Q&A

Chris Sears is a health care and employee-benefits attorney at Ice Miller LLP in Indianapolis. He spoke about how employers are sizing up health insurance reforms that hit in 2014, which would set up government-subsidized insurance as a new option for workers but also would penalize most employers if they stop sponsoring employee health benefits.

IBJ: Health care reform gives employers the option, in 2014, of offering health benefits to their employees or paying a fine. Roughly what proportion of employers is seriously weighing the option of just paying the fine and why?
A: They’re starting to think about it. Very few have made any final decisions on it because they’re just several years out. There have been a couple surveys recently out that show, among large employers, a very small percentage right now are really planning on dropping coverage. But when you start looking at the smaller employers, less than 100 to less than 200 … at least in these surveys, the percentage jumps up to as high as 20 percent.

IBJ: Also in 2014, employers could drop health insurance coverage and send their workers to newly launched health insurance exchanges, where they could buy health insurance on their own with government subsidies. In your estimation, how do the costs of dropping health insurance stack up against the costs of continuing to offer it?
A: The penalty will cost me $2,000 per employee and it costs me, say, $4,000 to offer health coverage. But the truth is it’s not that simple. In any remotely competitive environment, I’m going to have to pay something extra to my employees so they can get [health coverage] elsewhere. So I have to add $1,000 or $2,000 back into their salary. So I’m now back up close to $4,000 But also that extra $1,000 or $2,000 is taxable income. So now they’re paying taxes on that extra income that they weren’t paying before. And now I’m paying employment taxes on that extra $1,000 or $2,000. Also, there are lots of things that employers do that are based off an employee’s compensation [i.e., retirement plan contributions, which would increase with salary increases].

IBJ: It seems like the clincher might be how buying health insurance through the exchanges is perceived. Do employers now expect the exchanges to be viewed as a high-quality option or as an inherently second-rate way to get health benefits?
A: I think it’s a still open question. And I think it’s going to differ state by state. If I push my employees off to the exchange, am I going to be looked at like a bad employer? Just [consider] what the value of health benefits is for recruitment and retention. I think it’s very important. Perhaps in some of the transitory service jobs, it’s not that important. But certainly when you get professional jobs and even manufacturing, it’s very important. But some of these exchanges may have very good perceptions among them, and be viewed as a viable option.