A new Milliman report indicates that the average health care cost for a family of four is $22,030. This compares with average annual mortgage payments of $12,732. Indeed, it is close to the average amount spent to send a child to a public college or university ($22,261).
On average, the employer currently pays about $12,886 of the cost of health care in the form of employer subsidy. The Affordable Care Act (“Obamacare”) does not change this reliance on employer subsidies as the main funding mechanism for health care. So, what measures are being taken to encourage employers to continue or expand health care subsidies?
- The Affordable Care Act itself offers only modest incentives for employers to offer affordable health care. It applies only to large employers. It imposes a penalty only if any of the employer’s full-time employees obtain coverage through an exchange and receive a premium tax credit. And the maximum annual penalty is the lesser of (a) $2,000 for each of the employer’s full-time employees, with an exemption for the first 30 such employees, or (b) $3,000 for each employee who receives a premium tax credit. Thus, the maximum amount an employer can be penalized for failing to cover any of its full-time workers is $2,000 for each worker beyond the first 30–a penalty that is far less than the cost of providing health insurance. And the penalty may be even less if many workers are ineligible for the premium tax credit, e.g., because they are eligible for Medicaid or CHIP.
- As a result, some states faced with rising Medicaid costs are looking for a way to recoup some of their costs from employers. For example, a proposed California bill would fine big firms whose workers get Medi-Cal. The bill would apply only to an entity that employed more than 500 workers per week. However, it would apply to every employee who works more than eight hours a week (not just full-time employees), and would impose a fine based on 110% of the average cost of health insurance, rather than being limited to $2,000 per employee.
Clearly, both the Affordable Care Act itself and the various state proposals being considered are controversial. Because they continue and even increase the reliance on employers to provide health coverage, they are vulnerable to opposition based on the potential to decrease job creation. At the same time, in the absence of a comprehensive health system based on something other than employment, and with health care costs continuing to rise, employers can expect increasing pressure to provide health coverage for their workers.