If you have a middle class family that has employer subsidized health insurance, you are likely to have the problem discussed in this diary.
As the Affordable Care Act (ACA) is complex, the ways for employers and employees to use the law to their best advantage can be very surprising. Many here are already aware of the perverse incentive to employers to shift their employees to part time working less than 30 hours/week, as much as practical.
Here is another perverse result from ACA that will get great attention over the next few months not only in the press but in the workplace.
For many employees with families who receive a subsidy from their employer for health insurance, these employees will be substantially better off if their employer stops offering a subsidy. In addition, the employer enjoys a windfall, in that she no longer needs to help pay for employee health insurance. This is even true when the employer is subject to an ACA penalty for not providing affordable health insurance.
That quirk means that for some people, it will be more economical to have an employer not offer health insurance subsidies for them and their families—and for the entire family to then instead be able to buy insurance with government subsidies on the new Obamacare state health exchanges.Under ACA, if the cost to the employee for employer subsidized health insurance is less than 9.5% of household income this is called "affordable coverage." When an employer offers this, the employee is not allowed to reject this insurance and purchase insurance through an exchange and get government subsidies (subsidies only if household income is less than $94,200)
The problem is this affordability test only applies to insurance that covers only the employee and not the entire family.
In other words, even if the cost of obtaining coverage for a worker's entire family exceeds 9.5 percent of household income, that family then cannot potentially save money by buying subsidized insurance on the state health exchanges.This problem is most sever when the employer subsidies only the employee and does not provide additional subsidy for family members.
The impact of this will be that both employers and middle-class employees with families will want their employers to stop subsidizing employee health insurance.
Let's compare how well an example employee actually does with and without an employer subsidy for health insurance.
Consider an employee with a family of four who lives and works in New York state with a family income of $50,000 a year.
Assume the employee has the choice of employer insurance of $13,646/yr for the family, or $4,788 for only himself. In addition, the employer pays for 1/2 of the cost of insuring the employee but no subsidy for the rest of the family. This subsidy therefore reduces the cost to the employee for both choices by $2,394/yr
With an employee only cost of insurance of $2,394/yr, this cost is far lower than 9.5% of the $50,000 household income - so the entire family cannot get federal subsidies to buy insurance on ACA exchanges.
For the employee to insure his entire family, he can either:
- Insure the family through the employer for $13,646 - $2,394 = $11,252
- Buy insurance for only the employee from the company for $2,394 and then insure the rest of the family with a Silver plan on the New York exchange for $7,120. Total cost of $9,514 to insure the entire family - this is the lower cost of the two choices
. No government subsidies are here because the family is not eligible because the employer had "affordable" insurance for the employee.
But the employee and his family could have saved thousands of dollars per year if the employer did not offer "affordable insurance."
If the employer did not offer a subsidy, the individual insurance to the employee would no longer be "affordable insurance", so the family would be eligible to receive government subsidies on the ACA exchange. The total cost to the family after subsidies would be only $3,365/yr, a saving of over $6,000/yr for the family.
A difference of over $6,000/yr is huge for a household with $50,000/yr income, this is not a minor factor.
There is something very wrong when an employer providing $2,400/yr in a healthcare subsidy results in reducing her employee's after tax and after insurance income by over $6,000/yr.
This will become a major issue in politics and the workplace, starting in October as ten's of millions of employees see this perverse impact from ACA on their family after years of little or no pay increases for years.
In addition, this issue will result in a massive shift in health care cost from employers to the Federal government that is not included in current Federal budget estimates.
Democrats and the White House need to get in front of this issue now to fix this perverse impact that hits the middle class, rather than wait for massive employee and employer outrage when they see this problem hit them in the face.