Human Resources News & Insights

Health reform head-scratcher: Pay the penalty or keep coverage?

Should you drop healthcare coverage for employees come 2014 or not? It’s the $50,000 question, and another organization has weighed in with its findings in a new study.

Truven Health Analytics (PDF) has found that dropping health coverage for staff won’t have a financial benefit for firms in either the short- or long-term.

Of course you remember that come 2014 under healthcare reform, firms with 50 or more staffers who don’t offer “minimum essential” health coverage must pay an annual penalty of $2,000 per staffer (excluding the first 30 workers).

Many companies have considered simply accepting the penalty instead of paying for employee health coverage. The average annual cost for companies for employer-sponsored family health insurance was $10,944, according to a 2011 Kaiser Family Foundation study.

While that may make sense on the surface, dropping coverage will not be a “slam dunk,” according to the Truven study.

In fact, choosing what to do is “more complex than simply balancing the current group health costs against the nominal penalties” under healthcare reform.

3 major problems

According to the study, here are the potential effects dropping healthcare reform would have on companies and their employees:

  • Reduction in overall compensation. Staffers would be on the hook for their own benefits, reducing their overall compensation. Another option: Companies would need to increase staffers’ take-home pay significantly so workers could cover their own healthcare costs.
  • Difficulty in retaining workers. If workers can get their benefits paid for by a competitor, they may be more likely to jump ship.
  • Ongoing recruiting issues. Employers’ competitive market position might take a hit once word got out that the company didn’t offer benefits.

More analysis necessary

The study concluded that while it likely doesn’t make sense to drop coverage and pay the penalty, ultimately the decision will depend on how efficiently the health insurance exchanges are when they go into effect.

A further study will be required once the law is fully implemented.

We’ll keep you posted.

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