Questions, answers on health-care plans

Nation's Business, Feb, 1994 by Roger Thompson

Our November cover story on health-care reform invited readers to send us questions about the potential impact of reform on their small companies. Most of the letters we received dealt specifically with the effects of President Clinton's plan:

Q: We are a sole proprietor and have some employees on a fixed salary and some on salary plus bonus. To calculate the average wage for the purpose of determining eligibility for a federal subsidy, would I count bonuses as salary?

Also, would the owner's profit at the end of the year count as part of total payroll?

C.B. Metcalf Jr.

C B. Metcalf Co. Gonzalez, Fla.

A: Yes, under the Clinton plan, bonuses count as salary for the purpose of calculating your average wage. The Internal Revenue Service says that anything considered to be a taxable perk must be counted as payroll.

The owner's profit would also have to be included in the average wage calculation whenever that money is subject to the FICA or self-employment federal payroll taxes. A distribution of funds that the IRS considers nonwage is not counted as payroll.

Q: We send out about 200 W-2s and have a total payroll of about $1.25 million. Only 25 to 30 workers are full-time, year-round employees. The rest are seasonal, working three to six months in the summer. Most seasonal employees are 16 to 24 years old and work more than 30 hours a week. More than haft hold a second job. More than haft are still attending high school or college.

How do we calculate our healthinsurance costs for seasonal employees? How do we calculate costs for those holding two jobs?

Janet Smith

Teton Pines Resort and Country Club

Jackson, Wyo.

A: First, you would have no obligation under the Clinton plan to buy health insurance for part-timers who work fewer than 40 hours a month.

Those who work more than 40 hours a month but fewer than 120 would be considered part-time, and you would have to contribute toward their healthinsurance costs, with two exceptions:

1. You would have no obligation to pay for any full-time student under the age of 24 working part time or full time.

2. You would not have to pay for any person under 18, regardless of student status. Under the Clinton plan, these young people would be covered by their parents' health plans.

To calculate your monthly payment to the regional health alliance, you would have to figure out how many full-time equivalent workers you had among your part-time staff, total the hours for the eligible part-timers, and divide by 120 hours. This would give you the number of full-time-equivalent workers for the month. Because you would be paying for only one month at a time, you would send the health alliance a check for one-twelfth of the cost of the health plans these workers had picked.

For those holding two jobs, you would be responsible for paying only your proportionate share of the hours put in at your company.

Q: We have 30 full-time employees; our payroll is $1.5 million a year, a $50,000 average per employee. Our present health plan costs about $40,000 a year. As I understand the president's plan, our premiums would go to $118,500 (7.9 percent of $1.5 million). Am I correct in believing that the president's plan would cost me $78,500 more in premiums?

Name Withheld By Request

Grandview, Mo.

A: Probably not. Here's why: Under the Clinton plan, the employer would pay a fixed amount per worker. To calculate your costs, you would determine whether your workers were buying a policy for an individual, a couple, or a family.

For each single worker, you would pay $1,546 a year. For each married worker with no children, you would pay $2,125. For those--whether married or single-- who have children, you would pay $2,479. (These figures are preliminary national averages and would be calculated later for each health alliance.)

Now, let's assume you have 12 single workers and 18 workers with children. Your annual tab would be $18,552 for the singles and $44,622 for the rest. That comes to $63,174, or $23,174 more than you are now paying, not $78,500.

The 7.9 percent figure is useful only for calculating the maximum amount you may have to pay as a percentage of payroll. But, as in your case, it is often far higher than actual costs when the average wage exceeds $30,000 a year.

Q: We pay 80 percent of the healthinsurance costs for our 50 employees. They pay for their dependents. If we had to pay 80 percent of the cost of insurance for just one-half of our employees' families, our insurance costs would more than double. Who pays for dependents?

Randall G. Long

Long Wholesale Distributors Inc.

Corinth, Miss.

A: You would pay for dependents. But you wouldn't be paying 80 percent. Under the Clinton plan, employers would actually pay between 55 percent and 64 percent of the projected cost for workers with dependents.

When the administration says that employers would pay 80 percent of their workers' health costs, they are talking about the sum total of all employer payments. But at the individual employer level, the only workers for whom employers would pay 80 percent are single employees.