Stunning Forecast: By 2020, 90 Percent of Employees of S&P 500 Companies Will Have Lost Employer-Based Coverage
That’s according to S&P Capital IQ itself — creator of the famed stock-market index. In a new research note, S&P’s analysts conclude that corporations in the S&P 500 Index will save $700 billion in benefit costs by dropping employer-based coverage and sending employees into ObamaCare’s health-insurance exchanges. For all U.S. companies with fifty or more employees, total savings could be $3.25 trillion through 2025. Here’s how S&P Capital IQ’s analysts think it will happen:
The transition away from employer-sponsored health care towards the ACA exchanges is likely to occur in stages. Companies will moderate the roll-out in order to minimize the disruption to their business. This has been the precedent of the past, particularly with pensions. We expect the first wave of the transition to focus on entry-level college graduates, lower-wage workers, or part-time employees as these individuals are well positioned to benefit the most from government subsidies. It is expected that corporations will increasingly move more employees onto the exchanges over time. Some individuals will be subsidized by the U.S. Government, partially funded by penalties levied on corporations for each worker that is not provided health coverage by their employer. It is also anticipated that higher-income employees, who are unable to use government subsidies, will eventually be pushed towards the exchanges and will be provided a stipend to help cover costs.
Sounds like employers want to get out of the health insurance game as quick as possible.
Actually I do not believe so. Who wants to work for an employer who provides no insurance.
What if they pay you more instead of offering coverage, and let you go to the marketplace? Or opt out of coverage altogether? It may not be such a bad idea.
But I shudder at the reality of paying $400 a month for ObamaCare health coverage. Its like flushing money down the toilet.
What is the difference. Employees may ask for full reimbursement.
Providing health insurances is quite essential.
Do you work for an employer? Does he, she or it pay for your homeowners or renters insurance? Auto insurance? So why care whether or not he, she or it pays for your healthcare insurance. It’s just compensation.
Pretty soon, they will try to get out of the benefit game altogether if MyRA catches on.
I just hope that by 2040 people on Medicare haven’t lost their health plan.
If the liberals have their way, we’ll all be on Medicare in the next 20 years. Won’t that be fun?
Well you know that health insurance is a God given right…
Yeah its right up there with Liberty..
“We expect the first wave of the transition to focus on entry-level college graduates, lower-wage workers, or part-time employees as these individuals are well positioned to benefit the most from government subsidies.”
So let’s take out the most vulnerable first. That’s the ticket!
This would all told be a good thing, dismantling the employer provide healthcare system, letting all individuals buy for themselves, portable coverage, and make their own choices.
Unfortunately the exchanges do not really provide choices because of how they’re structured. The government is basically dictating options rather than letting markets decide. We absolutely want a vibrant marketplace for individual insurance with policies and prices set by the consumer and the provider using normal market forces LIKE EVERYTHING ELSE WE BUY, these exchanges are not that.
“. . . sending employees into ObamaCare’s health-insurance exchanges.”
Not necessarily.
The major insurance companies and consulting firms have been very busy creating their own private exchanges. Some are operational now.
As I understand it, private exchanges can be more attractive to larger employers, who self-fund their benefits. Those who continue to purchase insurance – smaller employers and individuals – will probably find the Obamacare exchanges more attractive. Private exchanges can’t escape all Obamacare regulation, but can escape a fair amount of it, giving them some advantages of flexibility not available thru an Obamacare exchange.
If private exchanges pan out as hoped, they will be competition for Obamacare. That’s what the government wants, right? Competition?
Employers will have viable self finding options through Health Matching Insurance offered by National Prosperity Life and Health
By sharing reserves employers can lower premiums up to 60 percent not even including
Medical inflation
For more info contact Don Levit at donaldlevit@ aol.com
Don Levit
Principal of NPLH
I do not think that private exchanges can offer tax credits (i.e. subsidies).
So the two ships will pass in the night.
