What is "Affordable Coverage"?

"Should I offer health insurance to my employees are are my employees better off by going to the exchanges – will that coverage be more affordable for them?"

This is the question on the minds of many employers as they struggle with the rising costs of healthcare premiums to provide coverage through the workplace.

Real wages for employees have remained stagnant, yet employers costs continue to rise - for one main reason - the cost of providing healthcare to their workers. And those workers are paying more for for their coverage as increases in health premiums are shared between the employer and the employers and more and more health plans are moving to "high deductible" plans.

It's no wonder that employers are asking if their investment is really helping the employees.

I read an article this week that referenced a New York Times article from 2015 that talked about affordability of coverage:

"When Billy Sewell began offering health insurance this year to 600 service workers at the Golden Corral restaurants that he owns, he wondered nervously how many would buy it. Adding hundreds of employees to his plan would cost him more than $1 million — a hit he wasn’t sure his low-margin business could afford. His actual costs, though, turned out to be far smaller than he had feared. So far, only two people have signed up.“We offered, and they didn’t take it,” he said."

Wow! Imagine putting all the work into providing coverage and then having your employees still not able to afford insurance! And "affordable" is a relative term - the requirements of the affordable care act say that the cost of the insurance can be no more than 9.5% of worker's pay (actually "family income") but for low wage workers - that can be out of reach.

The Wall Street Journal article explains how Mr. Sewell built his plan to comply with mandates for employer coverage in the affordable care act:

"The health care law defines affordable employer-sponsored insurance as that priced at 9.5 percent or less of an employee’s annual household income for individual coverage..Mr. Sewell’s insurance meets the test, but $65 per biweekly paycheck is more than most of his workers are willing — or able — to pay for insurance that still carries steep out-of-pocket costs, including a $2,500 deductible."

In fact, there may actually be a certain set of workers who might be better off buying benefits on the State or Federal Exchanges - mostly because their insurance premiums could be offset by federal subsidies. These subsidies called "Individual premium tax credits" are either a fixed amount of money or percentage of the premium cost that is provided to help people purchase health insurance. Workers with incomes between 133% and 400% of the federal poverty level who purchase a health plan through the exchanges are eligible for these subsidies. For example, a worker with a family of 4 living in the lower 48 would be eligible for a subsidy if their income is below 72,900 a year. I would bet that a lot of workers at the Golden Corral are saying "no thanks" to health insurance because they are not making that kind of money as food service workers! If your business has workers who fall into these wage categories - benchmarking your ability to provide affordable coverage versus their ability to get subsidies on the exchanges might be a worthwhile exercise. Some of your employees may be able to buy insurance for less than 9.5% of their family income when factoring in the subsidy.

Although the affordable care act has dramatically reduced the number of uninsured Americans, many employees are rolling the dice on their health - even when their employers are willing to provide coverage. And this is a bad thing for business! A recent article claims "U.S. employers pay $225.8 billion annually in productivity losses associated with personal and family health problems. But when employees are insured, they’re more likely to seek care, take fewer sick days, and stay longer with their employers."

So, if your company provides insurance according to the requirements of the affordable care act and your employees still can't afford to take advantage of it - are there any other options for you?

Well, if your employees live in one of the 23 states that have voted to take advantage of the government expansion of Medicaid - you may find that many of your workers are eligible for free or reduced cost benefits. Many state Medicaid programs are even more comprehensive than the essential health benefits required under the Affordable Care Act. Also, workers who are eligible for Medicaid are also sometimes eligible for other state and federal benefits. This could be win/win for employees and employers but the requirements vary state by state and navigating the system can be a headache for the small business owner. One company, Benestream, that I ran across a few years ago provides a consulting service to employers to help their workers assess their eligibility for government benefits. I have no affiliation with the company but have been impressed by their knowledge of the industry when I spoke with some of their representatives in 2013.

I'd love to hear about your experiences in seeking health coverage for your employees and how your company is grappling with the ins and outs of the Affordable Care Act.