Obamacare killing jobs in New York area, executives tell Federal Reserve survey

Obamacare is killing jobs in and around the Big Apple, executives say.

About 20 percent of companies in the New York region say they are cutting their workforce in response to the Affordable Care Act, according to a new Federal Reserve Bank of New York survey.

And most companies said they will be paying more in insurance premiums, and requiring their workers to pay a bigger share of those premiums, as a result of Obamacare.

The survey results come two days after the large health insurer Aetnajoined rivals UnitedHealth Group and Humana in announcing it would significantly cut back the number of geographic areas where it sells Obamacare plans next year due to steep losses on those plans.

The New York Fed survey found that, "roughly 17 percent of service sector firms and 21 percent of manufacturers said they were reducing the number of workers in response to the ACA."

"The vast majority of respondents in both surveys [of manufacturing and service company executives] said they were not changing the proportion of part-time workers or the amount of work outsourced to other firms," said the report, which questioned about 250 executives in New York state, northern New Jersey and Fairfield County, Connecticut.

That point is noteworthy because there had been speculation that companies would cut the number of employees who work 30 or more hours per week to avoid having to offer them health insurance, as Obamacare now requires for firms with 50 or more such workers.

"Most respondents also said wage and salary compensation and other benefits were not being affected by the ACA, though more respondents said they were being cut than raised," the survey said.

"And slightly less than a third of manufacturers and 21 percent of service sector panelists said they were raising the prices they charge to customers." These responses were broadly similar to those in the August 2015 and 2014 surveys.

Roughly 2 in 5 respondents — in both the manufacturing and service sector surveys — said they were not changing their plans in response to the ACA. "Of those that were, however, the most widely reported adjustments involved higher deductibles, increased co-pays and higher out-of-pocket maximums," the survey said.

"The vast majority of firms in both surveys indicated that they would be paying a higher total premium, and somewhat more than half of respondents in both the manufacturing and service sector surveys said they were raising their employees' share of contribution to the premium," the survey found.

When asked about the costs of their current and future health coverage options for workers, the executives' median response among both manufacturers and service firms showed an expectation costs would rise 8.5 percent.

"These increases are somewhat lower than what respondents had anticipated in last August's survey, though it should be emphasized that the pool of respondents is not exactly the same," the report noted. "When firms were asked about the expected change for 2017, the median response in both surveys was for a 10 percent increase."

The survey also said 17 percent of manufacturers and 22 percent of service firms expect the excise tax on high-value health plans — also known as the "Cadillac tax" — would apply to their existing health plans.

The tax imposes a 40 percent surcharge on the value of health plans above a certain dollar amount, and will kick in during 2020. By that year, the threshold is expected to be about $10,900 for plans covering individuals and $29,400 for family plans.

Nearly a third of service sector firms and 37 percent of manufacturers said they weren't sure whether the Cadillac tax will apply to them, according to the Federal Reserve Bank of New York.

Four Ways Companies Could Adjust to Imminent Employee Benefits Tax

The Affordable Care Act's "Cadillac tax" is creeping into the picture, starting in 2018. This tax entails a 40 percent increase in employer-provided health care insurance for single plans costing more than $10,200 and family plans over $27,500. As a result, employers are currently working to cut costs that have been rising for years in order to avoid this tax. Therefore, you may be seeing some changes to benefits provided by your employer during this fall's open enrollment period:

1) Encouraging healthy living: A recent survey found that 42 percent of employers were contemplating adding or expanding programs to improve employee health. These programs begin with a health risk assessment and coaching, which may include help to quit smoking, eat better, or manage chronic health conditions, to help employees improve their well-being. All of this is done with the hope that it will ward off future medical expenses.

2) Adjust Coverage: Companies have been raising deductibles, the amount someone pays before insurance coverage kicks in, which lowers the premium or cost of coverage and could cause employees to shop around for better prices. Many companies are also adding surcharges to the cost of coverage for spouses who have other health insurance options. If your spouse is able to get coverage through his/her job, your employer will most likely encourage that option. 

It is also very possible that businesses will cut back on the usage of flexible spending accounts. These accounts allow workers to set aside money before taxes for out-of-pocket medical expenses.

3)  Offer new alternatives: More employers and insurers are attempting to shave costs by providing telemedicine options that connect people virtually with a care provider through a smartphone, tablet or computer for relatively minor conditions. These visits can cost half as much as a trip to the doctor's office, which can run around $100 for people with high deductible coverage.

Some companies also are considering moving their employees to a private insurance exchange. For that coverage, employers give workers a set amount of money and then send them to an exchange that offers several different plans.

4) Wait out the debate: Some employers are choosing to not take action yet until they see what happens with the tax.

Republicans and Democrats are both calling for the repeal of the Cadillac tax because of worries that the threshold that trigger the tax will grow more slowly than the actual cost of care, which means that each year more and more plans will be subject to the tax. 

Obamacare and the Cadillac tax

The Cadillac tax is already proving to be a pressing concern for employers although it does not come into effect until 2018.

The Affordable Care Act, more commonly referred to as Obamacare, has been controversial since it was signed into law in March of 2010. The controversy has not stopped since its major provisions took effect last January, with criticism coming from both political parties, as well as businesses whose health insurance and benefits coverage were affected. 

The latest worry about Obamacare is the "Cadillac tax" that is to take effect in 2018. The point of the Cadillac tax is to generate revenue to fund the federal government's expansion of health care to all American citizens. This tax on health benefits is the first of its kind and is estimated to impact one in four employers when the tax begins in 2018, and that number will steadily grow with time. A big concern with this tax is about flexible spending accounts, which allow people to save their money for certain out-of-pocket health care costs completely tax free and their use has been encouraged by many employers because of the cost effectiveness. However, FSAs will most likely be one of the first benefits cut as companies scramble to avoid the 40% excise tax applied to benefits worth more than $10,200 for individuals and $27,500 for families. Besides the possible cut of FSAs, employees might also be hit with other cost-saving strategies by their employers such as a decrease in the number of available health plans, an increase in deductible limits, and a narrower selection of doctors and hospitals offered...an overall cutback in benefits.

Although the tax is not going to take effect until 2018, pressure to change it is already coming from both politicians and business owners. A coalition of public and private employers called "Alliance to fight the 40" has come together to urge the members of Congress to repeal the Cadillac tax. Even though the tax faces a good amount of opposition from Democrats, and is universally opposed by Republicans, changes will most likely have to wait until President Obama leaves the White House. 

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