Second Opinion: Is Paying the Fine Cheaper Than Offering Health Care?

Second Opinion: Is Paying the Fine Cheaper Than Offering Health Care?

Photo by John Rosman, KPBS

Rich Martindell teaches flight school at Montgomery Field in Serra Mesa. He says workers in San Diego's aviation industry still have a lot of questions about Obamacare.

Second Opinion is a weekly Q-and-A series that answers questions from San Diegans on the Affordable Care Act. Ask yours here.

The Question: Is it cheaper for a company of 50 or more employees to pay the penalty for not offering health coverage than to sponsor a health plan?

Rich Martindell started flying planes when he was 15. Now he works in San Diego’s aviation industry, teaching others how to fly and investigating crashes. (You may have seen him offering his expert analysis to local news outlets earlier this month when an Asiana aircraft crash-landed in San Francisco.)

Like most local industries, the companies that keep planes taking off from Montgomery Field in Serra Mesa – plane maintenance shops and fuel businesses – are trying to figure out what the Affordable Care Act means for them.

“They’re not Boeing,” Martindell said, but they’re big enough to fall under Obamacare’s employer mandate, which says companies with 50 or more full-time employees must offer adequate health coverage or pay a fine.

Video by John Rosman, KPBS

Here’s Martindell’s question:

Will small companies with, say, between 50 and 100 employees find it cheaper not to carry coverage and pay the fine?

The Takeaway: At face value, the fine is cheaper.

First, let’s get this out of the way: Do you know how many full-time employees you actually have?

The threshold for Obamacare’s employer mandate cannot be calculated with a simple headcount; it’s calculated by hours. The federal government counts each 30 hours worked, even if two part-time employees share it, as a full-time position.
Speak City Heights
In other words: Divide the total number of hours all your employees put in each week by 30. If the result is 50 or more, you need to cover your full-time employees. Your part-timers factor into whether the mandate applies, but you do not have to insure them.

Now for the cost comparison.

For that, we’ll use the average premium for an employer-sponsored HMO plan in San Diego right now – about $5,000 per individual – and the annual fine for failing to offer adequate coverage – $2,000 per employee (but the government waives the fine for the first 30).

The answer seems easy: $2,000 is a lot less than $5,000. But, according to Linda Keller, executive vice president of San Diego-based insurance brokerage Intercare, there are some things to consider:

• Companies aren’t paying the full $5,000 premium. Typically, employees pay around 20 percent, decreasing the employer contribution to $4,000.

• But technically, an employer only needs to pay enough to ensure their employees aren’t pitching in more than 9.5 percent of their household incomes. If your employees make more than $32,000, you could pay less than $2,000 each and still comply with the law. But Keller said she’s never seen an insurance carrier OK an employer contribution of less than 50 percent, or $2,500.

• Employers can deduct what they pay in insurance premiums on their taxes. According to Keller, the standard deduction is 35 percent, potentially bringing the cost of coverage down to $1,625 per person – less than the fine.

• But even if your real-world plan doesn’t pencil out to be less than the penalty, Keller had this to add: Not providing benefits can affect recruitment and retention. If you strip down or ax your benefits package altogether, you’d have to raise your salaries to remain competitive. And you’re not just increasing pay at that point; you’re also increasing payroll taxes, life insurance, disability insurance, etc.

One last thing to consider: Under Obamacare, businesses must also cover the premiums for their employees’ children up to age 26.

The Orders: Forget the mandate delay. Figure this out now.

The Obama administration recently extended the deadline for businesses to offer coverage from 2014 to 2015. But you might want to pull out your calculator and timesheets now.

The Internal Revenue Service’s current interpretation of the law asks businesses to keep track of their employees’ hours over six months next year to determine who must be covered. They’d then enroll those employees in the latter half of 2014, with coverage beginning in 2015. The process could change, however, as the White House works out the kinks.

Check out last week’s Second Opinion: Do I have to cover my three employees?

Voice of San Diego is a nonprofit that depends on you, our readers. Please donate to keep the service strong. Click here to find out more about our supporters and how we operate independently.

Voice of San Diego is a nonprofit that depends on you, our readers. Please donate to keep the service strong. Click here to find out more about our supporters and how we operate independently.


Megan Burks

Megan Burks

Megan Burks is a reporter for Speak City Heights, a media project of Voice of San Diego, KPBS, Media Arts Center and The AjA Project. You can contact her directly at meburks@kpbs.org or 619.550.5665.

  • 119 Posts
  • 5
    Followers

Show comments
Before you comment, read these simple guidelines on what is not allowed.

14 comments
Mark Giffin
Mark Giffin

My son currently works for a franchise of a popular national chain. No employees can get more than 28 hrs a week as the franchise owners do not want to cover them. The employer mandate has been put off (till 2015) to avoid an election year catastrophe for Democrats IMHO.

Mark Giffin
Mark Giffin subscribermember

My son currently works for a franchise of a popular national chain. No employees can get more than 28 hrs a week as the franchise owners do not want to cover them. The employer mandate has been put off (till 2015) to avoid an election year catastrophe for Democrats IMHO.

Allen Hemphill
Allen Hemphill

Did you know that magicians who pull rabbits out of a hat must have a license from the US Department of Agriculture because the animal is a performance animal? (Stay with me here!) After Hurricane Katrina, and because circus animals and zoo animals were easily overcome by wind and rain, Congress passed a four-page law to require protection of performing animals, which bureaucrats turned into 14 pages ON RABBITS, ALONE! Now if bureaucrats can turn a four-page law covering hundreds of animals into 14 pages of implementing regulations on rabbits, alone, just imagine how many regulations they can turn the 1,200 page Obamacare law into? There are not enough trees....

