Many business owners are uncertain how their companies and the nation’s economy will be affected as Congress and President Barack Obama put the finishing touches on a health care reform bill.
At press time, the controversial 2,000-plus page legislation had not been adopted. The Senate and House each had passed a health reform bill and needed to reach a compromise agreement to present to Obama.
One aspect of health care reform that employers are monitoring is the employer mandate provision, which would force employers to either offer health insurance to their employees or pay a penalty.
Some business owners may decide that they are better off dropping health insurance benefits, forcing their employees to obtain insurance on their own, and then paying the federal penalty. Opinions differ on how many businesses would take that course.
“I think that it is going to be a decision made on a business-by-business basis,” said Larry Schreiber, president of Anthem Blue Cross Blue Shield of Wisconsin. “They are going to have to take a look at their profit loss and determine what will be best for them in terms of saving money and offering a benefit that attracts quality employees.”
In its simplest form, there are two possible scenarios for how the employer mandate will work. According to the Henry J. Kaiser Foundation, the Senate version indicates that any company with more than 50 employees must either offer health insurance coverage or pay a penalty of $750 per full-time employee. Businesses with 50 or fewer employees would be exempt from those penalties. In the House version, all employers would be forced to offer coverage to their employees, or else pay a penalty equal to 8 percent of its payroll. Companies with a payroll of less than $750,000 annually would see a reduced or eliminated percentage penalty based on a sliding scale.
The annual Greater Milwaukee Health Care Benefits survey, conducted by HCTrends.com, indicated that three out of four companies in the Milwaukee area would save money by dropping health insurance benefits and instead paying the 8 percent payroll penalty. The survey results showed that 73 percent of employers that responded said their health care benefits were at least 10 percent of their total payroll costs.
“From a simple cost standpoint, if there is an employer mandate in the final bill such as an 8 percent payroll tax penalty for not playing, there will be an advantage to many employers not to offer employee benefits,” said Peter Frittitta, vice president of benefits sales and service for Waukesha-based insurance brokerage R&R Insurance. “We have heard some employers already who feel that should it come to that, they would more than likely pay and not play. There are some other employers who look beyond the cost and look at the benefits that they offer their employees and would still like to offer their own program as long as they can.”
However, Jon Rauser, president of Milwaukee-based health insurance broker The Rauser Agency, says many of his clients will be better off if they continue to provide health insurance benefits.
“We shouldn’t assume that every employer is spending 12 to 15 percent of its payroll on health insurance,” Rauser said. “On average, it’s about a 50-50 split with my clients (that pay more than 8 percent of payroll on health insurance). For most, their coverage comes to around 6 percent of their payroll.”
According to Rauser, small businesses aren’t able to be as generous as larger companies, so they may have premium sharing agreements or higher deductibles.
“If Congress implements something around 8 percent, I don’t think it’s going to cause a lot of people to rush to some other program,” Rauser said.
Both the Senate and House versions of health care reform propose that all individuals will be forced to have some form of health insurance coverage.
“Businesses that I have talked to are looking at it from two different standpoints,” said Richard Blomquist, president of Brookfield-based Blomquist Benefits LLC. “Because every citizen will be required to have it, there is a lot of pressure on businesses of all sizes to provide it in their benefits package. Their employees now need to do this, which will reflect a significant cost to their overall expenses.”
However, for a lot of businesses, paying the penalty would be a bargain, Blomquist said.
If companies have the option to pay the penalty and have the security of knowing their employees would be able to take advantage of a partial public option or participate in an insurance exchange, that may be attractive for them, Blomquist said.
“I could see large businesses opting into the 8 percent penalty in lieu of any health insurance premium and the cost of obtaining coverage for all of their employees,” he said. “It’s a better deal for them, but it’s definitely a short-term decision. I think it will create problems for them downstream because those penalties will have to go up, but they won’t be thinking of that upfront.”
Bill Petasnick, president and chief executive officer at Wauwatosa-based Froedtert & Community Health and former president of the American Hospital Association, said he believes that no matter what is passed in Washington, it will have a very modest impact in Wisconsin, due to the high number of individuals already covered in the state.
“The Cliffs Notes summary look at the bill says that at least 30 million people will be coming on board that weren’t here before,” he said.
Currently, 81 percent of the U.S. population is covered by some form of health insurance, and the passage of health care reform would take it to 93 percent, Petasnick said.
