Tuesday, September 27, 2011

The Numbers are Simple, But They Don't Add Up

We're in the early stages of open enrollment season. Workers are not happy. Is it 2011, or is it just a redux of 2010, 2009, 2008, 2007, etc? We're going to keep it short, but simple. A few of the numbers are made up, but they are not unreasonable.

Sneezy works for Snow White Company. He is married and a father of two children, Dopey and Bashful. In 2011, Sneezy's salary from Snow White was $100,000. As Snow White has not given raises for several years, it has promised Sneezy a 3% increase for 2012. Sneezy was happy about that until he saw what was going on with his health care premiums.

You see, Snow White provided some communication to its employees. In that communication, they used some fancy words like competitive pressures, margins, and cost-sharing. Sneezy had read something about cost-sharing increasing from 20% to 30% for employees and removing the subsidy for other family members that had been at 25%. Sneezy had heard on TV while he was waiting for his favorite show to come on that something called health care inflation was 10% for the year.

So many numbers! Sneezy didn't like math when he was in school and all these percentages boggle his mind.

He went to see his brother, Doc, to ask him how all this would affect Sneezy and his family. Let's look together.

Salary                                              100000
FICA Taxes @ 4.2%                         (4200)
Federal Income Taxes @20%           (20000)
State Income Taxes @5%                  (5000)
Health Care Premiums (see below)      (6360)
HI (Medicare) Taxes @1.45%            (1450)
Remaining Cash                                  62990

Health care premiums were $1000 per month (400 for the employee and 600 for the other family members). Snow White paid 80% of the amount for the employee and 25% of the amount for the rest of the family or $470 per month in total, leaving Sneezy with premiums of $530 per month or $6360 per year.

Salary (with 3% raise)                     103000
FICA taxes @ 6.2                            (6386)
Federal Income Taxes @ 20%        (20600)
State Income Taxes @ 5%                (5150)
Health Care Premiums (see below)    (9504)
HI (Medicare) Taxes                         (1493)
Remaining Cash                                59867

Health care premiums with the 10% health care inflation had increased to $1100 per month (440 for Sneezy and 660 for his additional family members). The change in cost-sharing has Snow White paying just 70% of that first $440 or $308 per month leaving Sneezy to pay $792 per month or $9504 per year.

Poor Sneezy. He got a $3000 raise and yet he has $3123 less in cash than he had the year before.

The numbers: they are simple, but to Sneezy, they don't add up.

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