Insights

How Minimum Wage Changes Impact Group Benefits

At first, it might seem like minimum wage laws and the Affordable Care Act have little in common. However, for companies that are trying to keep costs under control, they can merge in a significant way. Currently, many states are raising the minimum wage. At the same time, the costs of health benefits continue to increase. If companies had to deal with only one of these factors, it might not be so difficult, but facing both at the same time may require some reassessment on the part of employers in order to keep increasing compensation costs from disrupting operations.

Minimum Wage

The federal minimum wage is $7.25 per hour and has been since 2009. However, many states have higher minimum wages, and many of these rates are increasing, sometimes significantly. A total of 14 states enacted minimum wage increases in the beginning of 2016. California, New York City, and Washington D.C. are all phasing in a $15 minimum wage. Seattle, Washington, has also passed a $15 minimum wage.

This may be just the beginning. The Democratic Party has endorsed a $15 federal minimum wage as part of its party platform. Although a change from $7.25 to $15 – an increase of more than 100 percent – may seem outrageous to some, others view it as a necessary measure to keep up with inflation. According to Pew Research Center, when adjusted for inflation, the minimum wage peaked in 1968 and has gone down since then. CNBC shows that the 1968 minimum wage would have been worth $10.90 in 2015 if adjusted for inflation, and the Center for Economic Policy Research found that it would have been $21.72 in 2012 if adjusted for productivity.

Regardless, a doubling of the minimum wage will have an impact on the employers paying it.

Group Benefits

In addition to pay, another major element of a compensation package is, of course, the benefits. Under the Affordable Care Act, Applicable Large Employers – those employing 50 or more full-time workers – must provide affordable health insurance.

The cost of benefits keeps increasing. According to the National Business Group on Health, large employers in the United States should expect a 6 percent increase in overall health care benefit costs in 2017.

What Should Companies Do?

One option is to decrease the portion that the group health insurance premium paid by the employer. However, in order to be considered affordable, the employee’s share of the premium cannot exceed 9.5 percent of the employee’s annual household income. Therefore, as the employee’s income increases due to raises in the minimum wage, the amount of the premium that the employee can cover also increases.

However, employees likely won’t be happy with an employer’s decision to decrease contributions toward health benefits. Another option, and one that may please both employers and employees alike, is to try to control healthcare costs, as described in this LinkedIn article. Cost control strategies include telemedicine, wellness programs, educating employees to be smart health care consumers, and negotiating reference-based pricing.

As state and federal regulations regarding employee pay and benefits evolve, employers will have to adjust. A little foresight and planning will help changes go smoothly for proactive companies. The right benefit administration software helps too. Contact iTEDIUM to learn more.

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