Do you understand where this is going? Three

We worked on an interesting hypothesis with a client the other day. He has 100 employees (or close enough to make the math easy.) The company pays for 75% of each employee’s health insurance. Additional coverage for the family is at the employee’s expense. How does the math work under health reform?

Right now premiums average $370 per month. About 60% of the workers take insurance, so the company pays $277.50, or right at $200,000 per year in premiums. Let’s say that once premiums are balanced to comply with the 3:1 risk premium ratio (see post number One) the workers who decline coverage presently can have insurance for $175 monthly. Their cost would be about $10 a week.

But their cost is zero if they choose to opt out into the government exchange. If they have a family of 4, and make less than $88,000, their cost would be subsidized for the whole family. Of course the employer can raise his contribution to keep them in the plan, but the math gets too complex for this example. (How much is each increase in employer cost worth vs. having them opt out?) So for simplicity, let’s say that the same 40 employees choose to opt out and save themselves at least $10 a week.

The penalty to the employer is $3,000 annually per uncovered employee. That adds $120,000 to the current premium, for a total of $320,000.

But there is another option to paying all those penalties. The company can cancel health insurance entirely. The penalty for that is $2,000 per employee. Moreover, there is an exemption for the first 30 employees.

Now let’s do the math. Should the employer pay $4,320 for 60 employees, plus a $3,000 penalty for each of the other 40 employees, or just pay $2,000 per employee for 70 of them and let all 100 go to the exchange? $320,000 a year vs. $140,000 per year?

Make no mistake. While the public option was removed from the bill, the financial structure is designed to drive huge numbers of people who are currently covered by their employers into the government exchange. I’m not making a political claim. I’m just looking at the numbers.

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