The Department of Labor released new regulations on overtime pay this month, and we are just beginning to hear about the repercussions. IWF's Carrie Lukas has written more about the costs associated with these new regulations, but one interesting aspect is the effect on health insurance plans.
Most Americans with private health insurance coverage have an employer-sponsored plan. In fact, businesses of 50 or more workers are required to do so under the Affordable Care Act's employer mandate (or face a penalty). This means that employers have to budget for health insurance benefits as a part of their total labor cost, which also includes salaries and wages.
The bottom-line effect of the overtime regulations is that more workers will qualify for overtime pay. This might sound like a windfall for those workers, but the costs are serious. And these costs won't just be borne by businesses, but by their workers. The average cost of a group plan in 2015 was $6,251 for single coverage and $17,545 for family coverage, and this cost goes up every year. The cost of the penalty for not providing health insurance is much lower: $2,000 or $3,000 per worker annually (depending on the circumstances). Therefore, some employers — even some subject to the mandate — might be discouraged from providing coverage if their labor costs are squeezed too tightly.
I explain some of this in today's healthcare minute video:
Here's the explanation from the National Association of Health Underwriters that I mentioned:
While this regulation does not impact group health insurance benefits directly, it could affect employee benefits generally for many employers. First, no matter how an employer decides to handle these new pay requirements, it is generally expected that this rule will necessitate increased salary budgets for employers. That means there may be less to spend on employee benefits generally…
Another cost to consider is compliance costs. The formulas and tracking metrics that employers must use to determine who is elible for overtime pay are not the same as those used to determine how many full-time equivilents an employer has (which is used for compliance with the ACA's employer mandate). NAHU explains:
The new rule will also require employers to start tracking hours worked for many employees who never previously punched a clock. The hours tracking required for overtime purposes, of course, does not match up with hours tracking that may be now occurring to track the need for coverage offers for an employer’s compliance with the ACA’s employer shared responsibility provisions (employer mandate). Therefore, depending on the compensation decisions an employer makes to comply with the new rules, further changes to HRIS and payroll systems may be required.
These costs add up, and inevitably result in fewer jobs, fewer opportunities for growth and advancement, and perhaps even fewer on-the-job benefits.