Why Work Part-Time? To Get Subsidized Health Insurance

On Tuesday the Congressional Budget Office released an economic report  stating that the Affordable Care Act may cause Americans to work fewer hours – equivalent to 2 million fewer jobs in 2017.  This report is three times higher than the CBO has reported in the past.  Republicans went crazy with the news about how the health reform law is hurting American workers.  In response, the White House immediately posted a blog statement arguing that healthcare reform will allow people who want to work less so that they can get subsidized health insurance through the exchange and not from their employer.  The White House declares that the law prevents “job lock”, which happens when someone is afraid to leave their job and perhaps start their own business because they will lose their employer-sponsored group insurance.

The White House reports that each year millions of people, reaching 19 million by 2016, will benefit from tax credits.  The tax credits are used subsidize the cost of health insurance with an average subsidy of nearly $6,000 per person.

CBO Tax Credit Estimates

So why would someone want to cut their hours to less than 30 hours per week, up to 25% of their paycheck, so they are eligible for subsidized health insurance from the exchange?

The answer is simple.  It’s the high cost of health insurance to cover their family on an employer plan.

According to Kaiser’s 2012 Employer Health Benefits Survey, the average cost of single coverage under an employer plan was about $450 a month, of which the employer subsidizes about 85% of the cost.  However, the average cost for family coverage was $1,377 a  month of which the employer only subsidizes an average of 27% of the cost.  This means the employee would have to pay over $950 a month, a monthly mortgage for many, to cover their family.

The chart below shows the maximum subsidized premium a family of four would pay for the benchmark health plan in the exchange based on household income.  The employee would lose the employer subsidy of about $350 a month towards the group health plan, but for households with annual incomes below $95,000 they would pay far less to cover the entire family on the exchange.  At a median income of $55,000, the subsidized premium in the exchange would be $337 a month, which makes paying for family healthcare more like a car payment than a mortgage payment.

Another phenomenon as a result of  health reform will occur, where job-seekers will seek prospective employers that don’t offer health insurance so that they can take advantage of federally subsidized healthcare.  When an employer offers coverage to their employees, as long as it is “affordable” for single coverage, the family is blocked from getting subsidized healthcare on the exchange.  We will discuss why employers should rethink their strategy of providing health insurance to attract and retain quality employees in future blog posts and why this will change the way health insurance is bought and paid for in the years to come.

Subsidized Family Health Insurance Costs based on Income vs. Employer Coverage

AUTHOR - Ali Nagy