The 9.5% Employer Benefits Squeeze Play (and What To Do About It)
According to the community of editors at Wikipedia, a “squeeze play” in baseball is “a maneuver consisting of a sacrifice bunt with a runner on third base. The batter bunts the ball, expecting to be thrown out at first base, but providing the runner on third base an opportunity to score.” It’s an effective way score runs, given the context of the game.
For years, employers had an option to execute their own squeeze play when it came to health benefits. As health insurance prices rose, one of the ways employers could balance costs was to absorb some themselves and pass the rest on to their employees. This cost shifting came in the form of either more dollars taken out of employees’ net pay or via plan designs like higher deductibles. The net effect is more money out of pocket for the average worker.
This made some sense. Employees get value out of the benefit, so why wouldn’t they also take on some of the increase in price? Employees mostly had no real choice other than grin and bear it. In fact, employees absorbed this cost to the tune of deductibles rising at seven times faster than salaries/wages in the past five years. Cost shifting resulted in a painful squeeze, especially for those that have chronic conditions or need regular care.
In 2010, the Patient Protection and Affordable Care Act (aka PPACA, aka ACA, aka Obamacare) put a limit on how much employees paid for their share of the premium at 9.5%* of employees’ household income. The intent of this regulation was to keep insurance affordable for working families, but of course it also puts a limit on how much employers can squeeze when rates go up. Once employers hit the 9.5% cap, there’s no more room to squeeze, no matter how high their group plan premium goes.
So what options do employers have for controlling costs that doesn’t leave employees out in the cold?
Regardless of your feelings on the ACA, employers do have options to avoid the squeeze. One approach that has been proven cost effective for both employers and employees is setting a defined contribution and using Gravie’s system for benefits. With the Gravie approach, employers define what they spend on health insurance (which can vary for different types of workers), and employees shop on a web-based marketplace for the plan that fits them best.
Employers win because they control costs, avoid the squeeze limit altogether, and stay fully compliant. Employees win since they can find the exact plan that works best for them out of dozens or hundreds of options, get licensed expert advice, and in many cases take advantage of tax credits to help offset costs.
To borrow another baseball analogy, the “shift is on” to a better way. Find out more about how Gravie makes this transition easy, compliant and a winning approach for employers and employees alike.
Download the ebook below or contact us today to learn more.
*For the full text of the ACA and specifics about the 9.5% limitation and potential exceptions/variations, see https://www.healthcare.gov/