It is no secret that small business health insurance costs are on the rise, and so is the trend of small employers who are dropping their small business group health insurance plans. Since these employers (with fewer than 50 workers) are not subject to the Affordable Care Act’s (ACA’s) employer shared responsibility provision (employer mandate), many of them are directing employees to the health insurance Marketplace to obtain coverage.
Last month, the Associated Press released an article about the trend of small employers who are dropping their group health coverage to help their employees pay for individual health insurance policies. Yesterday, the Wall Street Journal reported on this growing trend. Here are the highlights from the article.
Insurers Seeing a Decline in Small Group Coverage
According to the Wall Street Journal (WSJ), WellPoint Inc. said that its small business group health insurance membership is “shrinking faster than expected and it has lost about 300,000 people since the start of the year.”
While WellPoint’s plans were to significantly reduce small business membership over the next five years, the reduction may happen over the next two years. According to Wayne DeVeydt, Wellpoint’s CFO, with the ACA’s marketplaces running smoothly, small employers are more likely to re-think the Marketplace as an option for their employees.
Aetna’s CFO, Shawn M. Guertin has noticed a similar trend among small employers as well. Guertin said the company had noticed “some erosion at the bottom of the market,” particularly among employers with two to 10 employees.
Kaiser Permanente has also been experiencing a shrinking small business group market. Joe Smith, Kaiser’s vice president for small business, noted that the market was declining “particularly in places where insurers are offering cheap individual plans.”
Small Employers Noticing the Perks of Individual Health Insurance
The WSJ also interviewed small business owners who are dropping their group health insurance policies due to skyrocketing premiums and overwhelming administrative hassles.
Owner of Empire Cell Phone Accessories, Laura Land, is one of the small business owners who is dropping her group health plan next year to direct her employees to the state’s Marketplace.
Land, who had several new hires turn down her company’s group plan in favor of cheaper exchange options noted that “It’s getting to be too much paperwork for us to administer the plan, especially if workers are going to decline anyway and go to the exchange.”
King Par LLC is another small business who opted to end their health plan in February, as the company was facing a rate increase. The company’s CFO explained that low-wage employees are paying a similar amount toward their premiums as they did before, due to premium tax credits.
King Par offered a salary bump to employees who made too much money to qualify for premium tax credits to make up for the lost healthcare benefits. While this may seem like a beneficial arrangement for both parties, there are several problems with this solution.
There is no guarantee that the employees will actually spend the money on health insurance with a stipend.
Employers may lose top-tiered candidates to employers with formal health benefits in place. While a stipend may be somewhat appealing to candidates, most would prefer a formal, tax-advantaged health benefits program
Insurers Trying to Make Up for Lost Business
According to the WSJ article, insurers are trying to make up for the business they’ve lost by signing up employees to their individual plans. Medical Mutual reported the strongest shift away from group health insurance in employers with just two to four employees.
Medical Mutual is reportedly “working to ease the transition for companies that want to move from a group plan to individual coverage,” according to the WSJ. According to Dan Polk, a vice president who oversees small-group business, “That’s the best way to maintain the membership.” Polk also noted that the company is retaining a “very high percentage” of those workers whose employers are dropping group plans.