Pub. 3 2013 Issue 3

16 AUTOMOBILE DEALER NEWS ILLINOIS www.illinoisdealers.com won’t be penalized if they don’t provide insurance, and the federal government has been offering a tax credit to the very smallest businesses. As you would expect, smaller businesses are eligible for bigger tax credits. Many companies that qualify for this tax credit benefit have not taken advantage of it, even though it has been available since 2010. They say the benefit isn’t big enough for the amount of work required to get it. Some 170,300 companies received the tax credit in 2010, although somewhere between 1.4 million and 4 million companies were actually eligible. It will be interesting to see whether interest from companies increases over time, or if the fed- eral government will sweeten the deal to increase participation. Skipping Insurance McKinsey & Co. estimated in June 2011 that 30 percent of employers are going to get rid of their employee health plans af- ter 2014. In addition, the survey found that some 85 percent of employees would prefer to keep the job and lose the insurance than switch jobs in order to get insurance. You have to admit, choosing not to provide insurance is both bold and simple: All you have to do is pay the penalty. If you can afford it and your employees are unlikely to go elsewhere, then the bottom-line truth — at least in terms of plain dollars — may be that paying fines might be cheaper than paying for insurance. If you couple that approach by paying your employees the money that was previously going for insurance, they’ll see a wage in- crease, too. Isn’t that a win-win for everyone? Not completely. Employees still have to get insurance. If they don’t, they face a fine, too, and it will get bigger as time goes by: in 2014, it is a modest $95 or 1 percent of their income. In 2015, it is $325 or 2 percent of their income. And there’s a big differ- ence between what pre-tax and post-tax dollars can buy. When you buy insurance on a company level, being able to use pre-tax dollars effectively creates a nice discount for your employees. What happens if employees, faced with reality instead of an abstract decision, decide they really are better off changing jobs? You can’t control what other companies are going to do, but if you don’t offer insurance, and your employees can get it some- where else, are you really sure they won’t take the opportunity? Not buying insurance for your employees is like playing chick- en. It may be a gutsy approach, but being gutsy is not the same thing as being wise. You don’t knowwhat is going to happen in the future, but deliberately offering a deal that is second-best means you may well lose your best employees to better opportunities. Going Out of Business Another alternative is to let the business go. If you don’t have a small business, no one can force you to buy insurance for your employees. However, this is a short-term and short-sighted deci- sion. Owning your own business has always been one of the best ways to build wealth. Unless you want to retire anyway, a better alternative would be to figure out how to stay in business and take care of your employees at the same time. How Insurance Companies Are Responding According to a Bloomberg Government Analysis, insurance companies have been keeping a close eye on all these changes, and it shows in their business strategy. Since Obamacare was passed into law, private insurance companies have become increasingly involved in public health insurance programs. This is despite Re- publican predictions fromRick Santorum andMichele Bachman that government would take over the insurance industry. The truth is that the insurance industry is still thriving. Coverage is stable, there hasn’t been any substantial acceleration with respect to cost growth, and profits are stable. Increasingly, insurance companies are putting their money into managed-care programs for Medicare and Medicaid, with revenue from these programs accounting for more than 40 percent of what they make. At the same time, commercial business rev- enue is now less than half. The Bloomberg analysis was based on the financial filings for the five largest publicly traded companies and one nonprofit: Aetna, Blue Cross-Blue Shield (the nonprofit), Cigna, Humana, UnitedHealth Group, andWellPoint. These six insurance companies cover one out of every three people who have insurance. Clearly, these companies expect Obamacare to be fully imple- mented, and they are preparing their business plans accordingly. They were not waiting for the Supreme Court to vote; they’ve been busy for years with new plans. Insurance companies cater to their customers just like any other business. Since Obamacare will require that you look for insurance solutions, insurance companies will be eager to provide them. Change is unsettling. However, the more knowledge that you are able to acquire, the better your decisions will be. Q Not buying insurance for your employees is like playing chicken. It may be a gutsy approach, but being gutsy is not the same thing as being wise. Q Obamacare — continued