Thanks to a “wrinkle” in the law, the story warns, Obamacare may hurt many of the people it is supposed to help, by making “health insurance unaffordable for . . . workers employed by restaurants, retail stores, hotels, and small businesses.” The law is explicit, AP explains: “companies that employ 50 or more workers must offer ‘affordable’ coverage to those working more than 30 hours per week — or face fines. ‘Affordable’ health insurance, as defined by the legislation, means that premiums can cost no more than 9.5 percent of an employee’s income. . . . . . . For low-wage workers, many of whom live paycheck to paycheck and earn barely enough to cover basic necessities 9.5% represents a lot of money.”
True, but the fact that the law says premiums can equal 9.5% of income doesn’t means that employer-sponsored insurance will cost 9.5% of a worker’s pay.
Nevertheless, Yahoo! conjures up a hypothetical employee who will be left out in the cold: “Take, for example, a restaurant worker who makes $21,000 per year. A premium that costs 9.5 percent of this income would run $1,995 for the whole year, or $166.25 per month. How could this employee possibly shell out nearly $2,000 a year for insurance?”
He will have to turn down his employer’s offer, and then the government will demand that he pay a penalty because he didn’t buy insurance!
The Washington Post quotes Shannon Demaree, an insurance broker and benefits consultant with the Lockton Benefit Group, declaring that, with for many people, “there is just not anything left over for health insurance . . . What the government is requiring employers to do isn’t really something their low-paid employees want.”
Fictions vs. Facts
— Fiction: Demaree seems to believe that today, low-income folks don’t spend anything on health care—there just isn’t enough “left over” after they pay for food and shelter to shell out $2,000 for healthcare.
— Fact: Last year, Americans who earned even less ($15,000 to $19,999) were spending $2,024 a year on health care according to the Bureau of Labor Statistics (BLS) “Consumer Expenditure Survey.”
A fair share of those in this income bracket are uninsured. Others have “junk insurance” and are spending $2,000 either because they are paying a high deductible or because they are buying things that they must have and that their insurance doesn’t cover: birth control pills, for example, dental care for their kids, or physical therapy following a serious sports injury or a car accident,
By contrast, under Obamacare, insurers will be required to cover what the ACA describes as “essential benefits” (including rehab after an accident and basic dental and eye care for children), as well as free preventive care (including contraception.)
Demaree is dead wrong when she says that insurance that might cost $1,000 to $2,000 is something that low-income employees “don’t want.”
They are already laying out $2,000, and know that they are getting poor value for their dollars.
— Fiction—the story assumes that for a worker earning $21,000, most policies will eat up 9.5% of his income, or roughly $2,000. The reporter overlooks the fact that employers typically pay at least 2/3 of the premium.
— Facts– In 2012 premiums for employer-sponsored insurance averaged roughly $5,600, both at small and at large companies, with the employee and his boss sharing the cost. At large companies, employees typically were asked to pay 25% of the premium while the employer picked up the rest. At smaller companies, workers paid 35%.
As a result, the average worker at a small firm kicked in just $1,100 a year. At a large corporation he paid $858. For the hypothetical employee earning $21,000, that’s less than 5% of his salary—not 9.6%
His contribution would rise to $2,000 only if premiums for individual coverage shot up from $5,600 to $8,000 a year. This is highly unlikely.
— Fiction: Under Obamacare insurance will be far more expensive than it is today because the ACA insists that policies sold to individuals and small businesses must offer such a rich package of “essential benefits.
Moreover, Obamacare’s critics point out, under the ACA’s rules, insurers will not be able to cap how much they pay out in a given year or over a lifetime. Finally, they must cover anyone suffering from a pre-existing condition without charging them more. Inevitably, premiums will skyrocket and employees will be asked to contribute significantly more than they do today.
— Facts: Most Americans work for large companies where their employers offer health benefits. The non-partisan Congressional Budget Office (CBO) projects that for these workers, Obamacare will have a “negligible” effect on their premiums.
This is because large corporations already cover employees suffering from pre-existing conditions without asking them to pay more, and the vast majority include the ACA’s 10 “essential benefits” in their insurance packages. (For example, even before Congress passed the ACA, the law required that companies with 15 or more workers who offered health benefits must include maternity care in their coverage.)
By contrast, today small companies often offer bare-bones policies that limits benefits, and cap how much the insurer will pay out. Beginning in 2014, those that have more than 50 full-time works will have to offer benefits that meet the requirements of Obamacare (or pay stiff penalties.)
Won’t tha automatically lead to steeper premiums for small businesses?
The fear-mongers purposefully ignore off-setting factors that will put downward pressure on premiums.
1) Beginning in 2014, companies with fewer than 100 employees will be able to purchase insurance in the SHOP exchanges—marketplaces designed specifically for small firms. There, they will become part of a large group, and this means that they will be eligible for lower large-group rates. (Because the administrative costs of hand-selling policies to small groups, and enrolling and dis-enrolling customers are higher, insurers charge them much more.)
2) A company with fewer than 50 employees is not required to offer health insurance. But if a very small businesses want to offer health benefits—and today many are struggling to do just that—the ACA will help them. In 2014, firms with fewer than 25 full-time equivalent employees (based on the number of hours they work each month), and average salaries of $50,000 or less, will be eligible for a tax credit equal to as much as 50% of the amount the employer lays out for insurance. To receive the tax credit, employers must cover half the cost of a single (not family) policy. Experience show that most small business owners already pay more than half of the premium.
