Lots of employers are saying that they’re not worried about having to provide health care to employees because they’ll just reduce the employees’ hours to under 30, and voila! The employer is no longer required to provide coverage.
Think about that for a second. Let’s assume that the employees you reduce to 30 hours are good employees. Do you want to lose them to your 40-hour competitor down the street? I don’t think so.
And what if you’re now offering coverage to some of your people and you decide that you’ll reduce hours for the hourly employees simply and eliminate the plan for those salaried folks now covered?
What happens to those people? They’ve gone from paying 30-40% of a plan via their Section 125 plan to having to pay 100% of the cost of the plan. That puts a dent in the old take-home pay.
No problem, you say. You can just boost their salaries by what you’ve been paying, right? Then they’ll have the money they need to buy from the Exchange (oops, I forgot – “exchange” translates into a negative word in some languages, so since we want to be ever-PC we are now calling the exchanges “marketplaces.” Maybe you can, but I can’t. It’s an exchange, and to hell with those who force their sensitivities on me against my will.)
Anyhow, you’re gonna have them buy the coverage via the exchange? Let’s d some quick math. The 30-40% they’re paying now is PRE-TAX, thanks to your 125 plan. So it costs them maybe 20-30% of their take-home pay because the government is subsidizing it via tax breaks.
Unfortunately, Boobie, there ain’t no tax breaks for health insurance purchase directly by an employee.
So let me do the math for you. You were paying, say, 60% of the cost. Employee paid 40% but at a 32% after-tax cost. So now you’re gonna give him the 60% in his pay, right? With no 125 plan available, that 60% boils down to 48% at the same tax bracket used above.
So, my brilliant friend, by doing what you’ve done, the employee has gone from spending 32% (after tax) of the cost of coverage to having to pay 100% of the cost of the coverage. But he doesn’t have 100% of the money. Heck, he doesn’t even have the 68% of the coverage that he needs – the 60% you gave him percolates down to 48%. So the employee has to cough up an additional 68% of the cost of coverage on top of the 32% he used to pay.
That’s a THREEFOLD INCREASE IN HIS COST.
And here’s the kicker. There’s a little-known section of ERISA (the pension-related law) that says that if you conspire to violate an employee’s right to get a benefit that he was going to get, you’re in violation of ERISA.
So in addition to not saving any money by cancelling the plan (because you gave the savings to the employee), you’re facing potential civil litigation from a now-disgruntled employee PLUS MASSIVE FINES!!
So think it over, Chuck. It ain’t that good a deal.