How Small Employers Can Find Great Health Insurance They Can Afford, Pt. 2

The Affordable Care Act is both helping and hindering small businesses. Here are some tips on finding an affordable plan that's right for your business.

Id 6410 Employer Based

This is part 2 of the article that began Wednesday.

Finding quality, affordable health insurance has never been easy. The Affordable Care Act (ACA), passed in 2010 and also known as “Obamacare,” was introduced in part to solve the health insurance conundrum for employers.

Has the law succeeded? Reports from the field suggest that the ACA in its early stages can best be described as “a mixed bag.”

“Some smaller employers may have gotten better deals under the ACA,” says Adam C. Solander, an associate at the law firm of Epstein Becker Green, Washington, D.C. ( “Most, though, have experienced cost increases, in some cases large ones.”

Private Exchanges

While the SHOP exchanges and its attendant tax credits are potentially valuable resources for smaller employers, businesses large and small can take advantage of an unexpected offshoot of the ACA: Private health insurance exchanges. These are set up by private sector companies such as insurers, brokers or consultants.

Like their SHOP counterparts, the private exchanges offer a variety of plans to employers and opportunities to reduce administrative overhead. Basic human resource functions (such as tracking which employees are signed up with which polices) are done automatically by the organization running the private exchange.

But there are also differences. Private exchanges offer more choice and plan customization than SHOP. They also provide the opportunity for employers to contribute toward premiums in the form of a fixed amount rather than a percentage. That can help reduce costs as premiums rise.

“Private exchanges are growing like wildfire,” says Larry S. Boress, President and CEO of the Midwest Business Group on Health, a Chicago-based consortium of over 120 employers ( “Our surveys show that 40 percent of our member employers plan to look at private exchanges as possible sources for health insurance.”

More information about private health exchanges can be found through an organization called The Private Exchange Evaluation Collaborative at

Public exchanges

Thanks to the ACA, employers can take advantage of a third type of exchange: the state public exchanges at which people can shop for a health insurance plan that meets the ACA minimum coverage guidelines. Smaller employers who decide health insurance is too expensive to provide as a benefit might decide to send their employees to these marketplaces to shop for coverage.

But which employers can send their workers to the public exchanges without incurring fines? This is a good point to cover one of the more confusing parts of the ACA legislation: the employer mandate. This term refers to the requirement that employers of a certain size must either offer health insurance to their workers or pay financial penalties.

The threshold for the employer mandate is defined by the number of full time equivalent employees (FTEs) at the business. As of January 1, 2015, businesses with 100 or more FTEs must provide health benefits to at least 70 percent of their full-time employees (95 percent by 2016) or pay a $2,000 annual penalty for each employee, excluding the first 30.

The deadline is later (January 1, 2016) for businesses with 51 to 99 FTEs. Employers with 50 or fewer FTEs are not required to offer any coverage at all. These are the employers who are most likely to either utilize the SHOP exchange described earlier in this article, or send their workers to the public exchanges, since doing so will not result in an ACA fine. (One final thing about FTEs: Only organizations with fewer than 25 of them can take advantage of the tax credit discussed earlier in this article).

Unfortunately, calculating the FTE number for an employer is easier said than done. “The employer mandate has been the hardest part of the law for businesses to understand,” says Solander. “Determining who is a full time employee, for example, by reviewing the hours they have worked has been a challenge.” For help in calculating your own FTE, go to You may also want to consult with your accountant.

Solander cautions against instituting a program that gives employees after-tax payments that they are told to use to purchase insurance on the open market, including the state individual exchanges. Such arrangements, sometimes called Employer Payment Plans, or Premium Reimbursement Arrangements, are deemed group health plans and are considered insufficient to satisfy the ACA’s minimum requirements for coverage. Because they violate the ACA they can trigger fines of $100 per day (or $36,000 per year) per employee.

Note that even businesses which have 50 or fewer FTEs, and which are therefore not subject to the employer mandate, should not engage in this kind of reimbursement program. Doing so may subject them to fines, because any health insurance program offered by any employer must satisfy ACA minimum requirements.         

An alternative and legitimate arrangement is to increase the salary of employees with the idea that they can—but are not required—to use their additional income to buy their own insurance. Such an increase, though, would be subject to payroll taxes. (Additionally, businesses with 100 or more FTEs, and for that reason are subject to the employer mandate, would incur penalties because the increased salary on its own does not constitute health insurance coverage).

Prime benefit

If the costs and complexities of an employer-provided health insurance program seem more than the benefit is worth, opting out is a possibility. “Some employers are attempting to stay below the 50 FTE threshold so they are not mandated to offer coverage,” says Stich. In the IFEBP survey, one in 10 respondents said they had reduced hiring to stay below the threshold. Still others said they were reducing work hours so more employees fall into the part time worker category for which health insurance need not be offered.

Despite those reports, the fact remains that most employers seem determined to continue offering what they deem a benefit which is valued by employees and thus vital to business success. In the IFEBP survey, some 93 percent of employers with 50 or fewer workers stated they “will likely” (or “definitely will”) continue to offer coverage. They cited three key reasons: “to retain current employees, to attract future talent, and to maintain or increase employee satisfaction and loyalty.” In contrast, fewer than one percent of survey respondents stated that they will definitely discontinue health insurance coverage. 

“None of our employer members is planning to drop health insurance coverage,” says Boress of the Midwest Business Group on Health. “They all feel it is necessary to recruit and retain talent. When you compete for talent you will miss out if you don’t offer insurance equivalent to that of other employers. And you will not be able to keep the people you have.”

A good benefits program also enhances profitability by keeping people productive, says Boress. The impact is especially acute at smaller businesses. “If you have a business with six people and the delivery person comes down sick you do not make the money you would otherwise. Any break in your systems interferes with the bottom line.”

For all these reasons, the annual search for affordable quality health insurance is not likely to end any time soon. “It’s good for all businesses to have employees with health insurance,” says Bromley. “It means a healthier, happier, and more productive work force.”


Phillip Perry is a full-time freelance business writer with over 20 years of experience in the fields of workplace psychology, employment law and marketing. His byline has appeared over 3,000 times in a great variety of business publications.

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