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Small Business Employee Benefits and HR Blog

Top 5 Reasons Small Businesses are Sending Employees to Exchanges

June 2, 2014
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There's been a lot of buzz about companies canceling group health insurance and sending employees to the Exchanges. 

This trend is happening now, and it is expected to pick up steam in the years to come. For example, S&P Capital IQ recently predicted that 90% of companies will abandon traditional group health Insurance by 2020.

But, employers are not abandoning health benefits altogether. Instead, they are rethinking their contribution strategy. Many small businesses are setting up plans to contribute to employees' individual health insurance coverage (a "defined contribution").

Here are the top five reasons small businesses are shifting employees from traditional group health insurance to the Exchanges and individual health insurance coverage.

1. Small businesses are done paying annual cost increases

Cost is the number one force driving small businesses out of group insurance. When you look at the numbers, it's not surprising.

From 1999 to 2013, the annual cost to cover a single employee with group insurance increased from $2,196 to $5,615 (166%). Family coverage increased even more, from $5,844 a year to $16,351 (191%).

Facing double-digit growth in health insurance premiums, many small businesses have either eliminated health insurance or redesigned the plans to include higher deductibles, larger co-payments, and greater premium-sharing by employees.

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Source: Inevitable End of Small Business Health Insurance Whitepaper

2. Small businesses can't meet participation requirements

Another reason small businesses sending employees to the Exchanges is they cannot meet participation requirements. They want to offer health insurance, but they simple don't qualify for group insurance.

3. Employees would be better off with individual, subsidized insurance

Small businesses with a low and moderate income employees are exiting group insurance because employees are better off with individual, subsidized insurance. The cost is lower, and individual plans are now guaranteed-issue.

Small businesses are comparing the cost of a small group insurance plan to that of subsidized individual insurance premiums, and see that employees will pay less out of pocket for a subsidized plan. Employees are eligible for a subsidy if they make less than 400% of the federal poverty line, which is just about $46,000 a year for an individual in 2014.

If the small business offers a group insurance plan, they disqualify employees (and often their families) from the subsidies.

4. The business can contribute via a Defined Contribution Health Plan

Small businesses no longer need group health insurance to offer quality, guaranteed-issue, affordable health benefits. And, small businesses (fewer than 50 employees) are not required by the Affordable Care Act (ACA) to offer health insurance.

Employees can often get quality, less expensive coverage on the individual market. And, small businesses can continue to contribute with a "pure" defined contribution health plan -- a plan that reimburses employees for their individual health insurance expenses.

See: How to Send Employees to the Exchanges... And Still Offer Great Health Benefits

5. Small businesses prioritize value over legacy

Lastly, small businesses have been quick to send employees to the Exchanges and adopt Defined Contribution because they see the value discussed above. Small businesses want their investment in health benefits to stretch farther, and are not as tied to the legacy of group health insurance as larger companies.

What reasons are you seeing for small businesses sending employees to the Exchanges?

 

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