In recent years, as millions of individual consumers coped with new and different kinds of health insurance, small businesses got some breathing room.
Millions of small businesses nationwide — and an estimated 70% of California’s small firms that offer employee health insurance — haven’t yet faced all the sweeping changes that resulted from the Affordable Care Act.
The government gave them extra time to sign onto Obamacare, and instead they took advantage of provisions that allowed them to stay put with their old policies. “Most of the small group plans that had larger-than-average rate increases by switching to ACA plans [instead] grandmothered their plans” to avoid a rate increase, says Patrick Burns, president of the California Assn. of Health Insurance Underwriters.
Grandmothered health plans are older policies that were in place before 2014 but must ultimately be phased out.
In California, “that grandmothering ends December 2015, so a lot of the companies that have avoided the rate changes due to the legislation will be facing that this year,” Burns says.
What kind of rate increases small businesses will face is hard to estimate. Rates vary from region to region, and the Affordable Care Act mandates more healthcare services that some older insurance policies did not.
The law also prohibits insurers from charging higher premiums based on the health status of employees, and places limits on how much they can charge for older workers. As a result, firms with older-than-average employees or those in poorer health may see their rates drop.
“Some companies who have had healthy employees may see their rates go up, and some who have had sicker employees may see them go down on average,” says Gary Claxton, a vice president with Kaiser Family Foundation.
When the Santa Monica e-commerce company ZipfWorks switched last year to a policy that complied with the health reform law, the small firm’s insurance premiums for its 18 full-time employees rose nearly 30%, says Chief Executive Michael Quoc.
But that’s not deterring Quoc. He says employee health benefits are pricey, but they are key to attracting top-notch employees.
“It’s very, very competitive, especially as the economy is getting better,” Quoc says. “Having a really great healthcare plan is something we value highly.”
Health experts and brokers say Quoc’s position is common in the small-business world. Despite the uncertainty, small firms remain very interested in offering employee health benefits.
“Small business will continue to offer insurance,” says Anthony Lopez, manager of small business for online insurance broker EHealthInsurance. “We’ve seen an increase in the number of groups we’ve placed with an insurance company. The small-group market hasn’t slowed down.”
Experts offer suggestions for small businesses shopping for employee health insurance:
Keep tax credits in mind. The federal government makes tax credits of up to 50% available to companies with fewer than 25 low-wage employees that buy insurance through their state’s online health insurance market.
Ask employees what they want. Too often, business owners make benefits decisions in a vacuum, says Michael Letizia, a human resources consultant and representative of the Society for Human Resources Management.
“A lot of times, benefits are selected based on what the owner or the senior management in the organization wants,” he says.
Ask employees directly what benefits they most value, Letizia advises. That will help a small business avoid paying for benefits employees don’t care about and never use.
Consider your employees’ financial interests. Not offering insurance may be better for some employees of small firms. Lower-income workers might qualify for subsidies available only to those who buy individual health plans through state-based insurance markets.
“If your workers are low wage, they’re probably better off going to the exchange,” Claxton says.
In addition, when employers offer family coverage that complies with the health law, dependents who could find cheaper policies in the individual exchange are often disqualified from taking advantage of tax credits.
Employees with higher earnings — more than about $96,000 annually for a family of four — are likely to do better with work-based health insurance, which is offered on a tax-free basis.
Quoc of ZipfWorks isn’t backing away from his commitment to provide employee health benefits, but like most small firms, says he wouldn’t mind a price break. “If there are opportunities to offer great plans for less, we’re always open to them.”
Zamosky is the author of “Healthcare, Insurance, and You: The Savvy Consumer’s Guide.”