Will Obamacare Challenge Employer’s Total Compensation Models?
It is difficult to know how American business owners really feel about the Affordable Care Act (aka Obamacare). It’s difficult because most of what you hear on the issue comes from politicians, public policy researchers, academics and professional associations. They all have opinions and predictions about what Obamacare means for businesses.
For some, Obamacare is viewed favorably because it gives businesses health insurance options that never existed before. Small businesses especially know how complicated and expensive individual and group health insurance was to obtain pre-Obamacare. But for others, Obamacare is viewed as a huge regulatory burden. Somehow worse than the before model… Meanwhile nearly all of these proponents and opponents neglect to discuss probably the biggest challenge businesses face because of Obamacare. That challenge is how to maintain traditional compensation structures that favor businesses.
Employee Benefits As A Form Of Compensation
For more than half a century employers were able to include “benefits” as a form of compensation they provided to workers. And as employer-provided health insurance became increasingly expensive, employers started to share just how much they were paying for these benefits with workers. They wanted to make sure that workers understood that compensation didn’t just come in the form of a paycheck. So, large employers in particular started distributing annual total compensation statements.
These total compensation statements include pie charts dividing up all of the compensation employees receive. And while cash compensation remains the biggest chunk of the compensation pie, the health insurance, and to a lesser extent, retirement plan funding slices are significant. But Obamacare has the potential to change how employees view their total compensation and how they want to carve it up.
Employees may decide they want to swap wide-ranging health insurance plans for more cash and retirement benefits.
For nearly all workers, receiving employment-based health insurance coverage is less expensive and more comprehensive than what they can find on their own. Employers continue to pay a portion of the monthly health insurance premium for all levels of coverage (single, two-party, and family). Also, health insurance premiums paid under employer group health plans continue to receive favorable tax-treatment that saves employers and workers even more money. But what if workers started to compare coverage of their workplace plans to plans offered on the Exchanges and decided they did not need the level of coverage their employer plan provides? What if they pressed their employers to reduce health benefits and increase cash compensation and/or retirement benefits?
Employees may decide that workplace health insurance benefits favors some more than others.
Remember the ridiculous debate about mandated maternity coverage for plans offered on the Exchanges? Well it’s still going on. In fact, one Republican alternative to Obamacare, the Patient Care Act, would leave it up to states to decide if health plans have to provide maternity benefits. Basically, the Republicans are saying that anyone who cannot get pregnant should not have to purchase a plan that covers pregnancy-related benefits. Unfortunately, this is an argument I’ve heard in several workplaces long before Obamacare.
Some workers begrudge the “extra” benefits they believe parents in the workplace receive. Some even think it unfair for families to receive subsidized employer premiums for family members. What if workers knew that their boss and their boss’s boss received greater health insurance tax benefits than they do? A lot of Obamacare proponents have been pointing out this fact for years as yet another reason to limit or eliminate the benefits of employer-provided health insurance. What if lower-paid workers started requesting higher wages to neutralize this imbalance? This scenario may seem farfetched, but not really. Several members of Congress want to limit or eliminate the favorable and unequal tax-treatment employer plans receive and replace it with a tax credit for all workers. Employees may want more compensation to make up for this loss.
Employees may decide that no matter what health insurance benefits employers provide, they need more compensation to cover their ever-increasing share of the costs.
No one every said that employers did a great or even good job at keeping health insurance costs down. Decade after decade they have accepted whatever increases in health care costs insurers demand. All the while passing on part of the increasing costs to workers. Meanwhile, they provide minimal salary increases that they know do not cover the increase in inflation or health care costs. Workers are very aware of this fact and may eventually demand more compensation to help pay for their rising health care and other expenses.
Throughout the last five years of the Obamacare debate, foes and supporters have focused on how employers will react to the law. Will businesses fire workers? Will businesses decrease worker hours or pay? Will they go out of business altogether? But almost no one ever discusses how employees will react to the law. So a big question looms: will workers start seriously scrutinizing their total compensation packages and demand changes?