Benefits & Compensation News

Salary-based health premiums gaining traction for firms

In recent years, employers have asked workers to shoulder more of the healthcare cost burden. Because of this — and an Obamacare mandate that penalizes employers for offering “unaffordable” healthcare coverage — a number of firms are varying health premiums based on employees’ take-home pay.

In 2012, 12% of employers used salary-based health insurance premiums, according to a recent study by Mercer.

That’s up from 10% back in 2011.

Large employers (those with 500 or more employees) were even more likely to separate employees into premium groupings based on a salary range. The study found that 20% of these employers used this tactic in 2012.

And according to Mercer’s estimates, that percentage is expected to grow significantly in coming years.

Inching toward 9.5%

Like many recent healthcare trends, Obamacare is a major catalyst. Under the PPACA, firms will be penalized starting in 2015 if they offer their employees healthcare coverage with premiums that cost more than 9.5% of their incomes.

Now, because many workers’ health-care increases have been growing faster than their salary for a number of years, there are a number of low-earning employees who are moving closer to that 9.5% threshold.

In fact, a study by payroll and benefits service provide ADP found that employees with annual salaries in the $15,000 to $20,000 range pay an average of 8.4% of their total take-home for health benefits.

On the other hand, ADP found that employees making $120,000 paid just 2.1% of their annual income for health benefits on average.

So it’s easy to see how a salary-based healthcare premium model would help to narrow the gap between low and high-earners.

In a nutshell, higher-compensated employees would pay more in premiums to keep those costs more more affordable for those earning lower wages, under this model.

What about the ‘play or pay’ delay?

As HR Benefits Alert reported previously, the feds recently delayed the new employer and insurer reporting requirements under Obamacare until 2015.

These requirements are what make enforcement of the employer mandate to provide full-time workers with affordable health insurance possible.

So employers have a little more time before they’ll get penalized for offering workers healthcare coverage with premium costs that exceed the 9.5% of total income threshold.


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