By Andy Cohen
The American healthcare system since World War II is based on employer supplied health insurance. It happened almost by accident, as tight wage controls prevented employers from offering prospective workers higher wages, so they got creative and offered benefits such as health insurance instead. It has since become the bedrock of our system, and remains that way today. According to the U.S. Census Bureau, 55.1 percent of Americans received health coverage through an employer; among those aged 18-64 who were employed, 68 percent received health insurance from an employer.
Employer provided insurance is the cornerstone of our healthcare system, but now many employers are not happy about it. The cost is too prohibitive, they say. Having to provide health insurance to their employees hurts their ability to be competitive in the global marketplace. Manufacturing jobs have been off shored, in part, because of the rising cost of health care.
And it is true that the cost of health care is rising. Healthcare spending as a percentage of GDP in America rose from nine percent in 1980 to 17.6 percent in 2012, spending $8,233 per capita on healthcare, nearly $3,000 more than the next highest developed nation, Norway, and more than double the average of OECD nations. We spend more on, and get less from our healthcare system than any other developed nation in the world.
The trouble is, no one seems to want to do anything about it. The only option is to let people fend for themselves; to simply go without coverage, which would make the problem even worse.
To compound matters, business leaders say, the Patient Protection and Affordable Care Act (Obamacare) is going to cost businesses so much money that they will be forced to either shut their doors or severely cut back on their workforce. Obamacare is going to raise healthcare costs even more, they say, making it nearly impossible for American businesses to compete.
In short, they want to ditch the employer based healthcare system, but refuse to offer anything that would replace it. And heaven forbid universal healthcare be considered. Why should we want to ensure that EVERYONE has access to healthcare?
The premise of Obamacare is to encourage employers to do what they’re expected to do and provide health insurance to their employees. After all, that’s the system we have, and short of universal coverage, that isn’t going to change. But what it also tries to do is to make it more cost effective for employers to do so.
To begin with, small businesses—those with fewer than 50 full time employees defined as working 30 hours or more per week—are not required to provide coverage. They are encouraged to do so, and are offered significant tax breaks if they do to help offset the cost. But the employer mandate does not apply to them, and their employees will be granted access to the health insurance exchanges, and depending on their income levels, offered federal subsidies to help pay for their policies.
Those employers with more than 50 full time employees and have at least one employee that receives federal assistance through the healthcare exchanges are charged a fee of $2,000 per employee, excluding the first 30. So, an employer with 51 workers who does not provide health coverage, they will be fined $2,000 for 21 of their workers, or a total of $42,000 which will be put into the health insurance exchanges to help pay for the subsidies on individual policies.
Employers with 200 or more employees will be required to automatically enroll their workers in their company offered plan. Of course, workers can always choose to opt out.
Surely, if the cost of providing insurance is so damaging to the bottom line, there are many businesses that would rather pay the fines than pay for healthcare. That is certainly their prerogative.
Small businesses with 25 or fewer employees that choose to provide coverage will receive subsidies via the ACA. By purchasing insurance through the state exchanges (Covered California, or Kynect in Kentucky, for example), the employer will be eligible for a tax credit of up to 50% of the employer contribution for the first two years, provided that they pay at least 50% of their employee health insurance costs.
According to the Kaiser Family Foundation, 98 percent of all “large” employers (those with 50 or more employees) already offer health insurance, so they are not affected by the ACA, except that their premiums might go down as the cost curve is bent downward.
Small businesses face another dilemma when it comes to the matter of health care: Typically, since they lack the bargaining power of larger firms due to the smaller numbers they bring—larger firms bring larger numbers, which means more people paying into the insurance pool, which lowers costs. It also means that the larger firms have access to more comprehensive plans with lower deductibles for their employees than smaller firms. So even if a small business offers coverage, their workers often end up paying more out of pocket than employees of larger companies.
As a part of the state healthcare exchanges set up by Obamacare, businesses with up to 100 employees will be given access to policy pools that, when combined with other small businesses, give them the same purchasing power and advantages the large companies have—more people, spreading the costs out, lowering rates and providing better coverage with lower deductibles. Starting in 2017, businesses with more than 100 employees will be granted access to the same group exchanges, potentially lowering the costs even more.
Of course, many businesses may still find it more cost effective to simply pay the fines rather than offer health insurance. It’s entirely possible that that is a sound financial option for some companies. But to say that a system that is designed to lower the cost of health insurance, while at the same time managing to significantly slow the rate of growth in the cost of healthcare itself is simply farcical on its face. The bank is not going to be broken if customers are forced to pay 14 cents more for a Papa John’s pizza (or five to nine cents, according to one calculation).
But there is an imperative to find a way to bring insurance coverage to the 40 million Americans currently without it. And the truth is, according to the Urban Institute’s Health Policy Center, the cost of providing insurance to employees will actually shrink by 7.3 percent and reduce health spending overall for those workers by 1.4 percent.
Moving away from the employer based system is certainly something worthy of consideration, but not until universal coverage becomes a viable option in this country. Until then, the ACA is not a bad substitute. And since it’s a work in progress, it will only get better with time.