Are Some Workers Better Off With Fewer Benefits Under Health Reform?

Much of the conversation about employer-sponsored coverage under the Affordable Care Act has focused on its impact on businesses and the costs associated with the mandate, but a new survey shows that employees might be better off without certain benefits.

Results from a survey from consumer analysis site ValuePenguin shows that some individuals may be better off if their employer does not offer them benefits because of the reform’s hotly-debated subsidies and the financial incentives behind them.

Instead of considering the cost of employer-sponsored insurance for an entire family, the ACA considers the value of just an individual’s insurance. In some cases, this may disqualify workers for subsidies, Value Penguin concludes.

The law offers subsidies to people who are not offered affordable coverage though an employer-sponsored plan. The Department of Health and Human Services defines the “affordable threshold” if an employee’s share of the plan is less or equal to 9.5% of their annual income. This is in stark contrast to the threshold for families to be eligible for subsidies for coverage on state and federal exchanges, where those families with an income of up to 400% of the federal poverty line for a family of four would qualify. This is 9.5% of the cost of ensuring the entire household, rather than the individual.

Jonathan Wu, chief analyst at Value Penguin, says with this math, those who have employer-sponsored coverage just for themselves, could wind up paying double for their health-care due to this stipulation.

“A lot of families would be eligible for subsidies [with employer-sponsored coverage] if insuring your entire family costs more than 9.5% of your total household income,” he says. “This will change the way you get health care. Under one standard, you get thousands of dollars, but if you have employer-sponsored care, you are not eligible.”

The subsidy scenario here is just one way the law will restructure the labor market, says Devon Herrick, senior fellow at the National Center for Policy Analysis.

“The exchanges have created perverse incentives that will change the labor market,” Herrick claims. “If you are a moderate or low-income household, you will get a much bigger subsidy from the exchange than you ever would [from] work.”

Value Penguin gives the following example: For a monthly premium under the MVPHP-HMO in New York, the total cost is $1,138 per month with $399 for self-only coverage. Annually, this breaks down to $4,788 for self-only coverage and $13,646 for the entire family. For this study, Value Penguin considered a household family of four with an annual income of $50,000.

If an employer offers coverage but the employee must pay 100% of the premium, this would exceed the 9.5% test, and the family would receive subsidies in the individual marketplace. If the employer offered insurance and paid 50% of the premium for the employee  but 0% for the rest of the family, the entire family would be disqualified for federal subsidies because they would be under the 9.5% of annual income threshold.

A third scenario involves the employer covering half of the insurance premiums for both the employee and his/her family, which would also disqualify the worker from receiving subsidies. These scenarios highlight just how some workers may benefits from having less coverage offered to them from employers.

Whether employers with 50 or more workers will opt out of offering coverage in order to benefit employees is unclear, says Herrick. Under the ACA every business with 50 or employees has to offer approved coverage to employees or face a penalty of $2,000 per worker, per year for not adhering.

“I can’t imagine why any small firms would even offer coverage—it doesn’t make [monetary] sense. For larger firms, it depends: They may drop coverage all together, or raise employee wages to make up for not offering benefits,” he says.

To find out which scenario is most beneficial to both parties, Wu says employers and workers need to be more educated about the law and communicate.

“It’s a scenario where an employer may not offer coverage, but you are getting coverage and saving thousands of dollars,” Wu says. “It’s important for people to understand the math, and both parties need to come together and talk about it.”