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Who Pays for Health Care Reform, Continued

Who’s paying for health care reform? We’ve seen it’s not the rich people or ‘greedy’ companies that are paying the price, it’s us ordinary people.  But, as they say, “there’s more!”  Many aspects of the Patient Protection and Affordable Care Act (PPAC) actually hurt the very people the bill aims to help.  The result is that these people are paying for it as well.

While most large companies offer health insurance benefits to their employers, smaller companies either cannot afford to do so, or may do so to a lesser extent.  Given their goal of universal health coverage, lawmakers require businesses with 50 or more full-time employees to provide health coverage or face stiff penalties.  This is a worthwhile goal but this approach will cause much harm and little good.  Here are the details:

People earning up to 4 times the federal poverty level ($64,000 for individuals/$88,000 for family of four), who have no insurance, will qualify for a government subsidy to pay for health insurance. Employers with at least 50 employees, who don’t provide health insurance and have at least one employee who would qualify for this health care subsidy, face a $2000 penalty for each employee he has over the number 30.

If an employer does offer insurance, but it costs the employee more than 9.5% of household income or covers less than 60% of health care costs, and if any one employee receives a health care subsidy, the employer must pay a penalty of $3000 for each employee receiving a subsidy or $2000 for each of his employees.

You don’t need a degree in business management or accounting to see the consequences of this part of the law. Smaller companies who typically operate on a small profit margin would be forced to take actions with serious consequences which could include:

  • - Cutting lower paid employees hours to below the 30 hours that defines a full-time worker
  • - Raising prices and risking the loss of business if customers won’t pay the higher cost
  • - Keeping the number of employees below 50, thus disqualifying the company from the burden of the law
  • - Providing  insurance but reducing employee pay to make up the difference in cost
  • Avoiding the  hiring of single-parents who would more likely qualify for health care subsidies
  • - Consider dropping existing health coverage if the number of employees qualifying for subsidies makes this more financially viable.  This would force the rest of the employees to purchase their own insurance with after-tax dollars.
  • - Replacing full time employees with contractors
  • - Going out of business

But wait, “there’s more!”.   McDonald’s Corp., representing 30,000 hourly workers at 10,500 U.S. locations just announced that, unless changes to the law are made, it will drop the health benefits it now provides.  In this case, it’s another of the law’s requirements: that 85% of premiums be spent on medical benefits.  Given the higher administrative costs associated with rapid turn-over of employees and relatively low spending on claims, it would be difficult if not impossible to adhere to the requirement.

And yes, there’s still more:  According to a recent survey released by the National Business Group on Health, 2/3 of large employers will ask employees to pay more for their health insurance next year.  This includes higher contribution costs (63%), out-of-pocket costs (46%) and deductible rates (44%).  Although rates tend to go up every year along with the cost of health care, the 2011 rates are steeper because the new health care law requires health insurers to increase coverage.

In the end, it’s not companies that are paying for health care reform, it’s us ordinary people. And, unfortunately some of us will pay, not with dollars but with lower wages, lost jobs, and fewer opportunities.

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