In the insurance biz, they call it dumping. And it’s as dirty as it sounds: An employer pulls the ripcord and no longer offers health care insurance to his employees.
And under the provisions of Obamacare, there might be a big, new incentive for companies to do just that. It’s rooted in a new rule that at first blush appears intended to penalize employers not offering insurance.
Under the rule, companies with 50 or more full-time employees would owe an annual, per-employee penalty of $2,000 if they opted not to offer health insurance to their workers.
Cast in the stark light of ever-increasing health insurance costs, this so-called penalty suddenly looks like a bargain. And some think it eventually could spur some businesses to pay the penalty and then dump their employees from company insurance plans.
But not all business experts are convinced of this.
First, consider the raw numbers that make this so-called penalty seem like a cost-saver: The average employee healthcare benefit costs a company between $6,000 to $12,000 annually, depending on the plan and the employee’s family status.
At first blush, paying a $2,000 fine to save $12,000 seems like a business no-brainer. Not so fast.
The expectation of employer-provided health benefits for employees is deeply ingrained. It has become part of the overall compensation package that enables employers to attract — and keep — good workers. And not only would employees be loath to part with this benefit, so would many employers, business experts insist.
“It’s a fundamental part of employer-employee relations, and it has been for decades,” said Sam Denisco, vice president of governmental affairs for the Pennsylvania Chamber of Business & Industry.
“It does attract skilled workers, and it allows the employer to be more competitive in the market place,” Denisco added of company-provided health benefits. “But the realities are setting in.”
An incentive in the form of a fine? Paying a $2,000 fine to save as much as $12,000 on insurance seems like a business no-brainer. Not so fast.
Those realities include the rising cost of health insurance — which could actually increase significantly more for 2014 due to Obamacare — and the sudden, seemingly easy escape hatch of paying the dumping penalty as set forth in the new law.
Some businesses are said to be leaning toward paying the penalty and getting out of funding employee healthcare plans, according to this Wall Street Journal report.
But Rob Glus, a consulting actuary and chair of employer benefits adviser Conrad Siegel in Harrisburg, said most of the 100-plus-employee firms he deals with across Pennsylvania will take a much more cautious approach. There will be no sudden stampede of companies out to dump workers from employer health plans. At least, not right away.
“That’s what gets the attention — as a core decision, paying the penalty is going to be cheaper,” Glus acknowledged. But he added that a deeper look at the option reveals hidden costs for companies looking to drop health care coverage.
“As a business, you want to attract and retain employees,” he said. “To do that in the most cost-effective way possible is still the employee benefit package. With any sort of reasonable need for retention, employers will find it difficult to drop healthcare coverage.”
This is true, even in light of the new Obamacare penalty, he said.
Consider: Healthcare benefits aren’t taxed as a form of compensation. So to attract that same employee without offering a health plan, the employer wouldn’t just have to pay the worker $12,000 more (or whatever the cost of the benefit is), so he could go out and purchase the same coverage on his own.
Because wages are taxed at ordinary income rates, the employer would have to pay 20 percent more on top of the additional $12,000 to keep this employee whole, Glus noted.
The company also would owe payroll taxes on this additional compensation. And this employer no longer offering insurance also would owe the $2,000 annual fine for each and every employee it no longer insures.
“If I was not going to offer health care benefits, I better pay them enough so they can get coverage on their own,” Glus said of an employer’s calculus.
Not only that, the $2,000 annual, per-employee penalty suddenly becomes wasted money. It yields no benefit to either the employer or the employee.
“You want to make sure every dollar you are spending is providing some value,” Glus said of the bottom-line mantra of many employers. As such, they just wouldn’t view paying the penalty as a good deal, he noted.
Still, some say all it would take is one company making the move to drop health insurance to begin a trend that could reverberate throughout an entire industry or business sector. Only time will tell.
“If one domino falls in a particular industry, others could follow suit,” Glus conceded. “A lot of that is going to remain to be seen.”
So what do you say? How will Obamacare impact business and the economy? How will it affect your company? What will it mean for your job?
Through Wednesday, PennLive will be exploring the possible economic ramifications of Obamacare in full detail. We’ve reached out to area business leaders, statewide business groups, healthcare insurance companies and healthcare providers. And we’ll be sharing their views on Obamacare in a series of posts targeting specific business issues raised by the healthcare law.
But we want to hear from you, too. Especially if you own a mid-sized company or a small business. How will Obamacare impact your business decisions?