Magazine article HRMagazine

Earn Less, Pay Less

Magazine article HRMagazine

Earn Less, Pay Less

Article excerpt

Some companies charge lower-wage workers less for health insurance.

Salary-based health insurance premiums could gain ground in the coming years as the federal health care reform law is implemented.

Despite ongoing challenges to the law, one issue keeping employers on edge is the law's play-or-pay feature. In 2014, it will require employers to offer employees affordable health insurance-or pay a penalty. Coverage is considered unaffordable if employee premium contributions exceed 9.5 percent of family income. The provision may have benefits specialists scrambling to revamp the way they calculate the amounts employees pay for their health insurance.

"There is a risk that contribution levels, as they stand today at many companies, are above the 9.5 percent household income threshold," says Steve Raetzman, a Mercer partner in Washington, D.C. One way to reduce contributions for lower-wage workers and avoid incurring penalties is to charge higher-paid workers more to offset the difference.

Pitney Bowes and General Electric have offered wage-based premiums for a couple of decades, but use of this system has stayed relatively flat overall. Ten percent of employers with more than 500 employees offer this benefit, according to Mercer's National Survey of Employer- Sponsored Health Plans, a survey of 2,844 public and private employers conducted late last summer and scheduled to be published this spring. Nine percent offered it in 2006. Play or pay, however, could bring increased attention to salary-based premiums.

Fairness Reigns

Executives at companies that have had this benefit in place for several years say fairness serves as a primary driver. Dwaine B. Duckett, vice president of human resources for the University of California, says school leaders noted back in 2003 that the continually rising trend in health care costs was having a harsh impact on lower-wage employees and they wanted to "soften the blow."

Pitney Bowes' leaders were driven by similar considerations. "Income shouldn't be a barrier to getting access to the same health care better-paid employees have," says Mary Bradley, director of health care planning at company headquarters in Stamford, Conn.

Not everyone agrees with this philosophy. Barbara S. Bauer, director of HR for OTTO Engineering Inc., an electronics designer and manufacturer in Carpentersville, Ill., doesn't support salary-based entitlements because she believes health care is a choice, not a right. She says a better approach is for corporate leaders to make health care affordable for all employees.

OTTO's 540 employees pay 21.31 percent of the total cost of their insurance. That's less than the national averages of 25 percent for single coverage and 27 percent for families, as calculated by the Kaiser Family Foundation.

Plan Structure

When structuring salary-based benefits, employers need to address these three issues: wages, health plans and coverage tiers, and formula calculations.

Wages. Most organizations with salary-based premiums set wage ranges for employees. The University of California's 180,000 employees are split into four groups, based on annual salary:

* $47,000 and below.

* $47,001 to $93,000.

* $93,001 to $140,000.

* More than $140,000.

Menninger, a psychiatric and behavioral health care clinic with 400 employees in Houston, has offered wage-based premiums since 2003. It has three wage ranges, which are set by hourly rates:

* $13.50 per hour and below.

* $13.51 to $30 per hour.

* More than $30 per hour.

Pitney Bowes, conversely, provides employees with flex dollars based on an individual's compensation. Workers who earn low wages receive more flex dollars to use in paying for health benefits.

Health plans and coverage tiers. Employers typically base subsidies on the type of plan the employee chooses (such as a health maintenance organization, preferred provider organization or consumer- driven health plan) and the level of coverage (employee-only or employee and family, for example). …

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