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More Closures Expected after Blue Shield of California Shuts Down Operations

David Reid
August 29, 2016

Blue Shield of California announced it is shutting down operations for four days after Labor Day, citing losses from the California ACA.

This move could help the insurer save about $4 million by reducing its liabilities for paid time off (PTO), requiring employees to use their PTO days from September 6 to September 9.

Executives should expect to hear more closures announced very soon, and should prepare for massive increases in healthcare costs. Additional pressure will come from employees demanding that employers bear these costs. About 75 percent of small employers renew their business in the fourth quarter, meaning most carriers simply cannot afford a closure beyond the month of September. Closures beyond this point will avoid time off during the busy period of quarter four.

The overtime laws have changed things. Because most employees in California exceed the new overtime income threshold of $47,476, employers can require exempt employees to work over time during the busiest season without incurring additional labor costs.

However, in states where average incomes fall below this threshold, such a move will do no good because they will be obligated to pay overtime to employees that were previously exempt.  The Obama administration nearly doubled the overtime income threshold, preventing much of the nation from being able to use creative strategies such as this.

These phenomena were exacerbated in 2014 when most small businesses moved their renewal dates to December 1, 2014.  By doing so, they were able to avoid the ACA until the following December.  Businesses and insurance carriers could see well in advance the toll on premium increases that would come from Obamacare and did everything they could to post-pone these massive cost increases as long as possible.  We are now seeing the results of huge cost increases and many exchanges becoming insolvent after spending hundreds of millions being setup. For those who listened to industry experts, this should come as no surprise.

This is a normal strategy employers implement to cut costs, though it may not always be in the public’s eye. When I was a broker, we had a no vacation policy during quarter four, and closed the office at noon on Fridays between Memorial Day and Labor Day to save money. Because of Obamacare, businesses cannot afford to pay for their employees’ PTO requests during the fourth quarter when they need the most manpower. Now that Blue Shield has formally announced this change, the decision may come under public scrutiny. Though some employees may be unhappy, this is a good business decision given the circumstances set in motion by Obamacare. Employers who adopt this policy have to implement something to soften the impact of this change. Not only that, they need the bandwidth, tools, creative strategies and the right platforms to handle this.

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