Well, My Company Is Officially Required to Buy a Product That Does Not Exist For Us

As of next year, my company is required to offer health care plans to our full-time employees or else pay a penalty.    Unfortunately, after an extensive market search, no one will sell me such a policy -- not even the government health care exchange for small businesses.

Let's take a step back.  Business owners have had the rules pounded into us over the last few years, but many of you may not be familiar with the details.  The detail rules are here, as "simplified" as much as possible by the NFIB, but don't read them unless you have to or your head will explode.  The simple way to think of it is that there are two penalties out there:

  • The "A" penalty is for companies that do not offer any sort of health plan, no matter how crappy, to their full-time employees.  The A penalty in this case is $2,000 per full-time employee, with the first 30** free (so with 60 FT employees and no health plan, the penalty is (60-30) x $2,000 = $60,000 a year.
  • The "B" penalty is for companies that avoid the "A" penalty.  If a health plan is offered, but is not affordable (ie the employee monthly share of premiums is higher than a government-set floor) then the company gets penalized $3,000 for every full-time employee who both goes into an exchange and gets a plan with a government-subsidized premium.   There is a cap on the "B" penalty that it can be no higher than if the "A" penalty was applied to the whole company.

We have always pretty much assumed we were going to get the B penalty.  For minimum wage workers, the floor contribution is something like $9o a month, so the company share over a year for a typical employee of ours would be way over $3000.  Also, since over half of our full-time employees are on Medicare and another portion of them are on some sort of retirement plan from a corporation, we don't expect that many to go into the exchange anyway.  So we plan to just pay the penalty.

But we had expected to avoid the A penalty by offering some sort of policy to our employees.  When experts present this stuff, they act like only the dumbest of the dumb companies would ever be saddled with the A penalty.  After all, the company does not even have to pay anything for the policy, they just have to offer something.

But it turns out that all the things that protect us from the B penalty make us almost un-insurable.  First and foremost, insurers have a minimum participation rate they demand.  They are not going to go through all the overhead costs of setting you up on their plan if no one is going to sign up.  In the Government Small Business Health Care Exchange (SHOP), that minimum participation rate is around 70%.  No WAY we can meet that, since over half or our employees are on Medicare and would thus not sign up for anything.  The fact that the average age of our workforce is in the 60's, maybe even the 70's, just makes things worse.  Obamacare gives insurers only limited ability to price for higher risk, so they lose money on older people.  That means they are going to avoid like the plague signing up any group like ours that is all older people.

So, as a result, I am required by law, under harsh financial penalties, to purchase a product that is not available to me.  Had President Obama required that I buy 2 pounds of rocks from Mars, the result would not have been any more unfair.

By the way, I have for a couple of years now been discussing my efforts to convert all our full-time employees to part-time.  I have gotten a lot of grief for that in the comments.  But do you see why now?  The Administration is levying a penalty on me that I cannot avoid.  That penalty is calculated as a multiple of the number of full-time workers I employ.  The only way I can reduce the penalty is to reduce the number of full-time employees.

It is a sorry state of affairs to have to see my greatest business achievement of the last year was to get my number of full-time employees in a workforce of over 350 people down to just 42.  This year, we will work to get it under 30.  If we can do that, we will avoid all penalties entirely without having to mess with the health insurance marketplace.


** As a transition measure, the first 80 are free in 2015, which means my company will avoid penalties in 2015 no matter what but not in 2016 unless we can get our full-time employee count down further.


Postscript:  One of the oddball and confusing parts of the law is that the word "full-time" has multiple meanings.  This year, companies with more than 100 full time equivalents (FTE) are subject to the mandate.    Because of this, at cocktail parties, I have people walk up to me all the time saying the law does/doesn't apply to me based on a factoid they heard about minimum workforce sizes.  I have 350 total employees of whom 42 are full time.  Some say that puts me over 100 (the 350) and some say that puts me under the 100 (the 42).  It turns out that neither are relevant in determining if I am under or over 100, it is a third calculation that matters.  We do have more than 100 FTE, but we have less than 80 full-time employees that triggers the penalties in 2015.  Go figure.


  1. DaveK:

    See! Now that the law has been passed and implemented, you know [more of] what's in it! Isn't that just great!


  2. annoners:

    Sounds like the cellulosic ethanol mandates - gasoline refiners to pay a fine (or is it a tax, I can't remember) if don't include X million gallons of cellulosic ethanol, but there isn't any on the market because no one can make it in commercial quantities.

  3. jimkimmons:

    You're obviously too stupid to understand the many wonderful options Mr. Gruber and Mr. Obama crafted for you and your employees. Perhaps you can hire Gruber to come and explain them for you in baby talk.

