Dropping health plan for Obamacare, this firm saved money but sacrificed choice

May 23, 2014
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When Keith Pitzele looked at the numbers, the Obamacare exchanges definitely offered a better deal for his company.

Now, he hopes it actually works out better for his employees.

“I have a feeling there’ll be a little disruption,” said Pitzele, president of Indianapolis-based RANAC Corp., which sells electronic medical record systems to physician practices.

Pitzele ended the company’s group health benefits for its eight employees on May 1. That’s when the individual health insurance policies his employees purchased on the Obamacare exchange kicked in.

He figures the company will save $1,000 a month. And employees will save $64 a month—at least initially—because RANAC will pay 100 percent of the premiums its employees incur on the Obamacare exchange.

The problem is, those payments now will be considered taxable income. And since the extra income ranged as high as $8,000 per year—for employees who did not qualify for tax subsidies because they had no dependents—it likely will push several RANAC employees into higher tax brackets. So they could lose money in the end.

On top of that, the health plans available in the exchange this year included far fewer doctors than the company plan did. That already has caused one woman who works for RANAC to find a new pediatrician for her children, Pitzele said. And he fears more of his workers will be forced to switch doctors.

“The biggest thing they’ll lose is the option to have their doctor wherever they want,” Pitzele said.

He’s right. As an example, Anthem Blue Cross and Blue Shield lists only 45 percent as many physicians in the Indianapolis area as being in its exchange plan network as it lists for its small employer health plans.

For some specialties, the difference can be even starker. For instance, Anthem lists 2,148 Indianapolis-area cardiologists in its network for small employers, but just 98 for its exchange plan network. (There is significant duplication on both lists, since many doctors have multiple offices. I searched here for physicians within a 30 mile radius of downtown Indianapolis.)

Obamacare’s new rules both pushed and pulled Pitzele to drop RANAC’s company health plan.

The push came from the 30-percent hike in premiums RANAC would have paid had it renewed its existing health plan with UnitedHealthcare. Oh, and that would have come with deductibles that were 20-percent higher than before.

The renewed plan would have been compliant with new community-rating rules instituted by Obamacare, which have added to the normal double-digit premium hikes small businesses like RANAC have become used to.

Still, since RANAC paid 75 percent of the premiums of the plan, the price hike would have cost the company an extra $1,125 per month.

“That was not a small increase,” Pitzele said. “And we continually have been getting double-digit increases” in previous years.

RANAC had been paying $3,750 for its UnitedHealthcare plan before the new Obamacare rules. Now it is paying nearly $1,000 less than that to cover the premiums of its employees' Obamacare exchange plans.

On top of that, RANAC will end the $600 per month ($75 per employee) it contributed to its employees health savings accounts.

RANAC will pay additional Social Security, Medicare and other compensation-based taxes on the additional income it gives its employees to cover the Obamacare premiums. Some previous calculations I’ve done suggests those fees could wipe out 40 percent of RANAC”s savings.

But Pitzele figures he will still come way out ahead of what he was paying before Obamacare. And far, far ahead of what he would have paid if he had renewed his group plan.

Is RANAC a canary in the coal mine, suggesting a wave of employers will also drop their group health plans?

A recent report by S&P Capital IQ predicted that 90 percent of workers currently getting health insurance through their employer now would be moved to an exchange by 2020.

“Most companies, there’s no question they gain with the exchange,” Pitzele said.

What would make the decision a complete “no-brainer," Pitzele said, was if he could pay his employees' premiums on a tax-free basis. But a final rule by the Internal Revenue Service on May 16 forbade making direct premium payments using tax-free dollars.

“I think they’ll save some money,” Pitzele said of his employees. “What screws it up is the tax situation.”

  • Why Gov't Involved to begin with?
    The late 1940's is to our nation's medical care like 1913 is to our tax structure; the "average Joe" getting the short end of the stick. We get less for more. True free market capitalism has not had an opportunity to provide it's influence on health care costs since the end of World War II. As my father used to say, "Our country is great in spite of it's politicians."
  • 1940?
    Read the article again, government is involved because private insurance is dropping people or won't cover them. America is no longer the "little house on the prairie". We have the most expensive health care system in the world and it is failing.
  • Too Much Money
    Federal funding increases the money supply available to healthcare and will increase the gross cost of healthcare. Look at education, the increased money supply has created gross expenditure of billions of dollars. Here is a great article about this issue http://imprimis.hillsdale.edu/file/archives/pdf/2012_05_Imprimis.pdf Reduce the amount of money going into the system and watch how fast prices drop in healthcare and education.
  • higher tax brackets
    Your statement about people being pushed into higher tax brackets has me puzzled. Even if someone is pushed into a higher bracket, only that portion of their income above that bracket is taxed at the higher rate, so how could they lose money in the end?
    • Higher taxes
      They will lose $because the higher income will lower the federal subsidy

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    2. I believe that is incorrect Sir, the people's tax-dollars are NOT paying for the companies investment. Without the tax-break the company would be paying an ADDITIONAL $11.1 million in taxes ON TOP of their $22.5 Million investment (Building + IT), for a total of $33.6M or a 50% tax rate. Also, the article does not specify what the total taxes were BEFORE the break. Usually such a corporate tax-break is a 'discount' not a 100% wavier of tax obligations. For sake of example lets say the original taxes added up to $30M over 10 years. $12.5M, New Building $10.0M, IT infrastructure $30.0M, Total Taxes (Example Number) == $52.5M ININ's Cost - $1.8M /10 years, Tax Break (Building) - $0.75M /10 years, Tax Break (IT Infrastructure) - $8.6M /2 years, Tax Breaks (against Hiring Commitment: 430 new jobs /2 years) == 11.5M Possible tax breaks. ININ TOTAL COST: $41M Even if you assume a 100% break, change the '30.0M' to '11.5M' and you can see the Company will be paying a minimum of $22.5, out-of-pocket for their capital-investment - NOT the tax-payers. Also note, much of this money is being spent locally in Indiana and it is creating 430 jobs in your city. I admit I'm a little unclear which tax-breaks are allocated to exactly which expenses. Clearly this is all oversimplified but I think we have both made our points! :) Sorry for the long post.

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