sold to the American People.

If you assume that this is all a coincidence, think again. Since the election, there has been a compliance ‘bomb’ dropped on the private sector from Health and Human Services (HHS) Secretary, Kathleen Sebelius, and the Center for Medicare & Medicaid Services (CMS). On a weekly basis, hundreds of pages of “Guidance” are now being released on the new healthcare legislation. This guidance serves as clarification on how the new law applies to insurance companies, healthcare providers, and private sector employers.

As the health insurance industry continues to digest this information, the picture being painted of our future healthcare system in the United States as a result of this legislation becomes clearer. From initial analysis, the legislation contained many glitches. It has been largely assumed these glitches would be corrected by Congress as they went into effect. We had no idea that these ‘glitches’ were by purposeful design until very recently.

On February 1st, 2013, the IRS released final regulations that did not make sense if the purpose of ObamaCare was to expand coverage. The issue revolves around how spouses and dependents will be covered once the major components of the ACA take effect in January of 2014. The regulation implies that millions of children and spouses will be unable to afford healthcare coverage in 2014, many of whom likely have coverage today.

This is a surprising development since the ACA was touted by the Obama administration to lower the numbers of uninsured in our country. This leads one to believe this is the first clue given by the Obama administration at the real agenda behind the ACA. Let me explain how this clue changes everything.

The ACA mandates a ‘pay or play’ scenario for all large employers. A large employer is considered any employer having at least 50 Full Time Equivalent employees. Employers considered large must either offer an affordable minimum value plan OR pay a penalty.

Large employers have a great incentive to offer an affordable minimum value healthcare plan in order to avoid paying a $2,000 per employee penalty, which is not tax deductible. The problem with the ACA is that it allows the employer to charge the employee up to 9.5% of their annual W-2 wages for single coverage based on their lowest paid employee. Take an employee working 30 hours per week making $10 an hour; that translates to an annual employee contribution of about $1,482. Higher wage companies can charge more for their single coverage, respectively.

The legislation then allows employers to charge employees 100% of premiums for dependents and spouses. This will be a drastic increase in premium cost sharing from what most employees are currently accustomed. To make matters worse, in 2014 added taxes and fees to the plans themselves will add another $120-$250 per member covered

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per year to the cost, all having nothing to do with healthcare!

Employees will also be surprised to learn what ‘minimum value’ coverage will look like. Minimum value coverage will hold a 60% actuarial value, or in other words, cover 60% of medical expenses to a max out of pocket of roughly $6,350 for a single person and carry roughly a $3,000 deductible. Once again, this is a drastic decrease in benefits from what most employees are currently accustomed.

For companies hovering around 50 employees, they are likely to cut staff so they are not considered large and can avoid the costs or penalties associated with healthcare for their employees. This will create an economy where it will become very costly for a company to grow past 50 employees, as many employers will make the decision not to expand or make cuts to avoid costs and administrative burdens associated with the ACA. Bottom line, this will cost employees jobs and opportunity for business owners to grow their companies.

Large employers faced with a choice to offer benefits or pay a penalty do not have time on their side to make the decision. As companies do the math and evaluate their own scenarios, will some eliminate health insurance and pay the penalty? Absolutely.

The companies that do continue to offer health insurance will only do so as long as it is less expensive than paying the penalty. With most companies facing decreasing margins on their profits, increasing tax rates, and forever increasing competition, this decision becomes less about doing the right thing for their employees and more about staying in business.

Employers deciding to offer minimum value affordable single coverage to their employees will have a very negative impact on any employee earning less than 400% ($44,680) of the federal poverty level. Under the ACA, employees earning less than 400% FPL would be eligible for a subsidy in the public insurance exchanges coming in 2014.

Legislation does not allow for a subsidy to be given to any employee, or their family members, if either spouse has access to an “Affordable Plan.” Considering the cost of family coverage can easily exceed $15,000 annually, most employees will find it completely unaffordable to pay the premiums to add their spouse or dependents to their employer plans.

Based on final regulation released from the IRS it would appear this is by design, not a glitch in the legislation. Wait, huh? So much for greater access to more affordable health insurance.

Some might say that employers should just pay the penalty so employees can get a subsidy. Then coverage for a family will be affordable, right? Not a chance. Based on estimated exchange premiums for 2014, a 35 year old with a $60,000 household income will still be paying around $12,000 annually (non-tax deductible) for health insurance.

Still not convinced that healthcare reform will kill our jobs and hurt our economy? Look no further than our underemployment problem. If you are one of the roughly 30 million people in the US working in the retail or hospitality industries, or about 1/5 of our entire workforce, the situation gets much, much worse. According to an ADP report just released, about 8% of part-time workers are enrolled in their company health insurance plans. This is not surprising as the cost of the health insurance offered is usually unaffordable for this group.

Healthcare reform will now change the definition of a part time employee to any employee working under 29 hours per week. Since under the legislation employers must offer affordable coverage or pay a penalty to any employee working over 30 hours, many large employers are making the decision to cap part-time hours to, say, 25 hours.

For part time employees previously able to work as many hours as they needed to pay their bills, this is devastating. Expect there will also be many current full time positions that are cut to 25 hour limits to avoid the healthcare costs associated with those jobs.

According to US employment data there were 169,000 employees who dropped out of the work force in January 2013 alone. That is a greater number than actual jobs created for that same period. A GALLUP payroll to population report released in January 2013 seems to support the fact this is an ongoing problem showing a decrease in available jobs compared to our population over the past 12 months from 44.4% to 43.7%.

They also show that during this same period, our nations’ underemployment rate increased from 17.1% to 18.7%. Already bad, underemployment is anticipated to explode once many of the major provisions of the ACA go into effect in 2014 as companies strive to avoid costs associated with the legislation.

The ACA has seemingly created a scenario that doesn’t play out well for anybody but current low wage earners or unemployed. The picture being painted is clear: Businesses and middle income America are under attack.

Companies will cut jobs or slash hours creating a new class of unemployed or underemployed workers. Population growth will continue to outpace job growth into the foreseeable future, much of it fueled by President Obama’s landmark healthcare reform legislation. It is becoming clear that many Americans will be forced into poverty and accessing their healthcare through Medicaid, and we will all move closer to a single payer government healthcare system.

Steve Miller, LIC, is a senior benefits consultant at one of Michigan’s largest insurance agencies.

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