Tuesday, 03 July 2012 09:57

The CEO decision; Benefits or Fines

As the media is promoting employers will pay fines rather than continue to pay for employee benefits, I am trying to understand why they are trying to mess with the heads of business owners. We pose the argument, “Why would CEOs or executive directors pay taxes for a benefit they already offer their employees by free will now?”

Today, in 2012, we are not legally required to offer benefits to the employees, but do because we want to recruit and maintain the best talent we are able to. So why would that change? Why would employers now pay fines? I don’t know of one that would fall for that reasoning.

Of course the government would love to gain these tax dollars, but business owners are savvier than that. As a general rule we don’t like to pay more in taxes than we have to. We would rather invest in business operations, equipment, computers and/or our employees.

CEOs also care about their employees and gain employee loyalty through employee benefits, despite what the media says or thinks. Many employees would not take a job without them, unless it is a job of their choice and today some may feel they do not need benefits. These are the ones who will potentially feel the impact from this law unless they qualify for Medicare or other state insurance such as the California-offered Medi-cal.

Larger employers choosing not to offer benefits today may decide to pay taxes. However, just because they have not yet paid for benefits for their employees, why would they want to pay more taxes? The logic does not make sense. Take, for example, Medical CA HMO only: $320 (typical employer co-share cost more or less) x 100 employees = $32,000/month x 12 = $384,000, or an annual fine of $2,000 x 100 employees = $200,000.

Fines are potentially $120,000 less than paying for medical insurance for employees, under employee benefit group programs. However, what does one get in return for this? The answer is frustrated employees now mandated in 2014 to get their own individual insurance through an exchange, a broker or carrier. They may be likely to do this during office hours or leave for a company that offers insurance. Why?

  1. A group policy will always be richer, priced better and offer more assistance with claims through a company’s broker, and any pre-taxed dollars can be paid out through payroll.
  2. An individual plan has higher deductibles, co-pays and co-insurance and can cost a substantially higher amount for an individual than the group employee premium and will have to pay the bill every month with after tax dollars, on time or face cancelation.

In weighing the costs, most employers would prefer opting for employee retention, presenteeism, less turnover cost, and best offerings for recruiting. So the landmark Supreme Court ruling on June 28 upholding the individual mandate had wide-ranging implications. The legislation requires Americans to buy health insurance or pay a penalty, a key part of the law that had come under heavy scrutiny.

In a semi-conservative and also slightly technical statement, the court ruled that the mandate ius actually unconstitutional under the Constitution’s commerce clause, but it can stay as part of Congress’s power under a taxing clause. The court said that the government will be allowed to tax people for not having health insurance. Originally the wording “taxing” was avoided to make the bill a little more palatable to legislators to pass, potentially making it fall under the “commerce clause,” or ability for the federal government to regulate interstate purchasing.

Addressing the concern that this expands the commerce clause so far that people could, in the future, be forced to “buy broccoli,” as one argument puts it, Chief Justice John Roberts wrote, “(t)he Affordable Care Act’s requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax. Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness,” in the ruling.

The court’s ruling upholding the main part of Obama’s law means that people must buy health insurance or pay a tax up to several thousand dollars a year. It also means that other popular provisions of the law will stay, including the various employer mandates we discuss in our Smart Business webinar. We also had several carrier executives express their plans going forward to control cost through Accountable Care Organizations.

Now, as we continue to wait on the outcome of another decision pertaining to discrimination in employee benefit plans, employers are continuing business as usual. One employer states, “I hate the word discrimination when it comes to my decision to pay more toward my key executives or long term employees.” There is still a timeline on this matter expected from the Department of Labor forthcoming.

As time marches forward toward 2014, your benefits brokers will be more important than ever to help your team interpret your responsibilities. If it is not educated in HCR, then it may be time to find one who is.

Danone Simpson is the founder and CEO at Montage Insurance Solutions. Reach her at (818) 676-0044 ordanone@montageinsurance.com.

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Published in Los Angeles