After three consecutive years of operating losses on many U.S. farms, nothing will be spared for budget cuts in 2017 budgets--not cash rents, not seed, not vacations. Unfortunately, escalating health insurance premiums for farm employees are complicating those cost control efforts. Some farmers tell me health insurance alone accounts for 10% of their labor costs.
To be clear, I'm not talking about low- or moderate-income people who can buy their insurance on state exchanges with tax subsidies. I'm talking about employer-owners who buy small group plans to cover themselves and key employees. (In other DTN stories on health insurance, we've addressed the problem that individual farmers are spending more on their family's health insurance coverage than they do on groceries https://www.dtnpf.com/…)
Small business owners with fewer than 50 full-time equivalent employees are exempt from providing mandatory health insurance coverage under the Affordable Care Act (ACA). However, some offer the benefit just to stay competitive with other businesses. A 2016 Kaiser Family Foundation survey of 1,900 businesses found 46% of employers with three to nine employees offered health insurance coverage, but coverage jumps significantly with just a few more workers. http://kff.org/….
One diversified Mississippi farm spent $24,000 a year when it first offered paid medical coverage to seven employees in 2012. For 2017 policies, Blue Cross Blue Shield had hiked that tab to $86,000 to cover 14 workers. To moderate a 75% increase in premiums for an ACA-compliant plan in 2017, the farm was considering raising deductibles and out-of-pocket expenses. Instead of the $1,000-deductible/$2,000 out-of-pocket limits under their "grandmothered" plan, an ACA-compliant plan would impose $3,000 deductible/$5,000 out-of-pocket thresholds.
Most farm laborers earn far less than $50,000 a year, so those higher limits could pose a hardship and mean more health expenses shouldered by the insured. Some employers combine Flexible Savings Accounts or Health Savings Accounts, on top of insurance, so workers can pay those high deductibles with pre-tax dollars.
In Indiana, owners of one family farm scrambled to avoid a 17% annual increase in premiums for 2017 but also worry their employees won't have enough savings to pay the new $5,000 deductibles before health insurance kicks in, with $10,000 per-person out-of-pocket limits.
"That's just not affordable for working people," the family's office manager says.
"I feel like we've looked at every avenue for cost control," she adds. "Most employees aren't maxing out on our current out-of-pocket limit of $3,000 per year, so $10,000 will only come into play if they have some catastrophic event."
In Kentucky, a 7,500-acre family farm with eight employees decided it couldn't afford a small group plan. It simply increased salaries for every worker by $2,000 to help buy insurance on their own, but employees must pay Social Security and other income taxes on the benefit. Depending on their tax bracket, that means about 30% less after-tax buying power for a benefit that was once tax free.
Farm owners are apologetic, but hope transparency will help employees understand their dilemma.
"The problem is the average American has no idea that it costs employers $600-$700 a month to insure a 55-year-old worker," says an Arkansas rice and soybean grower. She tapped her state's small business exchange and pays 50% of her employees' premiums, although can't afford to offer their families coverage. According to the Kaiser study, employers who do offer such perks spend an average of about $18,000 per family.
Theoretically, small business owners with fewer than 25 full-time equivalent employees are eligible for a health care tax credit if they cover employees, but ag CPA Andy Biebl of CliftonLarsonAllen says it's rare for farmers to qualify for help because the perimeters are so narrow.
"I try to show the cost of benefits to our employees annually," the Arkansas farmer says. "It stinks. The bump in salary I'd like to pay them is being eaten up by health insurance."
Follow Marcia Taylor on Twitter@MarciaZTaylor
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