Will Employers Intentionally Offer Unaffordable Coverage?

This is from Avik Roy:

The law requires that every employer with 50 or more “full-time employees” offer “minimum essential coverage” in an “affordable” manner…

The penalty is triggered if at least one employee seeks federal exchange subsidies instead of gaining insurance form his employer. In that case, the employer will have to pay a non-tax-deductible fine of the lesser of $2,000 times the number of full-time employees ― 30.

If the employer does offer a health plan, but it isn’t “affordable” to all workers or fails to meet the “minimum essential coverage” requirements, then the employer pays the lesser of the fine described above, or $3,000 times the number of full-time employees receiving exchange subsidies.

What does this mean in reality? It means that employers have an incentive to offer coverage that is either “unaffordable” according to ObamaCare or that fails to meet the law’s “minimum essential requirements.” That way, the employer pays a penalty only for those workers who gain subsidized coverage on the exchanges. So the best way for employers to “dump” coverage onto the exchanges is not by offering no coverage at all, but by offering coverage that doesn’t meet ObamaCare’s requirements.

Comments (17)

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  1. Bruce says:


  2. Buster says:

    For a hotel chain, $3,000 to get low-income workers covered is probably less expensive than paying for coverage

  3. JD says:

    We’ll all be pushed out of our previously satisfactory coverage into the national leviathan. I see no incompetence here, this has been carefully orchestrated.

  4. Dewaine says:

    Smaller companies are starting to transition to self-insurance to avoid many of these punitive restrictions.

    • Roget says:

      Curious cause most people would rather take the punitive measures… cause they’re cheaper than health insurance.

    • Dennis Byron says:

      Moving to self insured did save Massachusetts companies from RomneyCare — and the number of companies doing it grew the first years (and the number of people that were insured that way grew 10% the first few years of RomneyCare, much more over a longer window)/

      But I don’t think companies can play that game vis a vis Obamacare. Can they?

  5. Taylor says:

    This is concerning. Don’t these bureaucratic policymakers understand that people are going to be affected by these consequences? Of course they know employers are going to go out of their way to avoid losing profits, which only ends up affecting the average employer.

  6. Timmy says:

    I thought it was supposed to encourage competition as I recall the administration contending. Doesn’t look like this will be the case and we’ll see more of penalty avoidance rather than truly embracing a competitive industry where prices are reduced and quality is improved due to demand and competition.

  7. Toral says:

    I’m still having some trouble understanding this complex law.

  8. Craig says:

    This will absolutely provide an incentive for employers to charge astronomical prices for healthcare coverage, because 3,000 per employee is chump change compared to how much they would have to pay with normal health coverage.

    • Nigel says:

      Essentially, the government is incentivizing companies to increase the burden to Obamacare. That seems counterproductive in regards to fiscal responsibility.

  9. Dennis Byron says:

    Partially by offering unaffordable insurance and partially by scheduling more part time schedules, this is what happened in Massachusetts.

    But I don’t think the employers consciously chose unaffordable insurance; the state regulations as to what had to be in even the least beneficial insurance policy is what made the policies unaffordable.

  10. Bob Hertz says:

    Leaving aside the destructive consequences of this pseudo-pay-or-play semi-mandate, which Roy and others recognize well…………

    but even assuming it was a good law, how is it going to be enforced?

    Pretend I am a warehouse worker inside a Walmart distribution center.

    I register for the ACA exchanges.

    My employer gets a letter informing them of the new tax that I have caused them to accrue.

    Boy, does that do wonders for my future at this job.

    The ACA was drafted by employees of Congress, plus I suppose some academics on loan to Congress.

    And it shows.

  11. Jack M. says:

    Offering “unaffordable” coverage is actually a strategy many employers are employing, although it’s not as cut and dry as simply offering Minimum Essential Coverage sufficient to avoid the big penalty ($2,000 for all FTES) but making it ridiculously expensive for everyone. The $3,000 per FTE penalty is only assessed when the coverage offered is not affordable (or doesn’t provide enough actuarial value) for that individual person AND that individual person qualifies for and receives a subsidy to purchase coverage on a government exchange (i.e. they are earning income between 150 – 400% of federal poverty level).

    So, for an employer that doesn’t want to tick off or drive away a core of talented employees (because let’s be honest, employer-sponsored health benefits are a nice perk), that employer need only make their coverage affordable enough for whatever subset of employees they don’t want to lose, or whose income is above the point of qualifying for a subsidy (so no penalty).

    The employer can customize how affordable coverage is based upon which tiers of employees are likely to get subsidized exchange coverage. For example, it may be ridiculously expensive to make coverage affordable for an employer’s lowest paid FTEs, but the next tier of employees above that may be in salary bands that are high enough where you don’t have to subsidize as much for it to be considered “affordable” under the formula. So you know what your maximum penalty will be (if 100% of that lowest tier of FTEs buys subsidized coverage), but maybe only half will do it, maybe only 10% will navigate the paperwork and the tax forms, etc. etc. Maybe you can assign an expected value based on your forecast.

    Point is, there is a lot of grey area and tinkering employers can do when deciding how affordable to make their coverage based upon how many people it thinks will get subsidized coverage in an exchange and what it would take to offer affordable coverage to them (based on their W-2 income)….

    • Dennis Byron says:

      “The employer can customize how affordable coverage is based upon which tiers of employees are likely to get subsidized exchange coverage.”

      Employers can’t do this with 401Ks. Can they do it with Obamacare?