Generous employer benefits now hurt some workers

It’s axiomatic.

Ever since World War 2, when employers started using health benefits to compete for workers, this has been the rule: the less employees had to pay toward health insurance premiums the more attractive the benefits.

But not anymore.

For some workers—even those at large companies that provide nice health benefits—it would now be better if their employers charged them more for their health benefits.

Why? Because of the taxpayer-funded subsidies in the Obamacare exchanges and Obamacare’s mandates for health insurance coverage.

That’s the conclusion of an analysis by Indianapolis-based consulting firm Apex Benefits Groups Inc. and the local office of Seattle-based actuarial firm Milliman Inc.

They analyzed 41 large employers with significant presences in Indiana, with nearly 32,000 employees. For more on the analysis by Apex and Milliman, go here.

They found that one out of every 14 workers at those firms would get a better deal from Obamacare. That is, those employees could buy the same level of coverage for the same or less out of their own pockets.

“Employers now have an opportunity to take advantage of the new environment to minimize employer health plan costs by allowing employees positively impacted by subsidies to qualify,” said Tracey Gavin, leader of the health care reform practice at Apex Benefits.

(As an aside, many more workers at small firms—which tend to offer less-rich benefits and ask workers to pay a larger share of the premiums—would get a better deal from Obamacare. I wrote about that situation last month here and here—and concluded that a large number of small firms will simply end their group health benefits. But the analysis by Apex and Milliman shows that, at larger firms, employer health benefits will remain the better deal for the vast majority of workers–meaning it makes little sense for most large employers to drop their health plans.)

The employees who stand to benefit from Obamacare are those with household incomes less than 250 percent of the federal poverty limit. That’s $29,175 for a single-person household, or $59,625 for a family of four.

Anyone with income below that level stands to receive the most generous Obamacare subsidies in the exchanges, to help offset the cost of private health insurance.

The subsidies rise as income goes down and as age goes up. Milliman constructed these charts to show how the subsidies would play out for workers of various incomes and ages buying Silver plans and Gold plans on the Obamcare exchange.

(The employers studied by Apex and Milliman are, on average, providing gold level benefits. For you benefits wonks, that means they had an actuarial value of 81 percent.)

It's true that if an employer offers affordable health insurance, its workers are not eligible to receive subsidies on the exchange. Obamacare defines affordable as single (not family) coverage that costs no more to the employee than 9.5 percent of his or her household income.

Overall, the employers studied by Apex and Milliman do provide affordable coverage. They require monthly premiums for single coverage of $81.35, on average, or $976 per year. Gavin pointed out that even a minimum-wage worker logging an average of 30 hours per week, would have to pay about $100 a year more than that before the benefits would qualify as unaffordable under Obamacare.

But by raising the premiums for single coverage by about 10 percent, these employers could make their health benefits unaffordable to minimum-wage workers. And that would allow those workers to instead buy coverage on the Obamcare exchange.

The employers would pay an Obamacare penalty for doing this—$3,000 per worker that bought coverage in the exchange. That’s because Obamacare, starting next year, will institute an "employer mandate"–all firms with 50 or more workers must offer affordable health insurance to all full-time workers.

But $3,000 is less than half as much as employers typically pay per employee for health benefits.

So, Gavin said, she expects employers to start considering these unorthodox approaches to benefits starting this year and continuing over the next few years.

“This will be the year that employers take a closer look at some of those strategies,” she said.

She thinks employers’ attention will be raised a lot if they see more of their workers signing up for health benefits due to Obamacare’s individual mandate—the tax on individuals who do not buy health insurance.

Among the firms Apex and Milliman studied, 18 percent of their workers do not participate in the company health plan. If a bunch of those non-participants start joining an employer’s health plan, its overall expenditures would rise quickly. And the company might start looking for ways to save.

An option that pushes workers off the health plan—while still giving them a better deal overall—might prove to be the win-win businesses are always looking for.