4 Good Reasons Why Small Businesses Are Dropping Health Insurance
The Obama administration has been touting its success at getting 8 million Americans signed up for individual health plans through new health-insurance marketplaces. But so far, it has kept mum about the number of small businesses that have enrolled in group plans via SHOP marketplaces, designed to help companies with 50 or fewer full-time-equivalent employees find affordable coverage. These federally-run exchanges are the default option in 34 states that declined to manage their own insurance marketplaces.
Based on what we know about state-run marketplaces, the numbers aren't likely to be very impressive. As of April 8, Connecticut's marketplace had sold plans to just 78 businesses, covering a total of 330 people. In California, where 1.4 million people have signed up for private insurance through the individual marketplace, only about 4,900 people are covered by SHOP plans.
Low enrollment for small businesses can be blamed partly on the botched Healthcare.gov rollout--online enrollment for federal SHOP plans won't be available until November 2014. Until then, employers must complete the process offline, dealing with a broker or directly with insurance carriers. Many state-run SHOP exchanges also have clunky or nonexistent Web enrollment. But there's a growing consensus among industry insiders that, even if the online exchanges were all working perfectly, small businesses would prefer to relinquish their traditional role as middlemen for health insurance. Even Ezekiel Emanuel, who helped craft the ACA as an Obama advisor, predicts that by 2025, fewer than 20 percent of private-sector workers will have traditional employer-sponsored health insurance. Here's why:
1. Employees don't appreciate it. Especially younger ones. Payroll and benefits firm ADP's 2014 Annual Health Benefits Report found that while the overall percentage of eligible employees participating in large-employer health plans has held steady since 2010 at an average 68 percent, participation among employees under age 30 has actually declined by 7.6 percent. Just over half of workers in this group have signed up for an employer health plan in 2014. Why? For one thing, those age 26 and under may be covered by a parent's plan and are holding out till the bitter end. But others may simply feel that the cost of premiums isn't worth it, and the individual penalty for not having coverage in 2014 ($95 per person or 1% of taxable income) just isn't very scary.
2. It's complicated. Stride Health is an interactive online tool to help individuals in California compare and purchase health insurance. "We consciously built for individuals, not the business market," says CEO and cofounder Noah Lang. "But since launching this March, we've been surprised at the number of small businesses that are encouraging employees to sign up and use the platform to get individual coverage." In most cases, these businesses are still contributing to employees' health insurance payments--with some even footing the whole bill for premiums. But, says Lang, "business owners just don't want to think about health care. Especially in a 10-person business, you can't have someone who's an expert dedicated to making healthcare decisions on behalf of employees in a small-group plan."
3. It's unpredictable. "The delays in implementing the employer mandate underscore for smaller employers that ACA implementation is far from resolved," says Abir Sen, president and co-founder of Gravie, a health-plan selection tool for individuals and employees that launched in late 2013. "It's nice to think only about how much I need to contribute." Some employers--especially those who will be affected by the mandate starting in 2014--will do just that through defined contributions to a group plan. But for small and mid-size companies that face little or no penalties for failing to provide employee coverage, simply giving employees some money to buy their own insurance is much easier. And, it eliminates the budgeting uncertainty that comes with not knowing know how much your group premiums are going to increase each year.
4. Employees may get a better deal without you. "Individual plans can be 20 to 30 percent cheaper than comparable group plans," says Sen. Individual plans may also offer more flexibility in choosing health providers. Employees earning up to 400 percent of the federal poverty level may also qualify for exchange subsidies for themselves and their family members--but only if they don't get coverage through an employer. Which leaves many small businesses wondering, "Why would I want to interfere with that?"