  4. CapitalistRoader:

    In no way is my Obamacare problem comparable to your seemingly insurmountable O-Care problems, but my current monthly premium is $39. With EXACTLY the same income/subsidy/plan, 2015's monthly premium will be $149. A 375% increase. Will Salon or The Center for American Progress be generating indignant columns about this travesty which, I'm sure, will be hitting tens of millions of other people?


  5. Gattsuru:

    They are not going to go through all the overhead costs of setting you up on their plan if no one is going to sign up. In the Government Small Business Health Care Exchange (SHOP), that minimum participation rate is around 70%. No WAY we can meet that, since over half or our employees are on Medicare and would thus not sign up for anything.

    The page you've linked says : "Employees with coverage through another employer plan, Medicare, Medicaid, the military, or veterans' programs are not included in the calculation." Not sure how accurate that is, but if it's the case... You're still stuck betting on whether employees will enroll, and 70% is ridiculously high (especially for any industry with significant full-timer turnover), but it might only be moon-rock difficult instead of Mars-mission difficult.

  6. Matthew Slyfield:

    Of course not, what they will do is write encyclopaedic screeds on why your premium increase would have been even worse without the ACA, so it's not Obama's fault.

  7. Hattori Hanzo:

    My monthly healthcare rates will only go up $80 per month. I appear to be one of the lucky ones and I don't think I am lucky at all.

  8. Shane:

    Working as planned :(

  9. marque2:

    For those of you complaining about Obamacare, you might want to look into joining a Healthcare ministry. There are three that I know of




    The catch is, you need to vow to live a Christian lifestyle. Some things, uncristian, like abortions, would not be covered. They are sharing systems, where one set of members is asked to cover the claims of the other members who put in claims.

  10. Bruce Zeuli:

    It's too bad employees have the mistaken impression that their employer provides free or subsidized health insurance, vacation pay, holiday pay, 401k, workers comp, ssi... if everyone just recognized that these freebees are just pay they don't see we would all be better off. The idea that the employer provide health insurace would be recognized as an employee cost not an employer give away.

  11. mlhouse:

    Look into a Minimum Essential Coverage (MEC) plan. Essentially these are the policies that used to sell on TV but they provide the required coverage under the law and eliminates the $2,000 penalty. It does not eliminate the "B" penalty, but that might not be as big of a risk for you. That is, your employees (many of them elderly) will have to go on the exchange and get a subsidized health insurance plan. But most likely those employees will qualifiy for expanded Medicaid and will be pushed into that instead of the subsidized plan.

  12. Matthew Slyfield:

    The expanded Medicaid likely doesn't effect him at all, most of his employees are eligible for Medicare.

  13. ekdikeo:

    I have a solution that will help --

    Pay your employees more. Then they won't be on Medicaid, and then you can avoid that problem. And you'll have happier employees. And your local economy will be better. And it'll cost you less in the long term. And provide benefits back.

  14. herdgadfly:

    When the whole complicated mess works itself out with your employer plan, employee premiums may not cost workers more than 9.5% of W-2 wages (gross or taxable?) and benefits must cover at least 60% of healthcare services provided.

    So you go to private insurers and ask for such a plan (where the employee portion of the premium equals 9.5% of W-2s and coverage payments are always 60%) to become a low cost high deductible policy to be fronted by a Health Savings Account for those employees under 65. However, under federal law, Medicare eligible seniors cannot participate in HSAs, so the HDHP plan is what you have to offer them.

    Smart seniors will turn you down for a host of reasons, but mostly based upon low premium available through Medicare Advantage plans, some with zero premiums (although Medicare Part B premiums must still be paid in the neighborhood of $1,200 per year). The other powerful reason to say "no" relates to the magical cost reduction that Medicare provides, simply because health services get discounted by the government (at least in my experience) by 80 - 90%. Private insurers cannot compete with these discounts, so the unpaid costs under Medicare will be substantially less than the 40% deductible (calculated on a higher cost number) load attached to the HDHP employer plan.

    So the moral of the story is "stay away from the government "SHOP" plans" and roll your own. Smoke 'em if you got 'em. Your plan avoids the "A" penalty and Medicare-eligible folks are supposed to be turned down by Healthcare.gov - thus no "B" penalty.

  15. mlhouse:

    Yeah I meant to add that.

  16. herdgadfly:

    Beam me up, Scotty. Too many learned economists to contend with down here.

  17. Dave Boz:

    In the brave new world of government-directed health insurance experiments, there are experts and there are lab rats. Guess which one you are....

  18. skhpcola:

    Did you formulate that solution by yourself or did you just swipe it from a Marxist propaganda source?

  19. mesaeconoguy:

    Actually, he should just print his own money, that way he’ll have more of it, so he can pay his employees more, and make them even happier than in your suggestion, so they’ll buy you stuff, and you can be happy too!

