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Health reform and employers

October 26, 2011

At our forum last week on Rhode Island’s health insurance exchange, we mentioned that people making 400% of the poverty level or less will qualify for subsidies or “coupons” to buy insurance. A single person earning $30,000 a year could expect to pay about $200 a month in premiums. That made one  small business owner ask an interesting question-

We have many people who make $30,000 a year and we’re definitely paying a lot more than $200 a month for their insurance. Are these coupons going to transfer to the small business owner, or do I terminate all my insurance policies, let them get their own and then just reimburse it? How do we deal with that equity?

Health Insurance Commissioner Christopher Koller told her those “coupons” follow the individual and don’t go to small businesses. But, companies can qualify for tax credits if they buy health insurance through the health insurance exchange and their employees earn below a certain average wage.

After the forum, the small business owner told me she already knew the answer to her question. She asked it to point out that companies like hers have no incentive to continue offering health insurance. Their employees can get it for a cheaper price on the health insurance exchange!

So what will happen to employer sponsored insurance under the health care overhaul? Businesses with more than 50 employees would pay a “free-rider” penalty of $2,000 to $3,000 per full time employee if they choose to not offer coverage.  Researchers disagree over whether that’s enough of a disincentive.

A study released this summer  estimated that 30% of companies might stop offering health insurance in 2014 (will the health care overhaul goes into effect.) The research was based on a survey of 1,329 employers across the country. Some health care experts have questioned its methodology based on the way a few questions were asked.

 New research out from the Urban Institute and the Robert Wood Johnson Foundation argues that it doesn’t make sense for most employers to drop health insurance.

Julie Rovner from NPR summarizes the latest findings on NPR’s health blog. She says past research didn’t take into account the competitive cost of dropping health insurance. If companies drop their health plans, they’ll have to make up for it in some way- perhaps through wage increases- in order to compete for the best workers.

As a result, many of those employers will have to both pay the penalties for not offering coverage and raise wages to make up for the reduced benefits packages, making the change financially unattractive in most cases.

Obviously, small businesses without the free rider penalties might make very different choices in 2014. What do you think will happen? Will employers keep offering insurance, or let everyone buy for themselves?

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