Allen Hemphill
Allen Hemphill subscribermember

Did you know that magicians who pull rabbits out of a hat must have a license from the US Department of Agriculture because the animal is a performance animal? (Stay with me here!) After Hurricane Katrina, and because circus animals and zoo animals were easily overcome by wind and rain, Congress passed a four-page law to require protection of performing animals, which bureaucrats turned into 14 pages ON RABBITS, ALONE! Now if bureaucrats can turn a four-page law covering hundreds of animals into 14 pages of implementing regulations on rabbits, alone, just imagine how many regulations they can turn the 1,200 page Obamacare law into? There are not enough trees....

Bill Bradshaw
Bill Bradshaw

The primary problem with the so-called “Patient Protection and Affordable Care Act” is it’s mind numbing complexity. It rivals the tax code, but at least for taxes there is a well established profession, tax law, that helps people and businesses cope with it. Here you have an extremely lengthy law that delegates to bureaucrats responsibility to come up with practical regulations to carry out the grand scheme. These regulations are being written under increasing pressure as deadlines in the act loom. This explains several things: exemptions to politically-favored groups such as labor unions, delays in implementation for major portions of the law such as the employer mandate, and nonsensical regulations. In Megan Burks’ summary of the provision being questioned, I spotted the following: One last thing to consider: Under Obamacare, businesses must also cover the premiums for their employees’ children up to age 26. I wondered whether the author had misspoken, because it says nothing about a mandate to cover spouses, so I wrote the author, and she responded immediately that she didn’t understand the provision either but that the definition of “dependent” means a child of an employee who has not attained age 26. She gave me a reference to the proposed regulation, dated July 22, 2013. It’s 14 pages of gobbledegook you’re welcome to read at http://www.fas.org/sgp/crs/misc/R41159.pdf Welcome to George Orwell’s world.

Bill Bradshaw
Bill Bradshaw subscribermember

The primary problem with the so-called “Patient Protection and Affordable Care Act” is it’s mind numbing complexity. It rivals the tax code, but at least for taxes there is a well established profession, tax law, that helps people and businesses cope with it. Here you have an extremely lengthy law that delegates to bureaucrats responsibility to come up with practical regulations to carry out the grand scheme. These regulations are being written under increasing pressure as deadlines in the act loom. This explains several things: exemptions to politically-favored groups such as labor unions, delays in implementation for major portions of the law such as the employer mandate, and nonsensical regulations. In Megan Burks’ summary of the provision being questioned, I spotted the following: One last thing to consider: Under Obamacare, businesses must also cover the premiums for their employees’ children up to age 26. I wondered whether the author had misspoken, because it says nothing about a mandate to cover spouses, so I wrote the author, and she responded immediately that she didn’t understand the provision either but that the definition of “dependent” means a child of an employee who has not attained age 26. She gave me a reference to the proposed regulation, dated July 22, 2013. It’s 14 pages of gobbledegook you’re welcome to read at http://www.fas.org/sgp/crs/misc/R41159.pdf Welcome to George Orwell’s world.

Chip Cogswelle
Chip Cogswelle

The math is simple until you need health care, so what happens if you opt out and become ill or have an accident? Will the ER still be required to treat people with no money? What if they need hospitalization? A minor accident (e.g. broken leg) could costs thousands and the "opt-out financial model" would be a big mistake. Can health care providers require the uninsured pay up-front, before treatment?

Chip Cogswelle
Chip Cogswelle subscriber

The math is simple until you need health care, so what happens if you opt out and become ill or have an accident? Will the ER still be required to treat people with no money? What if they need hospitalization? A minor accident (e.g. broken leg) could costs thousands and the "opt-out financial model" would be a big mistake. Can health care providers require the uninsured pay up-front, before treatment?

Chip Cogswelle
Chip Cogswelle

The math is simple until you need health care, so what happens if you opt out and become ill or have an accident? Will the ER still be required to treat people with no money? What if they need hospitalization? A minor accident (e.g. broken leg) could costs thousands and the "opt-out financial model" would be a big mistake.

Chip Cogswelle
Chip Cogswelle subscriber

The math is simple until you need health care, so what happens if you opt out and become ill or have an accident? Will the ER still be required to treat people with no money? What if they need hospitalization? A minor accident (e.g. broken leg) could costs thousands and the "opt-out financial model" would be a big mistake.

Chip Cogswelle
Chip Cogswelle

The math is simple. But what happens if a person opts out and then needs medical care? Will they have to pay upfront or can they still go to ER? What about hospital stays, surgery, etc.? A minor accident (e.g. broken arm) could wreck this whole "financial model" for dealing with the law by opting out.

Chip Cogswelle
Chip Cogswelle subscriber

The math is simple. But what happens if a person opts out and then needs medical care? Will they have to pay upfront or can they still go to ER? What about hospital stays, surgery, etc.? A minor accident (e.g. broken arm) could wreck this whole "financial model" for dealing with the law by opting out.

Megan Burks
Megan Burks

I just want to clarify that I didn't say I don't understand the provision, but that it "surprised me." Contrary to the traditional understanding of "dependent," the law defines it as only the child of an employee.

Megan Burks
Megan Burks author

I just want to clarify that I didn't say I don't understand the provision, but that it "surprised me." Contrary to the traditional understanding of "dependent," the law defines it as only the child of an employee.