Learn how the Affordable Care Act (ACA) will impact compensation.

1. BIZGROWTH
STRATEGIES
Special
Health Care
Reform
Edition
Article reprinted from Winter 2014
IDEAS TO HELP GROW YOUR BUSINESS
Human Resources
The Impact of Health Care Reform On Compensation
A
1.
Increasing employees’ pay could reduce
their purchasing power.
Freakonomics by Steven D. Levitt and Stephen
J. Dubner provides economic analysis and insight
into unintended consequences among seemingly
unrelated topics. While there are myriad unintended
consequences associated with the ACA, let’s focus
on the one that directly impacts compensation.
Specifically, in 2014, many employees will receive
pay increases that they would be better off forgoing.
How can this be? After all, more compensation is
better than less compensation… right? Wrong!
s of the time that this article goes to press,
the Patient Protection and Affordable Care Act
(PPACA), also known as ACA or Obamacare,
is in disarray. Beginning on October 1 this year, the
insurance exchanges went live. About the same
time, the word “glitch” became part of the everyday
American lexicon. Many who have been able to
navigate the enrollment website www.healthcare.gov
have reported sticker shock, and very few appear to
have signed up.
The good news is that employers received
a short-term reprieve on the employer mandate
via blog post. As many are aware, the employer
mandate (requirement that employers with more
than 50 employees provide minimum coverage that
is “affordable”* to employees) has been delayed by
a year. This delay makes the topic of the impact of
PPACA on compensation decisions particularly timely.
The ACA will, in all likelihood, impact compensation
in the following ways:
The federal government now offers subsidies on
health insurance based on the number of household
members and income. The subsidies are on tiers,
making it entirely possible that a pay increase that
crosses one of the subsidy thresholds will actually
cause a reduction in federal subsidies that will not
be offset by the additional compensation. Adding
Continued on next page
Federal Poverty Level Chart for 2013 (Excludes HI and AK)
100%
138%
150%
200%
300%
400%
1
$11,490
$15,856
$17,235
$22,980
$34,470
$45,960
2
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Persons in
household
$15,510
$21,404
$23,265
$31,020
$46,530
$62,040
3
$19,530
$26,951
$29,295
$39,060
$58,590
$78,120
4
$23,550
$32,499
$35,325
$47,100
$70,650
$94,200
5
$27,570
$38,047
$41,355
$55,140
$82,710
$110,280
6
$31,590
$43,594
$47,385
$63,180
$94,770
$126,360
7
$35,610
$49,142
$53,415
$71,220
$106,830
$142,440
8
$39,630
$54,689
$59,445
$79,260
$118,890
$158,520
* or brevity, getting into specific definitions and formulas associated with PPACA is outside the scope of this article.
F
our
business is growing yours

2. BIZGROWTH
ST R ATEG IES
Human Resources (Continued)
complication to this issue is the fact that the
subsidies are based on household income, so if one
of your employees has a spouse who works, you may
not have all of the information necessary to evaluate
their subsidy level. The chart on page 1 lists the
threshold amounts that may create this issue.
2.
The employer mandate may impact the mix of
total rewards at an organization.
The ACA mandates coverage or penalties for lowpaid employees, many of whom were not previously
covered by health insurance. Economics 101
illustrates how increases to the minimum wage result
in companies seeking creative alternatives to more
labor and thus higher unemployment. While the ACA
does not directly increase the federal minimum wage,
it does directly increase the cost of labor, which has
the same impact.
3.
The individual mandate increases cost of living
– particularly for lower paid employees.
As indicated above, the delayed employer mandate
is effectively an increase in the minimum wage.
However, the individual mandate (which has not been
delayed) increases the cost of living. When individuals
are forced to buy health insurance (whether they want
to or not), they have less income available for the
necessities of life.
Many are predicting that industries with a
large number of low-wage workers will move
many of their employees to the state exchanges
for health insurance. As they shift the cost of
insurance to employees, they may find that they
need to increase base pay in order to be market
competitive. It is hard to predict the ultimate
direction of the ACA, but in the short term it is
reasonable to expect that employers who offer
health coverage to their employees will be able to
pay less in compensation than those who don’t.
Be sure to reach out to an experienced
compensation professional in order to keep up
with trends and best practices as organizations
experiment with different mixes of pay
considerations.
EDWARD R. RATAJ
CBIZ Human Capital Services • St. Louis, MO
314.692.5884 • erataj@cbiz.com