July 30, 2012

Employers Debate Paying Healthcare Penalty

financeA nagging question for many employers in the run up to the 2014 deadline for healthcare coverage compliance with the new healthcare reform law is whether or not to drop healthcare coverage for employees. A provision in under the reform requires employers with at least 50 employers to offer a specified minimum level of health coverage or pay an annual penalty of $2,000 per staffer (excluding the first 30 workers). In a study by Truven Health Analytics, it was found that maintaining coverage will actually be more financially beneficial to firms in both the short and long term.

A lot of companies have seriously considered just letting coverage drop and accepting the penalties with average annuals costs for employer-sponsored family health insurance was nearly $11,000 in 2011. And while this may seem a sound financial decision, the Truven study casts serious doubts as to whether dropping coverage is the most sound choice. Additionally, the study warns that there is much more to consider than simply balancing group health costs when choosing what to do under the healthcare reform.

According to the survey, there are three major effects that dropping health coverage will have on both companies and employees. They include:

• An overall reduction of compensation since employees would be responsible for their own benefits. This would likely lead to a required increase in take-home pay in order to cover the difference.

• Employers unwilling to pay for health benefits would be at an extreme disadvantage to those who are, and workers will flock to those firms severely damaging retention for non-participating firms.

• A company’s competitiveness in the market could take a hit once it became public that it did not offer benefits.

In conclusion, the study found that it likely doesn’t make sense to drop coverage, but that this decision could hinge on the efficiency of the health insurance exchanges that go into effect in 2014.

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Joshua Bjerke, from Savannah, Georgia, focuses on articles involving the labor force, economy, and HR topics including new technology and workplace news. Joshua has a B.A. in Political Science with a Minor in International Studies and is currently pursuing his M.A. in International Security.