Politics & Policy

Obamacare’s Not-So-Safe-Harbor Plans

Hourly workers may have to start paying more for their health care.

Obamacare was supposed to help out low-income workers. But some struggling hourly employees could soon face even higher health costs than before the law was implemented.

These unlucky workers, who will likely be concentrated in the retail and hospitality industries, will have to choose either to enroll in a health plan that strains their finances or to pay a steadily increasing penalty to the federal government.

The health law is complex, making the explanation for this unintended consequence complicated, too. But, basically, as of 2014, companies with more than 50 full-time employees will be required to provide health insurance for workers who put in more than 30 hours a week, as well as for their dependent children. If companies don’t provide coverage, they’ll face hefty penalties.

Furthermore, employers can’t offer just any insurance; it has to meet certain minimum requirements. It must cover at least 60 percent of health-care costs, and it can’t cost employees more than 9.5 percent of their household income.

But that’s a tough standard for an employer, who knows what his own workers earn from him but may be ignorant of their total household incomes.

So the federal government has proposed so-called safe-harbor standards, which will stipulate the minimum requirements of an “affordable” plan, putting employers legally in the clear. Basically, such a plan would include a $3,500 deductible, a $6,000 cap on out-of-pocket costs, and premiums of $90 or less a month.

Let’s look at this from the perspective of a low-income hourly worker within a certain unlucky bracket. This hypothetical employee earns more than $15,900 a year — which disqualifies him from Medicaid — but still struggles to make ends meet.

If his employer goes with the minimum, safe-harbor plan, he might face no good options.

He could take the employer’s plan — but if it’s a safe-harbor plan, it would cost, at minimum, $1,080 a year. And that’s before the deductible is even factored in. For someone who earns $28,725 a year, falling at 250 percent of the poverty level, these costs are sizeable.

Option two: He could shop around on the health exchange for an alternative. But because his employer provides a sanctioned plan, he’s disqualified from any subsidy he might have received to help offset costs. Even a very basic plan would cost up to $2,316 a year in premiums alone.

Option three: Forgo insurance altogether and pay the steadily increasing penalty to the federal government. In 2014, for an individual, that’s $95 for the year or 1 percent of household income, whichever is greater. But by 2016, it will rise to either $695 or 2.5 percent of household income. And that’s not even factoring in whether the worker has kids. In that case, he could face an annual penalty of $2,085 or more by 2016.

It’s easy to see why low-income workers might be frustrated by the new law. Before, many employers who paid by the hour offered limited medical plans. These policies often got a bad rap because of their lack of catastrophic coverage. But to their credit, they were inexpensive and contributed to health-care costs immediately, without workers needing to first meet a deductible.

Now, these low-wage hourly workers would be forced to spend at least $5,300 before their coverage really begins to benefit them. For someone who’s already under financial duress, that’s a real burden.

Of course, some employers will offer better plans than the safe-harbor minimum. But otherwise, low-income workers will be forced to choose between three very undesirable options.

— Jillian Kay Melchior is a Thomas L. Rhodes Fellow of the Franklin Center for Government and Public Integrity.


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