Healthcare Reform: Companies Might Like It Better If Regulations Went Easier on Employers

(MoneyWatch)  Employers play a major role in healthcare reform, as the Affordable Care Act expects them to continue -- and even expand -- coverage to their employees. Some of the regulations and accompanying fines that medium-sized companies face under the law, however, could have the perverse effect of hardening employer resistance to reform.

It's well known that companies employing more than 50 workers that don't offer coverage face a stiff financial penalty. While not quite a mandate to offer insurance, this provision would fine employers $2,000 a year for each full-time employee who seeks government subsidies in the health insurance exchanges. Another, lesser-known clause could have even broader consequences: If any employee of a company that has more than 50 workers can't afford the insurance, the company is penalized $3,000 for each such employee who joins an exchange, up to a maximum of $40,000.

What does "unaffordable" mean? As the law is written, it's defined as any policy that costs the employee more than 9.5 percent of his or her household income. The law doesn't specify whether this means that the employee's share of the premium exceeds 9.5 percent of household income for an individual or a family policy. But even if it's for an individual plan, the cost for many low-paid workers could easily surpass 10 percent of their wages. Consequently, companies that have a lot of low-paid employees -- particularly, retailers and restaurants -- are up in arms about this provision, which could affect up to a third of all employers.

There are various ways for firms to get around this provision, notes Robert Pear of The New York Times. They could buy cheaper policies that have higher copays and deductibles. Or they could vary the amounts that each employee has to pay for insurance according to the level of their wages. Even then, however, employers would be shooting in the dark unless they had information about a person's household income. And if they did, they might be inclined not to hire someone who was the sole support of their household.

Regulators might want to give employers some additional flexibility without making it too difficult for employees to pay their share of the premium. One way to do that is to open up the exchanges to medium-sized companies so that they could offer a menu of plans to their employees at more reasonable rates.

Employers will also be required to allow young adults to remain on their parents' family plans up to age 26, regardless of whether they're emancipated or whether they're in school. Moreover, they have to offer coverage to these young adults even if they've been off their parents' plans for some time. Employers must offer the same level of coverage that the young adults would have had as dependents, and can't charge them more than they would have paid if they were still dependents. However, the young adults will still face pre-existing condition exclusions for up to 12 months until 2014, when those insurance provisions will be prohibited.

Only a small minority of employers will offer this coverage at the end of September, when the young-adult provision becomes effective. That's because they're allowed to wait until the beginning of their next plan year, which, for most companies, is Jan.1. The real issue, however, is how much the young-adult coverage will cost employers, and how much of that they'll be able to pass onto workers.

Again, a little flexibility is called for. If employers didn't have to provide the same level of coverage that's in the family plan, it would cost relatively little to cover the young adults, who are a fairly healthy group. Regulators, take note.

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