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.
John Lawrence says
After the ACA has been in effect for a year, it will be possible to assess its strengths and weaknesses. Right now it seems so complicated and multifaceted that it boggles the mind as to how it will work – particularly whether it will bring health care costs down or whether they will continue to spiral upwards. Some employers will limit their employees to 29 hours a week so they will not have to provide health care. Will these employees be better or worse off when they provide themselves with health insurance via the exchanges?
What will be the effect of certain states which seem determined not to offer Obamacare under any circumstances? Will this continue and accelerate the separation of the US into blue states and red states, each block antipathetical with the other?
Andy Cohen says
John- We already know part of the answer: The exchanges in New York, California, and Maryland have already lowered premiums, and that’s even before the subsidies are factored in. And EVERY state will have a healthcare exchange. Some, like California, will operate their own. Others, like Texas and Louisiana, will simply try to ignore the law while the federal government runs their exchanges for them.
We’re seeing an awful lot of “The SKY IS FALLING” proclamations with regards to the ACA, but very little evidence that it will collapse the system.
In the end, Americans are going to have to make a choice: Stick with the employer based system while also providing a way for those not receiving health care from their employers to get good, quality coverage at a price that won’t bankrupt them, or once and for all switch to a universal care system.
Matt Finnegan says
I’ve been reading several pieces about how the ACA is going to be implemented but there seems to be an assumption in much of this writing that employers will not game the system if they can. I have some personal experience with big box retailers and I know there are discussions going on where questions like, how many associates are currently working more than 30 hours a week and how difficult would it be to change the model schedule to reduce that percentage, are taking place.
This is not required by the law and so I understand why the message is the law doesn’t cause these changes but if a law imposes a penalty based on employees working more than 30 hours a week I think it has to be anticipated that many employers will reduce the number of employees working 30 hours a week if they can. Putting off the large employer mandate a year will help implementation but I think the conversation has to discuss what should a corporate citizen be required to do. In the United States I agree with the argument that given the system we have employers can be required to provide and support health insurance as a cost of doing business. But I feel that’s not the discussion that’s taking place. Arguing that the workplace won’t be significantly affected if your company currently offers insurance is misleading and will fuel complaints and mistrust in the future.
I also think many articles do not mention that employee contribution guidelines of 9.5% of income. I’ve seen the big box retailer benchmarks and the following numbers are relevant and reasonable for discussion purposes. If a store has say 1 general manager 2 assistant managers and 35 store associates the average wage excluding the managers is between $8 and $10 an hour. Often many of these employees are already part time but for those that currently avg more than 30 hours a week their contribution for a health insurance policy is only going to be 9.5% of $8 to $10 an hour. Assume 35 hours a week at $9/hr for 52 wks x 9.5% =$1566. If as I’ve read the avg bronze plan cost is $4500/yr then the employer is on the hook for $3000. If a high % of their employees making $8 to $10 are not participating now there is an incentive to avoid the new $3000 expense and cut as many associates hours below 30 hours as they can get away with. I still think this is going to be better overall than not having the ACA but it is going to affect more people than the Administration is letting on.
John Lawrence says
Without a doubt employers will seek to game the system. The question is will they get away with it and what does this portend for employees?
Andy, this is a very interesting article. It is certainly a start. Otherwise, retirement is looks pretty iffy or some of us.
Now, if he could just not attack any more countries, we might be getting somewhere civilized.
I meant ‘for’ some of us.