When the Affordable Care Act took effect, small businesses – defined as those with 50 or fewer full-time employees (FTEs) – offering group insurance were newly required to provide minimum essential benefits to 95 percent of FTEs.
Over the first two open enrollment periods under the ACA, employers tapped into the Small Business Help Options Program (SHOP) – the government’s solution for group health insurance – finding the process to be cumbersome, confusing and expensive.
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As a result, many chose to offer alternatives to employees such as pay increases intended to be applied toward obtaining individual insurance coverage. By eliminating the expense of group coverage, employers pass along the savings to employees in the form of extra pay, which helps lower the cost of individual insurance. For employees, the extra pay represents an increase in taxable income which, when combined with government subsidies, often enables qualified employees to pay even less than they would have paid under a group health plan. Add to that the freedom for employees to choose plans that fit their needs and budgets, and it’s clear to see why many small business employers have opted for this solution.
Perhaps unsurprisingly, the healthcare landscape is still shifting in the US; it’s more important than ever for small business owners to understand the issues they face heading into open enrollment, which runs November 1 through January 31:
Grandfathered Group Plans Expiring
When the Affordable Care Act took effect, several states allowed for small business group health plans to be grandfathered in. Under these plans, small businesses were not required to provide minimum essential benefits. Over the next several years, beginning with California and Colorado on January 1, 2016, these grandfathered programs will expire and small businesses will be faced with the challenge of navigating the Affordable Care Act for the first time. They’ll receive a letter from their insurance carrier and will notice disproportionally high rate increases for new group plans that comply with requirements under the Affordable Care Act. Now’s the time for them to step back, evaluate all employee insurance options and crunch the numbers to see what works best for their business.
Group insurance premiums are on the rise and getting more expensive every year. Individual insurance plans are also seeing increases, but the numbers are hard to deny: the average group insurance premium is around $16,000 per year for a family. By contrast, on the individual market, the average premium is just under $1,000 per year ($82 per month) after subsidies. For small business owners looking to get off the treadmill of their group insurance plan, migrating to the individual market this open enrollment period is just the ticket.
King v. Burwell Ruling
June’s King v. Burwell court decision makes that transition even more appealing for small business owners: the Supreme Court ruled that qualified individuals –those supporting a family of four on $95,000 or less – in all states are eligible for federal healthcare subsidies, meaning more employees have the opportunity to get affordable coverage. The facts: 87 percent of the people who selected marketplace plans for 2015 qualified for financial assistance, and 70 percent of the average consumer’s healthcare is being covered by subsidies. Encourage employees to work with a licensed insurance agent to determine subsidy eligibility and review available healthcare plans to help them save money.
The Bottom Line
Within this constantly changing landscape, even more companies will get creative with their health coverage offerings for 2016. Going outside the traditional group market can be significantly more affordable for employees, and provides them with greater choice of coverage for their unique circumstances and regardless of prior health history.
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The benefits are clear for small business owners, too – especially those with expiring grandfathered group plans, navigating the Affordable Care Act for the first time. Group insurance is getting more expensive, and employers are often paying more for coverage than on rent. Migrating to individual plans eliminates the guesswork for businesses, and allowing employees to purchase individual coverage helps moderate business expenses, making them more predictable and manageable.
An insured workforce is a healthier workforce, which translates fewer days out of office and higher productivity – something we can all agree is a win-win.