The 2020 Mid-Year Economic Update_long

Obamacare Penalty May Not Be Worth the Savings

Cost of not providing health insurance to employees may be more than you think.

Several more provisions of the Patient Protection & Affordable Care Act, a.k.a. Obamacare, are slated to go into effect at the beginning of next year. But that means some businesses – particularly small businesses – have to make some difficult decisions soon, starting with: Do we continue to offer health insurance, or do we take the penalty?

On average, annual premiums for employer-provided health care were $5,615 for single coverage and $15,745 for family coverage in 2012, according to the Kaiser Family Foundation in its Employer Health Benefits 2012 Annual Survey. By comparison, the penalty would have an annual cost of $2,000 per employee excluding the first 30. That penalty will increase under the law based on the growth of insurance premiums, according to KFF.

If the decision were based only on cost, the decision would probably be a no-brainer. After all, based on the numbers above for a business with 50 employees, the cost of providing insurance at the average rate ($280,750) is significantly higher than the potential penalty ($40,000).

But in a recent survey from The Wall Street Journal and Vistage, more than three-quarters of respondents (76.6 percent) said they would continue to provide insurance to employees or they would offer coverage to avoid the penalty. Only 1.8 percent opted for the penalty.

In the wholesale trade category, 82.9 percent of respondents said they would continue to provide insurance or would offer coverage in 2014. No respondents in this category said they would opt for the penalty, though 17.1 percent said they weren't sure. That uncertainty was larger for smaller companies in this category, at 42.9 percent of respondents from companies with $1 million to $4 million in annual sales.

The problem is that price isn't the only concern; benefits packages can be a big consideration for new hires deciding where to accept a position. And it may become more so as the individual mandate goes into effect, as well.

And as MDM recently reported in The Hiring Disconnect in Distribution, distributors are already having trouble attracting qualified talent for open positions. Top talent is often already employed and may not be actively looking for a change – and if you're not offering the best possible package, you're not likely to draw them away even if they are.

For those companies who say they'll just switch to part-time employees to avoid the mandate? You're not completely off the hook, either. The employee count isn't based on actual employees, but rather on full-time equivalency. Keep that in mind as you consider your options.

Learn more about how some of the PPACA's key provisions could impact you in The Practical Implications of 'Obamacare' on Distributors.

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