The law governments most commonly pass is the Law of Unintended Consequences.
In an effort to help small businesses reduce costs and help insure more people, the Affordable Care Act, or Obamacare, may do the opposite.
First, a little history on employer-provided healthcare.
During World War II, labor markets were tight and demand for good employees was fierce. When federal law imposed wage and price controls prohibiting employers from raising wages to attract workers, employers increased benefits such as healthcare.
In 1945, President Truman proposed a national health care system open to everyone on an optional basis. It failed in the face of fierce opposition from the Chamber of Commerce and various medical associations which called it “socialism.” Labor unions campaigned for employer-provided health care. In 1954, Congress passed Section 105 of the tax code, which allows employers to provide employee health care without employees having to pay tax on the value received. (Today, that law is the most expensive tax “loophole,” costing more than $175 billion per year.)
By 1958, three-quarters of Americans had employer-provided health coverage. (Today, it’s less than half.)
that allowed employers to reimburse employees — with a receipt — for healthcare expenses without employees owing tax on the reimbursement. Obviously, few, if any employers, have unlimited reimbursement plans.
For whatever reason, group plans cost more per person than individual plans. For example, a group plan for a company with 10 to 25 employees with an average age of 35 costs about $800 per month per employee while individual plans average about $300 per month. As a result, many small companies use HRAs to reimburse employees for their individual plans.
With good intentions, Obamacare eliminated policy limits beginning in 2014 so that a person with cancer no longer had to worry about running out of insurance.
But, guess what? HRAs have limits so reimbursement plans are now taxable to employees. HRAs are used mostly by small business, though Target recently announced that it was going to use HRAs to reimburse thousands of employees up to $500 per month so they can buy their own insurance. (It also cuts Target’s cost in half since group insurance cost $1,000 per month.) Because $500 is not an unlimited amount, those employees will owe tax on their reimbursements.
Clearly, Obamacare was trying to protect that cancer patient by requiring unlimited benefits, but did it intend for employees of small businesses to be hit with higher taxes? Does Obamacare intend to push small businesses into buying group policies that cost double the cost of individual plans? That’s not imaginable, though cynics and Obamacare-haters will say, “Of course.”
How many small companies use reimbursement plans? Coleman Emerson of Habitat for Humanity, which uses a reimbursement plan, says, “Lots of trees in those woods.” Its employees will collectively owe several thousand dollars more. My company’s employees will owe an additional $25,000. Both Habitat and my company will also reimburse the taxes, but that only increases our costs.
In its effort to reduce costs and help small businesses, Obamacare increased taxes on the employees of small businesses. That is the Law of Unintended Consequences.
David Post lives in Salisbury and operates MedExpress Pharmacy.