Announced this week, California small businesses will be allowed to keep group health insurance plans that don’t conform to the federal Affordable Care Act (ACA) through next year. However, there is a better health insurance solution for small businesses and their employees - and the first step involves canceling the group health insurance plan.
Small Businesses in California Can Keep their Health Plans Next Year
According to the Sacramento Bee, Senate Bill 1446, signed by Governor Jerry Brown, brings the state in line with a federal policy that lets small employers continue to offer non-compliant plans through 2015. The Bill will provide California small employers additional time to transition to ACA compliant policies.
While the Bill provides relief for many small businesses facing rate increases and plan changes due to the ACA, it doesn't solve the real health insurance problem for small businesses.
The real problem is that group health insurance is broken. There's is a better way to provide health benefits to small business employees.
A Better Health Insurance Solution for Small Businesses
The better, more affordable solution for small businesses in California (and in states all over the nation) is to cancel group health insurance today, allow employees to purchase individual health insurance, and provide an employer-funded contribution toward their individual health insurance (a "defined contribution").
While the ACA (and this recent California extension) has done little to help with group health insurance costs, the ACA has made significant improvements to individual health insurance. On average, individual health insurance costs less than group health insurance premiums for the same or better coverage, covers healthy and sick employees the same, and provides employees more choice. There are also premium tax credits available to most employees which lower the cost of health insurance even more.
Plus, when a business cancels the group health insurance plan employees are automatically eligible for a special enrollment period for purchasing individual health insurance coverage. Meaning, employees will not have to wait until the next open enrollment period (starting on November 15) to purchase individual coverage.
3 Steps to a Better Health Insurance Solution
A better health insurance solution is simple, and it involves three easy steps:
Step 2 - Give employees monthly "healthcare" allowances to spend on health insurance; whether this be tax-free via a Healthcare Reimbursement Plan (HRP) or a taxable stipend.
Step 3 - Allow employees to purchase health insurance in the health insurance marketplaces (and receive a premium tax credits that cap their health insurance costs as percent of income.
This type of approach is gaining popularity with small businesses in California, and all over the nation. In fact, we estimate that 60% of all small businesses will abandon group health insurance in favor of individual health insurance and defined contribution healthcare by 2017. Read more about this shift in small business health insurance here.
What do you think?