Also, I think that the IRS made a ruling that employer subsidies to employees would be taxable. That is a huge hit.
“I do not think the private exchanges can offer tax credits (I.e. Subsidies).”
Bob, tax credits and subsidies are two different things. In an Obamacare exchange they are more or less synonymous – not so in a private exchange.
The ideas behind private exchanges are that large, self- funded plan sponsors will prefer to continue offering their own private coverage; will prefer to purchase the coverage thru a private exchange; and will continue to provide essentially the same member subsidies they provide now. Individuals who obtain their coverage thru work can choose an Obamacare exchange plan if they wish, but are generally NOT eligible for taxpayer-funded subsidies. So few, if any, of these employees would drop their employer’s coverage.
On the other hand, individuals plus employees of smaller companies that do not provide their own subsidies (or that decide to end them), would have little choice but to enroll thru an Obamacare exchange to receive a taxpayer-funded subsidy.
Not clear what you may mean by “pass in the night”. If you mean the likelihood of a general separation of covered populations along these lines, I agree with you.
What is the source for your statement about the taxation of employer subsidies? It has been my understanding that the value of the employer excludible contribution to health coverage continues to be excludible from an employee’s income, and it is not taxable.
Employer contributions to group health insurance remain tax-free to the employee, no doubt about that.
In order for an employer to provide financial assistance for the purchase of individual insurance, the only way to keep that sort of assistance tax-free was through a Section 105 plan or a Section 125 cafeteria plan.
The status of those two plans after 2013 is extremely murky. A firm called Zane Benefits offers compliance advice, and when I read their material I came away more confused than when I started. (and I know something about this stuff!)
I did speak to one insurance professional, and he said that in his opinion any employer who even tries to set up a 105 plan is taking a tax risk. Most companies who do not have a benefits professional and a lawyer on staff will just give their employees a taxable stipend.
I’m not talking about 105 plans. Section 125 does just fine. What’s your source regarding your statement about IRS declaring employer subsidies taxable – either to the employee, or to the employer, for that matter?
Thanks.
McGladrey published a Tax Alert on 12-23-2013, called Affordable Care Act impact on certain health plans.
As I read the alert, employer assistance for the purchase of individual health insurance would trigger new taxes.
Most Sec 125 plans that I used to see would give special tax treatment for the employee portion under group insurance. Plans to help the purchase of individual health insurance were rare I believe.
Bob – McGladrey’s may be a good source, but you don’t really give source information for your earlier comment simply by mentioning their name.
On the other hand, IRS is very clear on this subject – it says employer contributions are not taxable to the employees (and this is what I mean by a source):
http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions
In the 5th section the IRS says:
“the value of the employer excludible contribution to health coverage continues to be excludible from an employee’s income, and it is not taxable”
And here’s another:
http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage
In the first paragraph IRS states:
“The value of the employer’s excludable contribution to health coverage continues to be excludable from an employee’s income, and it is not taxable. ”
Both sources are IRS.gov, and both were released in 2014.
In both comments IRS also appears to confirms that the employers’ contributions also continue to be excludable from employers’ taxable incomes. (or, maybe, “excludible” – IRS spells it both ways).
Thank you all for this discussion. It is always good to get input from actual benefits professionals!
My cognitive obstacle to the S&P forecast is that I struggle to see an employer “topping” up the salary of a six-figure earner and sending him into an Obamacare exchange.
As discussed above, this person would neither get a tax credit nor deduct or exclude the salary increase from taxable income. So, if the person is in a high combined marginal income-tax bracket, say 40% or more, the employer would have to top up not just the cost of the health benefits, but the tax too.
The private exchanges, which we’ve written about at this blog, are one solution.
Another solution is to change the categories of workers, or even re-organize the business, so as to offer different benefits to workers of different incomes.
I think this is relatively easy for, e.g., a fast-food chain with franchises, or a big conglomerate like GE. However, it may be difficult for a single corporation with 100 or so employees.
I’d be very grateful for the benefits experts to weigh in.
