Expecting to get a raise next year?

Obamacare could eat up your raise

Health law prompts more companies to use salary-based premiums

   By Jonnelle Marte 

Expecting to get a raise next year? It could be eaten up by your health care bill.

In an effort to meet the affordability requirement of the Affordable Care Act, which kicks in next year and requires that workers spend no more than 9.5% of their income on premiums, more employers are turning to insurance plans in which premiums vary based on a person’s salary, rather than having all workers pay a flat rate. That way, employees who make more money pay bigger premiums.

Some 12% of companies used salary-based premiums in 2012, up from 10% in 2011, according to a study by benefits consultant Mercer. The practice is especially common among large employers, with 20% of companies that have at least 5,000 employees using the strategy last year. A separate survey by the Kaiser Family Foundation found that the approach of varying premium contributions by wage level is more popular in the Northeast, where 9% of companies used the strategy, and in the Midwest, where 6% of employers did, compared with 2% of companies in the South and the West.

While the strategy, which some employers have been using for decades, is still not mainstream, more companies are adopting the system as a way to prepare for the health reform law. It makes sense for some employers to shift costs to wealthier workers, especially as health-care costs continue to grow at a faster clip than wages, says Tim Nimmer, chief actuary and chief broking officer with Aon Hewitt, a human-resources consulting firm. Companies feel more comfortable “putting that increase on their higher earners just because they can afford it,” says Nimmer. If premiums increase by $100 for a company’s chief executive it may seem “meaningless,” but “for someone making $25,000, it could be the difference between going out to eat or paying electric bills or buying gas,” he says.

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