Lower Income Employees May Opt Out of Health Coverage

March 5, 2013 (PLANSPONSOR.com) - An ADP Research Institute study indicates if 2012 health benefit participation rate patterns persist into next year, then a portion of newly eligible employees may opt to remain uninsured.

This is because they perceive the cost of insurance is too significant a percentage of their annual income, according to ADP’s “Planning for Health Care Reform: How Income Impacts Employee Health Benefits Participation.” Study findings show that employees with W-2 wages greater than 400% of the Federal Poverty Level (FPL), or roughly $45,000 for a single individual under 2012 guidelines, consistently participate in health coverage at a rate of 81%. However, as income declines below 400% of the FPL, health plan participation rates decline sharply to just 37% for single employees earning between $15,000 and $20,000 per year.  

“While no one can predict the future, the ADP Research Institute findings suggest that lower income employees may avoid participation in a health plan that consumes a significant percentage of their income,” said Tim Clifford, president of ADP Benefits Administration Services. “Clearly, employer to employee communications will be essential in explaining the options moving forward.”

Across the entire study population, approximately 8.6% of single, full-time employees pay 9.5% or more of their W-2 earnings to obtain health coverage. However, among a certain subset of employers, nearly one out of every four employees spent more than 9.5% of their wages on health coverage. According to the Affordable Care Act (ACA), beginning in 2014, employers may begin paying an annual penalty of $3,000 (calculated monthly) for every employee for which the premium for self-only coverage exceeds 9.5% of their wages (with respect to each full-time employee who receives a federal premium credit for public exchange coverage, assuming the employer offers health insurance coverage to at least 95% of full-time employees).  

Employees earning $22,340 or more per year (200% of the FPL for a single wage earner) may still be better off obtaining coverage through their employer's group health plan, despite affordability issues, rather than participating in a public health exchange with government-provided subsidies.  

"While many project that the impact of the ACA will be most significant upon small businesses, certain industries, such as retail, hospitality, construction and business services, could face a dramatic increase in the number of employees that are newly eligible for health benefits," noted Clifford. "In some cases, employers could face a sharp increase in the number of covered employees and subsequent costs, and if they choose to stop offering employer-sponsored benefits, they may face a significant tax penalty."  

The study report can be downloaded from here.