MasterCard Biz: Are Employers Dropping Their Healthcare Coverage and Opting for Fines Instead?
(This post originally appeared on MasterCard Biz)
I write and speak a lot about healthcare reform. And many articles have been written about it, particularly with the launch of the state exchanges in October. One of the biggest problems I’ve found is the lack of education about the enormous legislation, particularly among small business owners. Because when you dig into the details, you find there are many great things about the law. There are plenty of troubling things too. There are also plenty of myths. I know many. But I’d like to dissolve the most common myth I hear.
That myth is this: Employers will be dropping their healthcare coverage in 2015.
That’s when the employer mandate takes affect. And if a company with more than 50 full time equivalent employees chooses not to provide healthcare coverage for their full time workers then they will have to pay a penalty of $2,000 per employee. So if a company has 60 employees and is currently paying about $5,000 per employee per year for healthcare (this is a national average based on research from the Kaiser Foundation) then their annual healthcare cost is $300,000 per year. However, if they drop healthcare coverage then they would only be paying a penalty of $60,000! That’s because the penalty calculation is 60 less 30 employees (the first 30 are exempt from the calculation) x $2,000 penalty = $60,000.
Wow. What a decision, right? A company’s paying $300,000 per year and now we’re saying they could drop coverage and only pay a penalty of $60,000? Wouldn’t all employers drop their coverage? Of course not, and for two big reasons.
First, think about it. As of today, there’s NO penalty if an employer doesn’t provide health insurance. And yet 93% of employers do provide health insurance. Why would an employer suddenly be motivated to drop their insurance in 2015 when there’s a penalty? It’s reverse logic. The time to have dropped insurance is now, or before. But that didn’t happen. And why didn’t that happen? That brings me to reason two.
The reason why is because employers consider healthcare coverage to be a benefit to their employees. It’s like vacation, retirement and a company car. It’s part of their compensation. Employers don’t want to leave their employees out in the cold when it comes to healthcare insurance. And they certainly want to remain competitive. Because if I drop coverage for my employees, but my closest competitor keeps coverage intact, where do you think my employees will want to work?
So no, the Affordable Care Act will not cause a widespread drop in coverage. More likely is that it will cause a widespread increase in what employees will pay for their health insurance. That’s because most employers today are providing plans that likely well in excess of the minimum “bronze” plan they have to provide by law starting in 2015. So they can continue to offer the bronze plan but ask their employees to contribute more if they want a better silver, gold or platinum plan. The employer will be compliant. But unfortunately the employee will find himself paying more for what they were getting before. That’s a more likely scenario.
Gene Marks is a columnist, author, and small business owner. He writes daily for The New York Times and weekly for Forbes, The Huffington Post, Inc Magazine, FOX Business, and Philadelphia Magazine. His columns are read by thousands of small and medium sized business owners around the country. Gene has also written five books on business management, specifically geared towards small and medium sized companies. Nationally, Gene frequently appears on, FOX News, Fox Business, Bloomberg, and CNBC discussing matters affecting the business community. Gene owns and operates the Marks Group PC, a highly successful ten-person firm that provides technology and consulting services to small and medium sized businesses. You can find Gene online at GeneMarks.com