For a large number of small-business owners this will be an extraordinarily good deal. If a company doesn’t owe taxes in a given year, it can carry the credit back or forward to other tax years. In addition, eligible small businesses can still claim a business expense deduction for the premiums in excess of the credit.
3) In the SHOP exchanges insurers will no longer be able to charge small groups higher rates because many of the company’s employees are women, or are suffering from pre-existing conditions.
4) Under the ACA’s “80/20”rule insurers will no longer be free to charge whatever they wish. Insurance companies will have to show that, when insuring a small group, they spent at least 80% of premiums on medical care, and no more than 20% on “overhead” (fees to insurance brokers and agents, investments in offices, salaries for top executives, marketing, advertising and profits for investors.)
If reimbursements to doctors, hospitals and patients equal less than 80% of the premiums an insurer collects that year, the company will have to send a check to employers to make up the difference. (This rule already has kicked in. In 2012 insurance companies returned over $1 billion in rebates to their customers.)
–Fiction–The story suggests that under Obamacare, a typical worker would be asked to pay not only a $2,100 premium—but a $3,000 deductible!
–Facts—Under the Affordable Care Act, most employer-sponsored plans will have to offer free preventive care: no co-pays, no deductibles.
(Preventive care includes routine blood pressure checks, mammograms, colonoscopies, Pap smears, other cancer screening, depression screening, smoking cessation interventions including counseling and medication, obesity counseling and screening, many vaccines, breastfeeding counseling and supplies and contraception.)
Often, this is all of the care that a relatively young and healthy worker will need.
An employee will face a deductible only if he is sick or injured. Even then, if he needs to see a doctor to treat an infection or check for Strep throat,” he may pay $150 to $200—not $3,000.
He will pay the entire $3,000 deductible only if he becomes very sick or needs to be hospitalized. But in that case, if he didn’t have Obamacare, his share of the bill would almost certainly be much higher.Skimpy insurance policies often ask the patient to pay 20% to 30% of a hospital bill. If the patient’s hospital stay is extended he can easily wind up owing tens of thousands of dollars.
By contrast, under the ACA total cost-sharing (co-pays plus the deductible) is capped at $6,500—even if a patient is hospitalized for weeks.
— Fiction—The Washington Post discovered a second “glitch” in the legislation: “workers with an offer of affordable’ workplace coverage aren’t entitled to new tax credits for private insurance, which could be a better deal for those on the lower rungs of the middle class.
It is true that only Americans who are self-employed, unemployed, or work for a company that doesn’t offer health benefits will be able to go to an Exchange where they will be able to buy their own insurance. There, if they earn less than $46,020 ($93,700 for a family of four), they will receive government subsidies to help pay the premiums.
Employees who have health benefits at work won’t have the option of shopping for insurance in these individual Exchanges and won’t be eligible for the subsidies. If they work for a small company with fewer than 100 employees, they or their employer will be able to select plans from the separate small business (SHOP) Exchanges. But in the SHOP Exchanges the government will not be offering subsidies to employees.
This, however, is not an unintended “glitch” or “wrinkle” in the law.
—Facts: The tax credits were intentionally earmarked for middle-income and low-income individuals who must buy their own insurance and pay the full pemium themselves,
By contrast, employees who have health benefits at work already are subsidized by their employers. As noted, on average, those subsidies cover 65% to 75% of the premium.
Congress realized that if employees who could get benefits at work went to the individual Exchanges looking for an even better deal, taxpayers would foot the bill for additional government subsidies.
The architects of the ACA wanted to make sure that health care reform would not require tax increases for the middle-class. (Otherwise, the legislation never would have passed.)
What About Retail and Restaurant Chains?
These large chains won’t enjoy the advantages of purchasing insurance in the SHOP Exchanges for businesses that have fewer than 100 employees.
If they buy comprehensive coverage for their employees, the 85/15 rule will help. Beacause large chains represent a large group of employees, insurers will have to show that they are spending 85% of premiums on medical care, or rebate the difference.
But that is about the only way that the ACA might lower a chain’s premiums.
Obamacare’s opponents argue that these chains will avoid penalties by simply cutting workers’ hours. Reform legislation doesn’t require that they insure part-time workers who work less than 30 hours a week.
But the argument ignores why businesses offer insurance. They have learned that if they offer health benefits, they can attact and retain better employees.
: Restaurant chains, in particular, are competing for workers. This month Nasdaq reports that the industry is continuing to recover–and to hire. Given unemployment rates, there will no doubt be people eager (or at least willing) to fill those positions. But how do fast-food restauranteurs attract the brightest, most productive employees who will provide the best customer service?
Granted, restaurant chains operate on fairly narrow profit margins. But according to Nasdaq, restaurant chains are upping dividends to stockholders. This suggests that they have the resources to put more money into benefits for their workers.
Meanwhile,reserach reveals that if they provide health insurance, they wil be in a better position to hold onto good workers. In the fast-food business,, employee turnover is a major problem; training new employees to cook and provide swift cutomers service becomes a major cost.
Large chains could use healthcare reform to build a stronger business.
But will they? See the post below.