Experts, Studies State That Most Employers Will Continue to Provide Health Insurance Benefits for Most Employees, Despite Health Care Reform Changes

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With the passage of the health care reform legislation, employers and employees are faced with a number of health insurance benefits challenges. Employees fear that their employers will decide that they can save money if they eliminate coverage, pay the penalty, as prescribed by the new law, and expect employees to buy health insurance on the individual market. According to some experts and current research, however, the great majority of companies will not drop or reduce health insurance coverage.

In many cases, employers will choose to maintain health-insurance benefits for their employees, but how they justify that decision is based on a rather complicated calculation and specifics of the new law. Although the penalty is termed an “employer penalty” under the new law, in fact, employees are more likely to “pay” the cost.

As any economist will tell you, the number of employees working for any particular company is based on total compensation costs: wages, benefits, etc. Employers then create compensation packages according to what workers want. For example, a company with an above-average number of young female employees will probably offer various maternity-related benefits. That same economist will also state that as the cost of health care (or any) benefits increases, the amount available for wages or other compensation decreases. The opposite is also true: less dollars spent on benefits is more dollars for wages and, to remain competitive, most employers must maximize the wages they offer.

That leads to a somewhat complicated decision for employers: Does the penalty plus the additional wages employees will need to buy health insurance on the open market cost less than providing employees with full coverage (but at a lower wage)? The complication doesn’t end there, however. Remember, whatever a company contributes to the cost of employees’ insurance coverage is not taxable income, so the tax savings is also a factor in the calculation.The decision is even more complicated for employers who decide to eliminate health insurance coverage. During the out years (2014) of the health reform package, poor and some middle-class families will receive incentives to obtain health insurance. Those with an income a third more than the federal poverty level can choose to be covered through Medicaid. Other families (with incomes four times the poverty level) will receive tax credits to help pay for health care. The individual mandate will require everyone to buy insurance or face a penalty.

Various health care industry and government studies project that when the entire health care reform package takes effect (after 2014), only a very small percentage of employees will lose coverage from their employers. These studies also suggest that even though employers with mostly low-wage workers are more likely to eliminate health insurance benefits, the numbers will not be significant.

From an economic and employer point-of-view, fewer companies offering employee health insurance coverage is not necessarily a bad trend for employers or employees. Workers will be subsidized when they buy coverage on the open market and employers’ compensation packages will be more efficient, which results in attracting better employees and keeping them longer.

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