Obama hands employers free play on health insurance

The Obama administration’s decision last week to delay for one year enforcement of penalties against employers that fail to offer affordable health insurance gives employers the chance to cancel their benefits for the year and pocket a boatload of cash.

It’s like a quarterback who takes a snap when a defender was offsides. He can throw the ball deep hoping for a touchdown while being secure that, if he’s intercepted, he’ll get to run the play over again.

That’s how Jim Hamilton, an employer attorney at Bose McKinney & Evans LLP, sees it.

“You can essentially get a freebie for 2014,” Hamilton told me, predicting that “some employers are going to stop offering coverage in 2014 just because there’s no financial penalty for doing so.”

The penalties were part of President Obama’s 2010 health reform law, officially known as the Patient Protection & Affordable Care Act, but better known as Obamacare.

For employers that failed to offer any health insurance, those penalties would have totaled $2,000 per full-time employee, but not counting the first 30 employees. Also, Obamacare introduced a new definition of full time: workers averaging 30 hours per week.

For employers that offered health insurance that was too expensive for employees—costing more than 9.5 percent of their household incomes—the employers would have paid fines of $3,000 for each of their workers who instead bought health insurance in the government-run exchanges that Obamacare will create.

Since these penalties are far lower than the $16,000 average cost of health insurance policies, many pundits—particularly those who dislike Obamacare—have predicted a wave of employers dropping coverage.

But as I pointed out two years ago, such predictions ignored the other elements of employee compensation and the dynamics of competitive employment markets.

Before last week’s announcement, Hamilton expected less than 5 percent of employers to drop coverage in 2014. And he still expects the majority of employers not to drop coverage.

But the delay puts a new option on the table: Drop coverage for one year, see whether employees like buying through the exchanges and, if not, start up coverage again in 2015.

“It does raise something that didn’t exist prior to last week’s notice,” Hamilton said.

He acknowledged that even though there is no financial penalty in 2014, there could be an employee-relations penalty to be paid for dropping coverage. And that’s one that won’t go away easily.

“Dropping health insurance is going to go over like a lead balloon with your employees,” Hamilton said. It’s for this reason, and the fact that the Obamacare penalties will kick in in 2015, that many pundits do not expect the delay on the penalties to have much impact on employers’ actions next year.

But Hamilton said employers will at least give the idea a serious look, especially employers with lots of low-wage workers to whom they currently offer health insurance. Think of companies like Starbucks or McDonald’s.

It will come down to each employer’s cost-benefit calculation—how much money it would save, whether its employees would fare better or worse by getting government subsidies to buy health insurance in the exchanges.

“This could be a windfall for these employers,” Hamilton said. And, “the employees could actually fare better—better coverage at lower cost.”

It just depends on whether employers think the one-time profit boost is worth the risk of angering their employees.