Chain To Expand Health Care Coverage, Avoiding Fines
As parts of the federal Affordable Care Act (ACA) have taken effect since its passage in 2010, business groups, politicians and others have warned that employers may opt to pay fines rather than provide the requisite health insurance coverage for their workers.
After all, a $2,000 fine per uninsured employee seems easier on the bottom line than the average of $12,613 or $4,385 Bay State employers ponied up for family and individual health plans, respectively, in 2011, according to federal data.
But with an approaching Jan. 1 deadline that will require companies with more than 50 "full time equivalent" employees (the combined hours of all employees who work in an average week, divided by 30) to offer a qualified health plan, a Framingham company says its action ahead of the deadline avoids the temptation other firms may feel to cut employee hours below certain thresholds or pay fines that would almost certainly be less than the cost of employers' insurance contributions.
Proactive Expansion
The Cumberland Gulf Group, the Framingham-based owner of both the 600-store convenience store chain Cumberland Farms as well as Gulf Oil Limited Partnership, is making 1,500 of its part-time workers eligible for the company's health plan offerings starting Oct. 1, the company announced this month.
That's a full three months before the ACA, also known as Obamacare, will require employers to offer coverage to those who work at least 30 hours a week or face fines, and realistically about one year before the company would be required to start enrolling part-time workers, according to John. P. McMahon, senior vice president of human resources for the company.
Until now, the company has offered employer-sponsored coverage only to 40-hour-a-week employees. It will increase the hours of some of those 1,500 part-timers to 32 per week.
Cumberland has more than 6,000 employees, and as of October will consider 4,500 of them as full timers since they will be working at least 30 hours a week.
McMahon said the company had been discussing extending health benefits to part-time workers for some time, despite the looming ACA deadline.
"We really are going through a bit of a cultural transformation here, moving to a people-first culture and attitude, both from a leadership team perspective all the way through the organization," McMahon said. "It's a win-win all around."
While the decision will give more hours and benefits to as many as 1,500 employees, McMahon said the investment of several million dollars per year is expected to pay off financially.
Turnover rates among Cumberland employees are as high as 73 percent per year for part-time employees, well above a rate of 15 to 18 percent for full-time workers with benefits.
"It will change the turnover rate dramatically," McMahon said.
Cumberland hopes that will mean less time and money training new workers, and lead to more effective and satisfied employees.
"It was a very conscious decision and, of course, we did our analysis," he said.
Short-Term Costs Aren't The Only Factor
Jim Edholm, president of Andover-based Business Benefits Insurance, said offering health insurance to employees is almost certain to be more expensive than opting to pay fines instead.
"The math works," Edholm said. "What doesn't work is the business consideration."
Employees value health benefits, and if they're not offered or taken away, it would hurt morale and likely, productivity, Edholm said.
"Employees will scratch their head and say 'I wonder what the guy down the street is offering?'" he said. "You're not going to be a competitive employer. You're going to get the least attractive employees. The ones nobody else wants."
Edholm thinks that's the reason Massachusetts, which implemented a far lower penalty of $295 per uninsured employee in 2006, hasn't seen its coverage levels drop. The state requires employers with 11 or more workers to provide a "fair and reasonable" contribution toward their workers' insurance coverage. As a result, it actually saw the percentage of employers offering health insurance rise from 70 percent to 77 percent between 2005 and 2011. Nearly 62 percent of state residents were covered by those plans in 2011, according to the state's Center for Health Information and Analysis.
The Legislature is now considering a proposal to eliminate the 11-employee cap and related fine and allow the ACA provisions to take over.
Another good reason for employers to offer coverage is the federal tax exclusion for part of the premiums they pay, Edholm said. Those who choose not to offer insurance will likely feel pressure to raise employee salaries to compensate for the lack of benefits.
"Are (employers) really going to say to the employee: 'You've been paying 40 percent (of the premium), but I'm dropping the plan and you can go down to the connector and pay 100?'" Edholm said. "There are going to be some upset employees."
Doing The Math
Starting in January, a company with 50 full-time-equivalent employees that declines to offer employer-sponsored health insurance will face a federal fine of $2,000 per employee. That fine will be indexed to the cost of health care moving forward, and so will likely rise.
As an example, a company with 75 workers, each of whom works 32 hours a week, adds up to 80 full-time equivalents, subjecting it to the Jan. 1 deadline. If that company chooses not to offer insurance, the federal government will fine it $2,000 for every employee in excess of 30. In this example, that would amount to a penalty of $90,000 for the year, paid in monthly increments. For companies that do offer insurance, the plan must be both affordable and adequate, as defined by the law.
For employees who go to the state's health exchange, The Health Connector, and who can prove their employers' offerings aren't adequate or affordable, the employer will pay a $3,000 fine.
Jean Yang, executive director of the Massachusetts exchange, said the connector will have more plans and carriers in 2014. But she said she doesn't expect major changes to the high percentage of state residents who have health coverage.
"I would broadly characterize it as really moving further on the path we're already on," Yang said.
The connector will play a role in processing applications for federal tax credits, which, for some employers, could trigger fines.
The connector allows businesses with up to 50 employees to purchase its insurance plans. That number is expected to increase to 100 in 2016.
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