How Businesses Are Handling the Obamacare Employer Mandate
Beginning on January 1, 2015, employers with 100 or more full-time workers will need to provide affordable health insurance to 70 percent of their employees or owe a $2,000 per worker penalty, under the long-delayed employer mandate provision of the Affordable Care Act (ACA). By imposing a penalty on medium-sized businesses – the smallest businesses are exempt from the health insurance requirement – that do not offer employee health insurance, policymakers hope to encourage more business owners to provide this benefit to workers.
However, the law has created an incentive for those business owners subject to the mandate to navigate a different path than that which policymakers had intended. Here are a few of the unanticipated ways that business owners are responding to ACA’s employer mandate:
Employers are helping their low-wage workers sign up for Medicaid. Employers are not penalized for failing to provide health care coverage to their employees if those workers obtain coverage through the Medicaid system. Therefore, to avoid offering employee health insurance and the penalties for non-provision of insurance, some employers are paying contractors to assist their low-wage workers with Medicaid signups, the Wall Street Journal reports.
Businesses are cutting employment. Another strategy companies are using to avoid both the provision of employee health care coverage and the penalty for failing to provide it is by keeping their workforce below the level that triggers the employer mandate. Because the law only requires employers to offer health insurance to those workers employed 30 or more hours per week, some employers are substituting part-time workers for full-time ones. Others are shifting from employees to contract labor because businesses are not responsible for providing health insurance to contractors, only to employees. Still other companies are substituting capital for labor because workers need health insurance, but machines do not.
Businesses are choosing plans with high deductibles and copays. Under the new law, employers need to provide “affordable” coverage, which is defined by the government to be insurance for which the employee’s premium payment for employee-only coverage is “no more than 9.5 percent of the employee’s household income.” Some companies are adding plans with high deductibles and copays, which allows them to require employees to pay a sizeable portion of the cost of insurance and still keep coverage within the affordability limits proscribed by the government.
Employers are adopting bare-bones health plans. Some companies are offering “skinny” health insurance plans that provide preventive-care benefits, but not hospitalization or other major medical coverage. Because these bare-bones plans do not limit insurance payouts to workers, they meet the letter of the law’s requirements that employers provide “affordable” health care coverage to their workers at a far lower cost than more comprehensive plans.
Companies are getting rid of dependent care coverage. Business are offering plans that do not cover spouses and dependents because the ACA does not require dependent coverage for people who are eligible for coverage elsewhere.
In the textbook world of binary choices, companies would face the alternative of either providing comprehensive health insurance to their employees or paying a penalty. But in the real world, employers, health insurers, and brokers and have an incentive to come up with creative solutions that allow business owners to adhere to the requirements of the law, while minimizing their cost in doing so.