Obamacare: In 2014 Will Workers Be Able to Afford the Health Benefits Their Employers Offer?

Recently AP floated a story that spread like a virus. Within a day it was picked up by Yahoo! the Wall Street Cheat Sheet, and the Washington Post  where it was headlined “Affordability Glitch.”

Thanks to a “wrinkle” in the law, the story warns, Obamacare may hurt many of the people it is supposed to help, by making “health insurance unaffordable for . . . workers employed by restaurants, retail stores, hotels, and small businesses.”  The law is explicit, AP explains: “companies that employ 50 or more workers must offer ‘affordable’ coverage to those working more than 30 hours per week — or face fines. ‘Affordable’ health insurance, as defined by the legislation, means that premiums can cost no more than 9.5 percent of an employee’s income. . . .    . . . For low-wage workers, many of whom live paycheck to paycheck and earn barely enough to cover basic necessities 9.5% represents a lot of money.”  

True, but the fact that the law says premiums can equal 9.5% of income doesn’t means that employer-sponsored insurance will cost 9.5% of a worker’s pay.

Nevertheless, Yahoo! conjures up a hypothetical employee who will be left out in the cold: “Take, for example, a restaurant worker who makes $21,000 per year. A premium that costs 9.5 percent of this income would run $1,995 for the whole year, or $166.25 per month.  How could this employee possibly shell out nearly $2,000 a year for insurance?”  

He will have to turn down his employer’s offer, and then the government will demand that he pay a penalty because he didn’t buy insurance!
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Will Obamacare Kill Jobs? More Fictions and Facts

Fiction: No doubt, you’ve heard that Obamacare will cripple small businesses, the “engine of job growth in America.” In 2014 employers with more than more than 50 full-time workers will have to provide insurance—or pay penalties. If more than 30 of their workers go to the individual Exchanges and receive government subsidies in the form of tax-credits, the business will have to help cover those subsidies by paying a fine of $2000 to $3000 per employee.

Obamacare’s critics speculate that many employers will stop hiring, so that they have no more than 49 full-time employees.

–Fact: As of 2010, there were roughly 5.7 million small employers in the U.S. (defined as those with fewer than 500 workers.) Ninety-seven percent of them have fewer than 50 employees. In other wrods, Obamacare’s employer mandate applies to only 3% of small businesses.

And 99% of those  with more than 50 employees already offer insurance. The employer mandate will affect just a tiny sliver of small companies.  Lawmakers understood this when they wrote the legislation.

–Fiction: In 2014, many small employers will trim full-time workers’ hours and we will become a nation of part-time employees.  Small business owners know that if they have fewer than 50 full time workers (averaging 30 hours a week) they won’t have to pay a penalty, and their workers can go to the Exchanges where individuals can purchase their own insurance, and receive those generous tax credits.

–Fact: This bit of fear-mongering overlooks the fact then when the government counts “full-time employees” it doesn’t just count heads, it counts hours.The law says that the firm must offer insurance if it has 50 full-time “or full-time equivalent employees.”

Here is how the rule works: If a business has 50 full-time employees working 30 hours a week and cuts 10 back to 15 hours, it will have only 40 full-time employees. But it will have to hire more part-timers to cover holes in the weekly schedule.

Assume the company hires 20 new part-time employees, each working 15 hours a week. Because they will be putting in 300 hours a week the government will count them as ten “full-time equivalents.” Add those ten to the remaining 40 full-time workers, and the company then will have 50 full or “full-time equivalent’ -employees.

The business won’t have to insure the 20 part-timerswho work only 15 hours, but it will have to insure the 40 who work full-time—or pay the penalty..

This fiction also overlooks why employers offer benefits.   Research reveals that when a business insures workers, it enjoys higher productivity, better morale and lower absenteeism.

This explains why roughly 95% of companies with more than 30 employees provide health insurance.

 —Fiction: Chain restaurants, retailers and hotels can easily cut thousands of workers to part-time so that they don’t have to insure them.

— Fact:  Organizing a  company’s  hiring and staffing around making sure that it won’t have to offer health benefits is hardly a brilliant business plan

Imagine what cutting full-time workers’ hours will do to morale and productivity– not to mention customer service. 

 Consider this  Wal-Mart has stopped hiring full-time employees, and is relying on part-timers and temps. As a result, Forbes reports that Wal-Mart is experiencing  “complaints about understaffed stores with empty shelves and inventory piling up in warehouses and back rooms.”. 

“It seems even Wal-Mart can’t operate on such a lean staff,” writes Forbes contributor Laura Heller, who describes herself as “a retail geek/expert.”

“Dirty stores, parking lots in disarray and out-of stock products don’t bode well for sales and stores can’t operate that way for long periods.”

Meanwhile, Target, one of WalMart’s chief competitors, continues to offer health care benefits to part-time employees, even though the ACA doesn’t require that it insure them.
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Under the ACA, will YOUR Insurance Premiums Rise or Fall?

Today, many Americans are asking: will my premiums go up in 2014?

There is no simple answer.