    See? Everyone wins when you print your own money…

  20. irandom419:

    Just buy a bumper sticker and it all will magically work out.


  21. mx:

    I'm curious; have you tried shopping on the exchange for another plan for 2015? The insurance companies know you're on your current plan, so they have an incentive to jack up the rates on that plan in the hope you won't bother to shop around. Other plans might work out far cheaper for you with similar coverage. Or they might not. But I'm curious what you find.

  22. Charles Clarke:

    Time to look into being self-insured. Offer your senior citizen employees a nice plan that covers the minimum benefits like pregnancies, etc.

  23. mx:

    The other catch is that these programs are not insurance and have huge limitations. They generally impose relatively limited annual and lifetime caps, exclusions for pre-existing conditions, and categorical exclusions for certain forms of diabetes, cancer, maternity, or heart disease, not to mention mental health treatment, substance abuse treatment, care for sexually transmitted infections, etc... They may also require you to share your personal medical information with your pastor. Some ministries don't do prescription medications at all, or limit them to a one-time supply, even if you may need them for a long period to manage a chronic condition.

    Medi-Share goes as far as to say that they won't have anything to do with a pregnancy out of wedlock unless you've reported a rape to law enforcement! That's not something that should be any part of a real insurance company's business.

    On top of all that, the ACA plans are likely to be cheaper for many families eligible for a subsidy, and they provide actual insurance.

  24. mx:

    There's a note on the SHOP page you linked: "If you can’t meet the minimum participation rate you can apply for coverage from November 15 through December 15 every year. This is designed to let employers that don't meet the participation rate offer a SHOP plan."

    As I understand that, you could still offer coverage through SHOP if you apply in the next month. That would get you eligible for the "B" penalty if any of your employees buy a subsidized exchange plan. For the reasons you give, the "B" penalty won't cost you very much.

  25. marque2:

    Look up the plans, they are not as draconian as you think.

    1: As for cheaper than a family - for me I have a family and get subsidized to $540 a month (family income of $59000 per year) for a silver plan with $6000 deductible. The Samaritan plan is $400 a month - if you don't go to the doctor often it is cheaper even at low income levels like mine,

    2: Yes they don't cover things that are unchristian. They won't compel other members to pay for your baby if conceived out wedlock. STD's are not covered if you caught it through extramarital sex, but if you got it from your married partner, or through medical procedures (eg HIV from a blood transfusion) you would be covered. But then again, they have special plans for single parents as well.

    3: They are a bit more risky, it depends on the ability of all the members to pay for services in any given month. If costs soar - say everybody in your group caught e-bola - you won't get 100% coverage, it will be prorated

    4: They can have limits but most plans have two tiers, one up to 250K a year or so, and another unlimited. Once again you have a choice of how much coverage you might want. It isn't foisted upon you.

    Anyway, I would check them out. They won't suit everybody, but for many folks they are quite a satisfactory option, get you out of the Obamacare, and brings the true spirit of community health care back - which is how healthcare is suppose to be done anyway.

  26. mx:

    Looking at it more, it's possible your business isn't eligible for coverage through SHOP. They have an elaborate calculator (https://www.healthcare.gov/small-businesses/provide-shop-coverage/fte-calculator/) to figure out how many full-time equivalent employees you have. Since it sounds like that works out to more than 50 for you, you might be screwed on that count.

  27. mogden:

    I have an even better solution. Whatever you were going to pay them based on @ekdikeo's advice, double that amount. Your employees will be even happier. And your local economy will be even better. And it'll cost you even less in the long term. And provide more benefits back.

    I'll just let you know where to send the check for my consultation. No need to thank me.

  28. Jerry_In_Detroit:

    No big surprise here. The EPA does the same with their cellulosic ethanol requirement on the oil companies. The oil companies are required to use a certain percentage of ethanol derived from cellulose or pay a fine. The cellulosic ethanol process has never been successfully demonstrated on a production basis and the fine is low enough to delay the invention of a practical process. You & I pay this fine in every gallon of gasoline we buy.

  29. Geezer:

    It helps to read and understand the words used in the article. His majority employees are seniors. They get Medicare coverage not Medicaid at a substantial discount to other policies.

    Double, triple, quintuple their pay and they still will sign up for Medicare bc you and all the other sub-65'ers subsidize the premium cost (thank you very much)!

    How's that ADHD treatment working out for you?

  30. CapitalistRoader:

    I have: 79 plans available, Bronze to Gold, ranging from (subsidized) less than a dollar to $500-some per month. I want an HSA qualified plan which cuts my choices down to 13 plans, priced from less than a dollar to $280/month.

    I guess my point was the magnitude of monthly premium increase. It will be interesting to see which media outlets report people being hit with a 200+% increase, assuming my increase isn't an outlier.