Business That Drop Health Care Coverage Could Face Backlash

TOPIC ALERT:

Many U.S. businesses -- particularly those that are small or primarily depend on low-wage workers -- are considering whether to stop providing health coverage to their employees and instead pay penalties under the Affordable Care Act, a move some experts say could result in a worker backlash, Bloomberg reports.

Background

Under the ACA, businesses with at least 50 workers beginning in 2014 must pay a penalty of $2,000 per employee if they do not provide affordable coverage to their employees.

Meanwhile, the average annual premium for family coverage is expected to cost $12,000 in 2014, of which employers typically cover 80%, or about $9,600, according to estimates from Towers Watson.

Reasons To Continue Providing Insurance

Mercer partner Tracy Watts said that although it might seem like an easy decision for such employers to forgo providing coverage, companies have several compelling reasons to continue providing insurance, including:

  • Using the coverage as a recruitment tool;
  • Keeping workers healthy; and
  • The fear of backlash from higher-earning employees whose out-of-pocket insurance costs could go up.

If their work-based coverage is dropped, low-wage workers might pay lower premiums for health insurance by purchasing coverage through the ACA's insurance exchanges. However, those whose incomes are too high to qualify for federal subsidies would pay more, according to Randall Abbott, a senior consultant at Towers Watson.

In addition, while health coverage is tax deductible for employers, the $2,000 penalty is not. Further, workers who are forced to find their own health coverage might expect additional compensation, and wages also are not tax deductible, Abbott said.

According to a survey by Mercer, just 6% of businesses are planning to drop health coverage by 2014, and only 9% of retail and hospitality businesses are likely to take that step.

Meanwhile, the Congressional Budget Office in July estimated that the ACA would result in a loss of benefits for 2.5% of the U.S.'s 161 million employees, or about four million individuals (Nussbaum/Wayne, Bloomberg, 12/5).

to share your thoughts on this article.