To Keep or Drop Insurance Coverage — Considerations for Vermont Small Employers in 2014
Small employers in Vermont have a decision to make before January of 2014 – whether to keep their employer-sponsored insurance or drop it altogether and direct their employees to the state’s new Health Insurance Exchange as individual purchasers. The Administration is recommending that small employers drop their health insurance coverage. Instead, we encourage businesses to evaluate their options and consider the implications on not only their own bottom lines, but the impact on working Vermonters. We believe there is no single right answer for employers and we feel that many Vermonters may be better off keeping their current employer-based insurance plan.
The Administration has cited the individual market exchange as a more affordable option for the employees of small businesses than their current employer-sponsored coverage. While this may be true for some people, it is most likely not true for all. Some employees could face significantly higher health insurance costs that will make it very challenging to maintain their health insurance coverage. The result? Less affordable coverage for middle-income Vermonters and an increase in the number of uninsured Vermonters.
The impact of losing employer sponsored insurance will vary depending on the employee’s household income. Only those individuals with incomes below 200 percent of the federal poverty level ($22,980 annual income) are likely to experience reduced health insurance costs using the new subsidies available in the exchange rather than employer-sponsored coverage. Vermonters with higher incomes could pay significantly more for insurance than they do under their employer-sponsored coverage. For example, individuals earning over $45,960 a year will receive no subsidies and will be expected to pay 100 percent of the premium cost. This increased cost could mean a number of these Vermonters may not purchase insurance, preferring to pay the relatively small tax penalty of $95 a year, per person.
National estimates indicate that about 30 percent of employers could drop their coverage, even without any encouragement. If these estimates hold true for Vermont, about 12,000 of these dropped Vermonters will likely choose not to buy health insurance. Dropped employees could choose to forego health coverage for economic reasons creating a new class of uninsured, although previously insured, middle-income Vermonters. Those individuals who do purchase coverage via the Exchange will have to buy insurance with after-tax dollars, further lowering their purchasing power. As a result, the more small employers who continue to provide coverage, the more Vermonters will be insured.
In addition to the changes employers face resulting from the Affordable Care Act cited above, Vermont businesses will still pay if they drop their coverage. The Administration is recommending that the so-called “Catamount tax” continue in 2014 after the Catamount program is replaced by the Exchange. This would impose a state tax penalty of $476 per employee on small employers who drop coverage on full-time workers. Encouraging small businesses to drop insurance dismantles the existing financing mechanism, before the new and long-term financing mechanism is known, potentially leading to increased supplemental state financing to support previously insured individuals.
Because the impact on employers and employees will vary, we encourage employers to consider the following questions when deciding whether to keep their coverage or to drop it:
- What are the household incomes of my employees and will they be eligible to receive subsidies on the Exchange and what level of subsidization (healthreform.kff.org/Subsidycalculator.aspx)?
Will my employees be able to afford health insurance if I drop my employer-sponsored coverage?
- If I drop my coverage, how much of an increase in wages will I need to make to ensure that employees can still afford insurance?
- If I drop my coverage and increase the wages of my employees, how much in additional taxes will I pay (due to losing the corporate tax exemption for providing health insurance and paying additional payroll taxes) and my employees pay (due to paying taxes on higher wages and paying for insurance with after-tax dollars)?
- Is my business eligible for a financial incentive to sponsor group healthcare coverage such as the small group tax credit (see irs.gov)?
- Will there be a penalty for dropping coverage such as the Catamount tax?
- How does the decision to keep or drop your health insurance coverage affect employee recruitment, retention and employee wellness?
Very soon, Vermont employers must address these questions and make a choice. We hope when they do, they will consider all the facts they need to choose the best path forward for their company and employees.
Representing Act 48 Progress Assessment Group Organizations:
John Brumsted, M.D., Pres. & CEO, Fletcher Allen Health Care
Don George, Pres. & CEO, Blue Cross Blue Shield of Vermont
Bea Grause, Pres. & CEO, Vermont Association of Hospitals and Health System
Paul Harrington, EVP, Vermont Medical Society
Lisa Ventriss, Pres., Vermont Business Roundtable