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Insurance Exchange Insights: Not All Employers Will Pay More Under Health Reform

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Insurance Exchange Insights: Not All Employers Will Pay More Under Health Reform

While the constitutionality of the health reform law and the individual mandate to purchase insurance remains unresolved, we continue to model the impacts of health reform for our clients and help them prepare for anticipated changes.

As we do this, we’re starting to see some interesting trends. We have created a number of tools and financial models to show clients the impacts of health reform on their businesses. One of these tools is called the LarsonAllen Health Insurance and Penalty Calculator (or HIP Calculator). Using employer-specific data, we calculate the impacts of health reform related to the individual mandate, the employer penalties, free choice vouchers, and Medicaid expansion. We’ve run this calculator for a variety of different businesses—including health care providers, professional services firms, automotive dealers, manufacturers, and more—and here’s what is becoming evident:

  1. Employer penalties don’t always penalize. The health reform law establishes penalties for certain large employers (those with 50 or more full-time equivalent employees) who either don’t offer insurance or offer unaffordable insurance to their employees. Basically, employers pay a penalty if one or more of their full-time employees are eligible for subsidies to purchase insurance through the health insurance exchanges (“exchange subsidies”) in 2014.

    These “penalties” are $3,000 per full-time employee eligible for the exchange subsidy for employers that offer insurance or $2,000 for every full-time employee for employers that don’t offer employees insurance. If an employer contributes more than $3,000 annually toward their employee’s health insurance premiums, they will actually pay less under health reform for their employees who are subsidy-eligible. According to a recent Kaiser Family Foundation report, the average annual premiums for employer-sponsored health insurance in 2010 are $5,049 for single coverage and $13,770 for family coverage.

    For employers who don’t offer health coverage today, these costs will definitely be penalties because they will be a new expense line in their budgets.

  2. New enrollees, rather than penalties, may be the biggest cost increase for some employers. Today, it is rare that a full 100 percent of employees enroll in their employer-sponsored insurance (ESI). Employees waive coverage for a variety of reasons, usually because they have coverage through their spouse, they can’t afford the premiums, or they don’t think they need insurance. Assuming the individual mandate stands, many of those who waive coverage today will be required to have coverage in 2014 and beyond. Those who aren’t eligible for exchange subsidies or spousal coverage will enroll in their employer plan. This behavior will hit employers hardest when their employees’ household incomes exceeds 400 percent of federal poverty level (FPL), because these individuals won’t be eligible for exchange subsidies but will be required to obtain insurance. (For 2011, 400 percent of FPL is $43,560 for an individual and $89,400 for a family of four.)
  3. Employers and employees will decide the fate of the health insurance exchanges. Certainly, employers who offer employer-sponsored insurance (ESI) to their employees today but discontinue that benefit in 2014 will impact enrollment in the exchange health plans. However, employees’ decisions about where to purchase their insurance could have an even larger effect on the fate of the state health insurance exchanges. Let me explain how:

    Employees whose household income (HHI) is less than 400 percent of the federal poverty limit ($43,560 for an individual; $89,400 for a family of four) and whose ESI premiums exceed 9.5 percent of their HHI will be eligible for exchange subsidies on a sliding-fee scale basis. Therefore, even employers who continue to offer ESI in 2014 will likely have some portion of their employees forego ESI and use these subsidies to purchase insurance through the exchange. 

    For example, a nurse aide that makes $18,633 per year (171 percent FPL) and whose annual premium cost under the employer’s insurance would be $3,388 (18.2 percent of household income) will be eligible for exchange subsidies. This nurse aide could increase her income by a minimum of $2,966 per year by purchasing a silver level plan through the exchange. The employer will also realize a net savings under this scenario of $2,515 ($5,515 premium cost minus $3,000 penalty) for a non-profit organization or $584 after accounting for tax-deductible premiums.





$3,388 (18.2% HHI)


Max. Out of Pocket






As you can see from this example, the lowest-wage employees will see the biggest proportionate increase in their take home pay by taking advantage of the available exchange subsidies. Health care employers could have a disproportionately high number of employees eligible for exchange subsidies or Medicaid.

Based upon Bureau of Labor Statistics, May 2009 data on national mean salaries, here are the types of staff who could be eligible for the exchange subsidies:

  • Nurse aides, orderlies, and attendants = $24,980
  • LPNs = $40,900
  • Home health aides = $21,620

Even in higher-wage companies, some employees may be eligible for exchange subsidies and increase their take home pay by purchasing insurance through the exchange. 

Alternatively, employees with household incomes in excess of 400 percent FPL are at greatest risk of experiencing significantly higher insurance costs. If employers decide to drop their ESI, these higher-wage earners would be responsible for the full cost of their insurance premiums because they would not be eligible for any government assistance.  

For example, an employee with a spouse and two children earns $95,000 annually and pays $5,000 for family coverage through his employer today, but the total cost of that coverage is $13,300. In 2014, his employer stops offering this health insurance benefit to its employees. This employee would have to pay $8,300 more per year for the same health insurance because he would pay the total premium cost. 

If you’d like to know how many of your employees might be eligible for exchange subsidies and what effect reform will have on your bottom line, check out our Health Insurance and Penalty Calculator.

My next blog post will talk about how we think employers’ and employees’ decisions about the health insurance exchanges could affect health care providers’ future reimbursement. 

Posted by Pamela Vanek at 12/12/2011 09:19:56 AM | 

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