John, I agree that companies won’t gross-up the wages for higher-earning employees. The gross-up would be taxable, while continuing to provide insurance contributions is not. Why would a company choose the costlier means to reach its goal?
Can the terms of offering coverage be based on employee wage levels? I think the analysis and the answer will illustrate why companies rely so much on employment attorneys.
John:
Employer contributions are excludible if part of a group insurance plan, or more explicitly, an employer plan.
Providing contributions to insurers for individual policies is not considered an employer plan – period.
Many insurers do not even consider individual policies as meeting the participation requirements for employers, even if the policy is a comprehensive major medical plan. From the group insurer’s standpoint, they are “uninsured.”
Don Levit
Don Levit
@Don “Employer contributions are excludible if part of a group insurance plan, or more explicitly, an employer plan.”
Are they also excludible if part of a group plans sponsored by trade or professional associations or unions or Taft-Hartley plans?
Regardless you are correct about excludability for groups and not for individuals, which is why I stayed away from Section 105. It’s also why I challenged the notion Bob initially floated (& then withdrew) that IRS made a ruling that employer subsidies to employees would be taxable.
In fact, the differential tax treatment of premiums for group vs. individual coverage is one of the main reasons I said before, that I expect private exchanges will be competitive with the government exchanges. It’s more complicated than just taxes, but the tax differential explains a lot.
John:
I wonder why you have so much confidence in the private exchanges.
We have a lot of business lined up, but the private exchanges will be next on our list.
If employers believe fully insured plans beat self funding, they may be right – until they see Health Matching Insurance from National Prosperity Life and Health.
Through our patented product, we are able to save employers up to 60-80% over time, and smaller savings immediately.
Unless an employer plans to be out of business, there is no valid reason to stick with traditional fully insured plans.
We’ll give them a real public option!
Don Levit
Principal
National Prosperity Life and Health
here is the IRS notice that I was relying on. I still think I am right, that an employer cannot help an employee buy their own individual coverage on a tax free basis
Introduction
The Department of Treasury/Internal Revenue Service (IRS) and Department of Labor (DOL), collectively referred to as the “Departments”, recently released updated guidance on the “Application of Market Reform and other Provisions of the Affordable Care Act to HRAs, Health FSAs, and Certain other Employer Healthcare Arrangements” (IRS Notice 2013-54 and DOL Technical Release 2013-03 – the text of the two releases is the same). The guidance clarifies a large number of issues that require action. Briefly, the guidance clarifies the following:
• All HRAs should be designed as integrated HRAs. Stand-alone HRAs are no longer permitted.
• Health FSAs offered as part of a cafeteria plan must be designed as excepted benefits: 1) employer must provide other group health coverage and 2) employer contributions to the health FSAs must be at or below $500 or not more than a 100% match of employee contributions.
• Employers may no longer reimburse employees for individual health insurance coverage on a pre-tax basis unless the employer is participating in a SHOP (Small Business Health
@Bob you say “I still think I am right, that an employer cannot help an employee buy their own individual coverage on a tax free basis”
Bob, no one challenged that point.
The discussion came up because on May 2 you said: “Also, I think that the IRS made a ruling that employer subsidies to employees would be taxable. That is a huge hit.”
Then about 12 hours later, you revised your comment as follows: “Employer contributions to group health insurance remain tax-free to the employee, no doubt about that.”
I think we’re in agreement now.
btw, do you know how to copy a link into a message? That’s often helpful because it permits everyone to read the same source as you.
Agreed. This question has been long settled, but some brokers and agents have tried to resurrect the zombie in years past because they thought they could get around small-group underwriting rules.
Anyway, I don’t know what an “employer subsidy” is. All income earned from an employer is taxable, unless the IRS has decided otherwise. I.e. the default is taxable. There is nothing where the default position is non-taxable. The IRS has to have decided that.
IMHO that would be a good outcome from the ACA.
he should end the charade and kill the employer mandate.