Big Impact for Small Employers

Much of the national media spotlight this fall was focused on policyholders receiving termination letters from insurers due to the Affordable Care Act, but little attention was given to the impact this law will have on small employers in 2014.

That’s because many businesses dodged the bullet for at least one more year by renewing in December to avoid being forced into one of the metallic plan “buckets” which, depending on a group’s demographic mix, could have a positive or negative impact on future premiums.

Other small employers avoided the new mandates altogether by virtue of their plans being “grandfathered,” which means minimal changes have been made to the actual benefits or employee cost share since the law was enacted in 2010.

Under the health care overhaul, all medical policies sold to employers with fewer than 50 full-time employees were required beginning in January to meet basic coverage requirements and comply with new community rating guidelines designed to close the rating gap between the young and old.  Also excluded from the new policies are the pre-existing condition limitations which previously prevented many with health issues from obtaining coverage.

Between 18 and 24 million people in the U.S. are insured through small employers, and Arkansas is a small-business state. Those who avoided having policies discontinued at the end of 2013 will have tough choices to make this October, when all remaining non-grandfathered plans must move to the government-approved plan designs.

So what are the options for a small business in Arkansas hoping to offer affordable health insurance to its employees? Despite the announcement in November that the federal Small Group Health Options Program (SHOP) would be delayed until 2015, SHOP-qualified plans and accompanying tax credits are available through certified insurers. Also, employers that don’t qualify for SHOP can purchase plans on the private market, and in fact have many more choices in premiums and benefit designs.

Who is eligible for SHOP? Small businesses that agree to maintain 75 percent participation by those who are eligible for benefits. But only employers with 25 or fewer employees and average wages up to $50,000 (excluding the owner) are eligible for tax credits, and the tax advantages are set to expire in 2016. Businesses interested in SHOP must submit a copy of the Employer Eligibility Determination Notice, available at www.HealthCare.gov/small-businesses.

Options on SHOP are extremely limited. There are only three benefit designs available, and the richest plan (Gold) has a $1,500 deductible. The Silver and Bronze options offer $2,000 and $3,000 deductibles respectively, and dental coverage can be purchased at an additional cost.

Regardless of whether a business purchases coverage through SHOP or on the private market, new plans all are subject to what’s known as rate compression, intended to provide rate relief for older, less healthy Americans. The consequence of this new formula is significantly higher premiums for young, healthy adults. Companies that in the past promoted wellness and healthy lifestyles to a younger demographic will no longer reap the benefits of this proactive exercise.

But there are alternatives to a one-size-fits-all approach. Once reserved for large employers, self-funded options are now available for groups with better-than-average risk, all the way down to five employees. These alternative funding strategies look and feel like a typical fully insured plan, with lower stop-loss thresholds to provide security from large, catastrophic claims. Finally, these new plans are exempt from many of the ACA’s mandates and provide greater flexibility in plan design.

Small employers, the backbone of our economy, may feel the brunt of reform today, but the private sector will continue to develop innovative solutions to meet the needs of this important demographic.

Recently, the Obama administration announced it would give some employers — those with 50 to 99 workers — until 2016 to comply with a requirement to offer health insurance to full-time employees.

Firms with at least 100 employees will have to start offering coverage in 2015, and firms with less than 50 employees are still not required to offer insurance. 

Tom Hayes is the Employee Benefits Practice Leader at Regions Insurance, which includes 22 offices in eight states in the southeast and Indiana. He can be reached at [email protected].