20 Oct 2015

Many Low-Income Workers Say ‘No’ to Health Insurance

When Billy Sewell began offering health insurance this year to 600 service workers at the Golden Corral restaurants that he owns, he wondered nervously how many would buy it. Adding hundreds of employees to his plan would cost him more than $1 million — a hit he wasn’t sure his low-margin business could afford. 
His actual costs, though, turned out to be far smaller than he had feared. So far, only two people have signed up.
“We offered, and they didn’t take it,” he said.
Evidence is growing that his experience is not unusual. The Affordable Care Act’s employer mandate, which requires employers with more than 50 full-time workers to offer most of their employees insurance or face financial penalties, was one of the law’s most controversial provisions. Business owners and industry groupsfiercely protested the change, and some companies cut workers’ hours to reduce the number of employees who would be eligible.
But 10 months after the first phase of the mandate took effect, covering companies with 100 or more workers, many business owners say they are finding very few employees willing to buy the health insurance that they are now compelled to offer. The trend is especially pronounced among smaller and midsize businesses in fields filled with low-wage hourly workers, like restaurants, retailing and hospitality. (Companies with 50 to 99 workers are not required to comply with the mandate until next year.)
“Based on what we’ve seen in the marketplace, we’re advising some of our clients to expect single-digit take rates,” said Michael A. Bodack, an insurance broker in Harrison, N.Y. “One to 2 percent isn’t unusual.”
Nationwide, the Affordable Care Act has significantly reduced the number of Americans without health insurance. Around 10.7 percent of the country’s under-65 population was uninsured in the first three months of this year, down from 17.5 percent five years earlier, according to the National Health Interview Survey, a long-running federal study. Some 14 million previously uninsured adults have gained coverage in the last two years, the Obama administration estimates.
Most of those gains, though, have come from a vast expansion of Medicaid and from the subsidies that help lower-income people buy insurance through federal and state exchanges. Workers who are offered affordable individual coverage through their employers — a group that the employer mandate was intended to expand — are not eligible for government-subsidized insurance through the exchanges, even if their income would otherwise have qualified them.
But for those trying to get by on near-minimum wages, a plan that qualifies as “affordable” can still seem far out of reach. 
Running the math on his plan — a typical one for the restaurant industry — illustrates why a number of low-wage workers are falling through gaps in the Affordable Care Act.
The annual premium for individual coverage through the Golden Corral Blue Cross Blue Shield plan is $4,800. Mr. Sewell pays 65 percent for service workers, leaving them with a monthly cost of $140.
The health care law defines affordable employer-sponsored insurance as that priced at 9.5 percent or less of an employee’s annual household income for individual coverage. (Because employers do not know how much money their workers’ relatives make, there are several “safe harbors” they can use for compliance, including basing their calculation on only their own employees’ wages.) Mr. Sewell’s insurance meets the test, but $65 per biweekly paycheck is more than most of his workers are willing — or able — to pay for insurance that still carries steep out-of-pocket costs, including a $2,500 deductible.
Clarissa Morris, 47, has been a server at the Golden Corral here for five years, earning $2.13 an hour plus tips. On a typical day, she leaves the restaurant with about $70 in tips. Her husband makes $9 an hour at Walmart but has been offered only a part-time schedule there, without benefits. Their combined paychecks barely cover their rent and daily essentials.
“It’s either buy insurance or put food in the house,” she said. On the rare occasions that she gets sick, she visits a local clinic with sliding-scale fees. It costs her $25 for a visit, and $4 to fill prescriptions at Walmart.
Brad Mete, the managing partner of Affinity Resources, a staffing agency in Dania Beach, Fla., began offering insurance this year to most of his workers only because the law required it. He said the alternative, paying a penalty of about $2,000 per full-time employee, was unthinkable, “That would put us out of business, in one swoop.”
Trying to persuade his hourly workers to buy the insurance is “like pulling teeth,” he said. His company’s plan costs $120 a month, but workers making about $300 a week are reluctant to spend $30 of it on insurance.
The employer mandate has not yet had any noticeable effect on the number of workers enrolled in employer-sponsored health plans, according to a survey by Mercer, a human resources consulting firm. Most of the newly eligible appear to be obtaining coverage elsewhere, such as through the plan of a parent or spouse, or are continuing to go without, said Tracy Watts, a Mercer consultant.
study by ADP, the payroll processing giant, found an income tipping point at which most employees who are eligible for health insurance will buy it: $45,000 a year.
Workers making $15,000 to $20,000 a year buy employer-sponsored individual insurance when it is offered only 37 percent of the time. That rate rises at every income increment ADP studied until $45,000, when it reaches 82 percent and levels off. Further income gains have virtually no effect on the rate, ADP found.
The study was conducted in 2013, before many of the Affordable Care Act’s provisions took effect, but ADP’s recent figures do not indicate significant changes in that pattern, according to Christopher Ryan, an ADP research executive.
Low participation can pose problems for employers, especially smaller ones. Insurers are reluctant to sell policies to companies with low enrollment, because they fear that only the sickest employees will buy coverage.
Until this year, most insurers would not cover groups that fell short of their minimum participation requirements. The Affordable Care Act struck down that policy — a sea change for the industry — by prohibiting minimum participation rules from being used to deny coverage to any employer with 100 or more workers. But there is a big loophole: Insurers are required to issue the policies, but they are not required to renew them.
Mario K. Castillo, a lawyer in Houston who has extensively studied the new law, said it was poorly understood in the industry, and a bureaucratic nightmare.
“They have to issue you a policy, but dropping it after one year is perfectly legal,” he said. “If you’re in this space, you essentially have to shop for insurance every year.”
For employees, forgoing coverage can mean facing tax penalties. Ms. Morris said she was surprised by the $95 fee she had to pay this year for being uninsured in 2014. “I had kind of heard about it, but I didn’t think it was going to kick in until later,” she said.
Around 7.5 million taxpayers paid the fine, according to a preliminary report by the Internal Revenue Service. That is significantly more than the three million to six million the government had forecast.

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