Monday, February 4, 2013

Workers May Feel the Pinch from Health Reform

Employers play a critical role in the Patient Protection and Affordable Care Act (aka Obamacare) as the primary providers of health insurance coverage to working adults.  A recent Gallup poll shows that over half of employers say that healthcare costs are hurting the operating environment of their business a lot, while three-quarters say it's hurting a little or a lot.

Health Reform Is Expensive for Employers

In 2014, small businesses will have to start paying for health insurance if they have 50 or more employees.  If they don't, they pay a $2,000-$3,000 fine, which is well below the cost of paying for the average employer-sponsored family health insurance premium of $15,022. Even including the average amount employees pay, about $4000, employers are still left with an average of $11,000 to pay towards health insurance premiums.  Multiply that by 50 employees (at a minimum) and we're talking an annual extra expense of $550,000.  This is not a trivial amount of money.  A half a million dollars is enough to bankrupt many small businesses, regardless of how much the owners of the business may want to provide health insurance for their employees.  Even owners of large fast food franchises like Wendy's and Taco Bell have announced they will reduce employee hours so they will not have to pay for employee health insurance.

Employees May Feel the Pinch.

That means people working for already low wages will not only be missing out on employer-sponsored health insurance that they can pay for with pre-tax dollars, but they will also be bringing home less money to pay for premiums out of pocket with post-tax dollars.  Even if employers do not cut back on the number of hours their employees work, they may cut wages, as some professors at the Wharton School suggest.  They argue that employers may keep total compensation per employee the same by reducing wages and increasing compensation in the form of health insurance premiums.

Regardless of exactly how employers will choose to address the increased cost of providing health insurance, someone has to feel the pinch.  Either the business takes the hit, or the cost is passed along to workers.

For a great visual on how health reform is projected to affect employers, check out this infographic at Entrepreneur.

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