In 2014 many employees newly eligible for employer-provided health care coverage may choose to remain uninsured because they perceive their share of the cost as too high. That could expose employers to penalties under the health care reform act, according to a new study by benefits administration provider ADP, Planning for Health Care Reform: How Income Impacts Employee Health Benefits Participation.
The study, based on data for approximately 1 million workers, shows the potential impact of the Patient Protection and Affordable Care Act (PPACA) on employers, who will need to comply with new employee-coverage mandates beginning next year.
The study reveals that:
- Employees currently eligible for group coverage who have W-2 wages greater than 400 percent of the federal poverty level (FPL), or roughly $45,000 for a single individual under 2012 guidelines, consistently participate in health coverage at a rate of 81 percent.
- As income drops below 400 percent of the FPL, health plan participation rates plunge to just 37 percent for single employees earning between $15,000 and $20,000 a year.
"We could see anywhere from 5 million to 10 million employees become eligible for group health care benefits starting in 2014," said study co-author Chris Ryan, executive vice president and chief strategy and marketing officer at SHPS Inc., a consulting subsidiary of ADP.
Many of these employees are hourly nonexempt or in the contingent workforce, but they work, on average, 30 or more hours per week and, thus, will be eligible for coverage next year by employers with 50 or more full-time equivalent employees, Ryan told SHRM Online.
“While no one can predict the future, the findings suggest that lower-income employees may avoid participation in a health plan that consumes a significant percentage of their income,” concurred Tim Clifford, president of ADP Benefits Administration Services. “Clearly, employer-to-employee communications will be essential in explaining the options moving forward.”
'Rejiggering' Plan Designs
Another challenge is keeping individual employees' portion of health care costs below 9.5 percent of W-2 wages.
Across the study population, approximately 8.6 percent of single full-time employees currently pay 9.5 percent or more of their W-2 earnings to obtain health coverage. Under the PPACA, beginning in 2014 employers will be liable for an annual penalty of $3,000 (calculated monthly) for every employee for which the premium for self-only coverage exceeds 9.5 percent of his or her wages (with respect to each full-time employee who receives a federal premium credit for public exchange coverage, assuming the employer offers health insurance coverage to at least 95 percent of full-time employees).
Ryan noted that in labor-intensive industries, such as retail, hospitality and construction, there are businesses with more than 30 percent of their workforce paying more than 9.5 percent of wages for health care.
"Employers have to think through, 'Do I subsidize a low-income employee with an extra $500 in premium funding, or do I pay a $3,000 penalty for that employee?' Looked at that way, it's almost a no-brainer," he said.
Maintaining benefits while avoiding penalties also may involve "rejiggering premium tiers and, in some cases, having employees with higher incomes in effect subsidize those with lower incomes in order to make it work," said Ryan.
"If you’re an employer, you've got a very interesting balancing act," he added. "You've got people who never purchased health care insurance before who are going to be challenging to engage, because they may not want to spend 3 to 5 percent of their income on benefits. And if you convince them to enroll, it's going to cost you a little more."
The flip side, Ryan added, is "you also need to continue to take care of more highly paid employees who rely on group health benefits. And you have to figure out how to make it all work together."
Stephen Miller, CEBS, is an online editor/manager for SHRM.
The Mandate and Beyond, HR Magazine, March 2013
To Comply with PPACA, Employers Must Identify Full-Time Workers, SHRM Online Legal Issues, February 2013
Making the ‘Play or Pay’ Decision, SHRM Online Benefits, February 2013
Some Part-Timers to Fall Within Coverage Mandate, SHRM Online Benefits, February 2013
Calculate the Employer Mandate Threshold, SHRM Online Benefits, January 2013
Coverage 'Threshold' Causes Concern SHRM Online Legal Issues, January 2013
SHRM Online Benefits pageSHRM Online Health Care Reform Resource Page