According to Families USA ,the Affordable Care Act (ACA) will have a positive effect on the typical family’s budget. Using an economic model that can factor in all provisions of the Act (ACA), Family’s USA estimates that by 2019, when the law is fully implemented, “the average household will be $1,571 better off.”

Even high-income families will save: thanks to rules that limit co-pays, and reward providers for becoming more efficient, “those earning $100,000 to $250,000” will spend $779 less on medical care.” But these are “averages.” They don’t tell you whether your health care costs will rise or fall.

The answer will depend on: your income, your age, your gender, who you work for, what state you live in, whether a past illness or injury has been labeled a “pre-existing condition,”  and what type of insurance you have now: 

If you work for a large company:

—  The ACA will have a “negligible” effect on your premiums says the Congressional Budget Office(CB0). This doesn’t mean that your costs won’t climb at all in 2014. As  long as medical product-makers and providers continue to raise prices, premiums will edge up each year.

But in 2012 average premiums for employer-based insurance rose by just 3% for single coverage and 4% for families, a “modest increase” when compared to 8% to 12% jumps in past years. And on average, employee co-pays and deductibles remained flat.

Granted, a 3% to 4% increase still outpaces growth in workers’ wages (1.7% percent) and general inflation (2.3%) percent).But as reform reins in spending annual increases for large groups could fall to 2%–or less. 

If you work for a small company with more than 50 employees:

Your boss will be more likely to offer affordable benefits, in part because, if he doesn’t, he will have to pay a penalty

Moreover, he will find insurance less expensive. Today, small businesses pay 18% more than large companies because the administrative costs of hand-selling plans to small groups are sky-high. But starting in 2014  businesses with fewer than 100 employees will begin buying insurance in “Exchanges” where they will become part of a large group, and eligible for lower rates.

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Ignore the Hype: Why Health Insurance Premiums Won’t Skyrocket in 2014

Health reform’s critics are sounding the alarm: in 2014, they say, health insurance premiums will climb, both for small businesses and for individuals who purchase their own coverage. “Hold onto your hat,” writes  Bob Laszewski, editor of Health Care Policy and Market Place Review. “There Will Be Sticker Shock!” 

Laszweski’s piece has been cross-posted on popular blogs, and his forecasts have been popping up in mainstream newspapers, including  USA Today Such wide circulation makes Laszewski’s warnings worthy of attention, and compels me to ask an important, if impertinent, question: Is what he says true?

Cherry-picking a CBO report

The Congressional Budget Office expects  that the ACA will have a “negligible” effect on the premiums that large employers pay for insurance, and most experts agree. But in the individual market, Laszewski claims that CBO projections show “10% to 13% premium increases.”

Here is what the CBO actually said:

About 57 percent of people buying [their own] insurance would receive subsidies  via the new insurance exchanges, and those subsidies, on average, would cover nearly two-thirds of the total premium.

“Thus, the amount that subsidized enrollees would pay would be roughly 56 percent to 59 percent lower, on average, than the premiums charged under current law.”

Wait a minute: “56 to 59 percent lower?” Where does Laszweski get “10 percent to 13 percent higher?

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Can U.S. Businesses Afford Obamacare?

No doubt you have heard that the Olive Garden, Denny’s and Papa John’s Pizza all are slapping an “Obamacare surcharge” on the price of their products.  They claim they have no choice.

But the news that Americans might pay 50 cents more for a mediocre $10 meal at the Olive Garden is not what bothers me most. Since President Obama was re-elected each of these restaurant chains have announced that they also plan to cut many full-time workers’ hours back to less than 30 hours a week in order to duck the cost of providing health care benefits.. This means that employees who are now working 40 hours a week will have to look for a second job—or find a way to support themselves on less than three-quarters of their current salary.

Michael Tanner, a fellow at the conservative Cato Institute, argues that companies outside the restaurant business also will be forced to down-size. Just a few days ago, Tanner wrote: “While restaurants are especially vulnerable to the cost of Obamcare other business are being hit too. For example, Boston Scientific has announced that it will now lay off up to 1,400 workers and shift some jobs to China. And Dana Holdings, an auto-parts manufacturer with more than 25,000 employees, says it too is exploring ObamaCare-related layoffs.”

Obamacare will  “keep unemployment high,” Tanner claims, because under reform legislation, businesses that have at least 50 employees working over 30 hours a week are expected to offer their workers affordable health insurance. If they choose not to, and more than 30 of their employees qualify for government subsidies to help them purchase their own coverage, the employer must pay a penalty of $3,000 for each worker who receives a subsidy— up to a maximum of $2,000 times the number of the company’s full-time employee minus 30. (The Kaiser Family Foundation offers an excellent graphic explaining the rule.) 

By paying the fine, the employer is, in effect, paying a share of a tax credit that would cost the government anywhere from roughly $1,700 for a single young worker  to over $12,000 to help the average 35-year-old worker who has a spouse, two children, and reports $35,000 in total household income.

Conservatives like Tanner argue that that is unfair, and that small businesses– “the engine of job growth”– will be hit hardest.  

What they  don’t do is look at the math:

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