Should we cancel group coverage and send employees to the exchanges? The rates are better, and all employees can get individual coverage... but what about employee morale and loyalty?
If you're a small or medium sized employer who has offered group health insurance coverage, you're likely asking these types of questions.
And you're not alone.
Small and medium sized employers all over the nation are having these discussions with their management team and health insurance professional.
The good news is there's a middle ground:
- Cancel group health insurance coverage,
- Send employees to the exchanges (or to the individual health insurance market), and
- Set up a "pure" defined contribution health plan to help employees' with the cost
This approach enables employers to offer a contribution to employees' health care expenses without the cost and complication of traditional group health insurance.
Why Send Employees to the Exchanges in the First Place?
There are factors pushing employers out of the group health insurance market (mainly cost), and factors pulling employers toward the individual health insurance exchanges.
First, the cost of group health insurance has been on a steady increase over the last decade, and the Affordable Care Act (ACA, aka "ObamaCare") introduces new fees and regulations. While group health insurance premium rates slowed in 2013, forecasts are predicting an uptick in premiums in 2014 and 2015. Simply stated, the cost of group health insurance is no longer sustainable for employers or employees.
In addition to costs pushing small businesses out of group health insurance, there are several factors pulling small businesses toward individual health insurance and defined contribution.
Small businesses (with fewer than 50 employees) are not subject to the employer mandate fees for not offering group health insurance. Medium sized businesses (with 50-99 full-time equivalent employees) are not subject to this requirement until 2016. This opens up health insurance alternatives without having to factor in ACA employer mandate fees.
On average, individual health insurance costs employees less than group health insurance (see this eBook for an analysis on individual vs. group rates).
There are new advantages on the individual health insurance market -- most notably guaranteed-issue (employees with pre-existing health conditions can get coverage) and significant discounts on premiums for eligible employees (via the individual health insurance tax credits).
Because of these factors, businesses are canceling traditional health insurance and re-thinking how they offer health benefits.
How to Send Employees to the Exchanges and Still Offer Health Benefits
For small and medium sized employers, the solution to the Affordable Care Act's new challenges and new opportunities is simple: "Pure" defined contribution healthcare.
With defined contribution, small businesses give employees a set monthly amount to spend on their own health insurance policy. Employees can purchase a policy in a state health insurance exchange, or through the private market via a broker, online, etc.
Then, employees can use their employer-funded allowance to be reimbursed for qualified health insurance premiums, up to the amount in their balance. To stay compliant, the plan must be formally administered to meet certain requirements of the IRS, HIPAA, ERISA, and ACA.
Tip: When you cancel group health insurance coverage (at any time during the year), employees are eligible for a special enrollment period to enroll in individual health insurance coverage. Read more: It's Not Too Late for Employees to Get Coverage on the Exchanges.
Questions about how to send employees to the exchanges and still offer formal health benefits? Leave a comment below.