How Small Employers Can Find Great Health Insurance They Can Afford, Pt. 1

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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. (ebglaw.com). “Most, though, have experienced cost increases, in some cases large ones.”

Premium hikes

Reports from the field lend credence to Solander’s analysis. Nine out of 10 employees responding to a recent survey by the International Foundation of Employee Benefit Plans (IFEBP) stated their health care costs had increased as a result of the ACA. While the median reported increase was four percent, one in seven respondents said their rates went up by over 10 percent. Some small businesses claimed spikes of some 20 to 50 percent.

In 2014 the premium for employer-provided family coverage averaged $16,834, a rate three percent higher than the previous year, according to the “2014 Employer Health Benefits Survey” from the Kaiser Family Foundation (kff.org). The average annual premiums for such coverage have risen 26 percent over the past five years.

While these increases are unwelcome, the Kaiser Foundation points out that they are smaller than the escalations for the previous five year period. Too, some higher premiums have not arrived absent advantages. “Premium increases often result from the law’s requirements for coverage of better quality than what employers have offered in the past,” says Solander.

Experience ratings

One ACA benefit seems certain: Small employers are no longer penalized by skyrocketing premiums when one employee incurs an expensive treatment. That’s because the ACA eliminated what insurers call “experience rating,” or the assessment of premium levels by the medical history of participating employees.

“Some employers had found it challenging to provide coverage at a reasonable cost if they’d had adverse health experience among their employee population,” says Julie Stich, Director of Research at the IFEBP (ifebp.org). “With premium reform, adverse experience can no longer be taken into consideration and can no longer jack up premiums.”

The disappearance of experience ratings has also resulted in an overall leveling effect. “Before the ACA, employers with healthier employees would have seen premium discounts, while employers with less-healthy employees would have seen premium surcharges due to poor experience,” says Stich. “After the ACA, some employers that had previously received discounts may be seeing increases. Those who had previously seen surcharges may be seeing lower costs or cost increases that aren’t as high.”

Finally, any assessment of the ACA has to consider whether premiums might be higher without the law. That is indeed the conclusion of at least one expert on health care costs. “There has been a two percentage point downward pressure on insurance premiums,” estimates Steven Eastaugh, a Washington, D.C.,-based health economist and consultant (http://www.projectspeaker.com/StevenEastaugh). “This has been caused by a combination of consumer comparison shopping and competition among insurance companies.”

SHOP and save

The ACA provides employers with several resources and advantages. One is the dedicated Internet-based insurance marketplace called The Small Business Health Options Program, or SHOP. It’s available to employers with 50 or fewer full time workers. (To access SHOP, go to healthcare.gov and click on “Small Businesses.”)

“For smaller employers, SHOP is a great resource,” says Kaya Bromley, an Incline Village, Nevada,-based attorney who counsels employers nationally on the ACA (yourobamacareadvisors.com). “SHOP allows them to get the pricing that only larger employers enjoyed before.”

The SHOP exchanges were originally scheduled to open in late 2013 but were delayed until late 2014 while energies were devoted to fixing the public exchanges for individuals. In many states employers were required to fill out paper applications. The inelegant process led to dismal results: California, for example, signed up 1.4 million people through its public exchange but only 11,500 employees and dependents through its SHOP exchange.

“SHOP certainly has been a slow growing,” says Eastaugh. “The program is barely working in 15 states. Perhaps it will get up and running in 10 more sometime in 2015.”

Even in the 15 states where SHOP is working, it is not picking up much market share. “In those states there is an average of one employee signed up through a SHOP program for every 100 people signed up on the state exchanges,” says Eastaugh.

One reason SHOP has been slow to catch on is because word has not yet gotten around. “Many employers still do not know anything about SHOP,” says Bromley. “Also, they are accustomed to working with brokers, and those brokers will lose their commissions if they encourage employers to go to the exchanges.”

Another problem with the nascent SHOP program is the lack of economies of scale. The small businesses who patronize SHOP do not have enough employees to attract competitive pricing from insurance carriers. Whether that problem will be mitigated in the future as the SHOP participation grows, remains to be seen.

Tax credits

Many small employers enjoy another ACA benefit: the tax credit program intended to assist organizations that offer their workers health insurance. These credits are available for employers with fewer than 25 employees and average wages of less than $50,000 a year. The credits are worth up to 50 percent of employer contributions to employees’ premium costs, and the program is good for two consecutive years. Employers desiring to take advantage of the tax credits must offer coverage through the SHOP marketplace.

Despite the allure of tax credits, employers have not taken advantage of them as much as anticipated. “Again, I think this is due to the learning curve,” says Bromley. “Employers are confused about how to calculate the tax credit. They do not see a penalty for not providing insurance so it’s hard for them to look further down the road.”

And perhaps the program’s benefits need to be adjusted. “My feeling is that the tax credits were not of sufficient size, and the fact that they expire in two years doesn’t help,” says Eastaugh. “Maybe the carrot needs to be made bigger: Perhaps the tax credits should be 80 percent and they should go on for five years.” He adds that a more generous tax credit policy might also allow employers to offer plans with lower deductibles.

For information on the tax credits, go to healthcare.gov and click on “Small Businesses,” and then on “For Employers.” Then scroll to the bottom of the window.

 

Be sure to check out Part 2 of this article on Friday

 

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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