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Whether you have five employees or 45, providing health insurance is complicated and expensive for any small business.
Here's an idea for companies that have fewer than 50 employees: Think about dropping your health insurance coverage altogether and providing a new buying experience for your employees through an individual exchange. Here are 10 reasons why it might be a good idea:
1. Reduce your costs. The Affordable Care Act mandates the amount of coverage businesses are required to provide their employees, which may be a much higher amount than is currently being offered. If you have fewer than 50 employees, you can do away with health insurance altogether without paying a penalty, and you'll no longer have to worry about annual increases.
2. Cut out paperwork. If employees are going to shop online for insurance, you might as well save yourself the effort of maintaining an insurance program. "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," Laura Land, co-owner of Empire Cell Phone Accessories in Riverside, Calif., told the Wall Street Journal. Land's company has 38 employees; it plans to cut its employee health insurance.
3. Avoid premium increases. When you shift to health plans that meet all the mandatory requirements, you'll face a big initial price hike, but you may also see that price continue to rise each year. Some companies face an increase of double the former premium amount, if not more.
4. Pre-existing conditions not an issue. One major reason employers might be concerned about dropping group health plans is because they're worried certain employees might not qualify for health insurance on their own because of pre-existing conditions. Not so under the Affordable Care Act. People must be covered regardless of their medical history.
5. Subsidies are available. Health-insurance premiums might be higher for some people, but not everyone under the Affordable Care Act. Employees making up to 400% of the poverty level can qualify for government subsidies on their insurance, but only if insurance is not provided by their employer. As a result, employers might well want to step back and let employees seek subsidies.
6. Individual plans tend to be cheaper. Individual plans can be 20% to 30% less costly than comparable group plans. If you think you're obligated to provide health insurance because it's the least expensive option for your employees, that is not the case.
7. Young employees don't want it. Since young adults can stay on their parents' insurance plans until age 26, many choose to hang on, even if their own job offers insurance. Those who have no insurance may not feel the deterrent of paying 1% of their taxable income (or $95 per person) as a penalty is enough to persuade them to pay a monthly insurance premium.
8. No need to tie up a key employee. Health-insurance administration can be such a nightmare that you must divert a key employee from his main task, which means less work is getting done.
9. More cash for employees. One way employers can still be involved in providing insurance to their employees is by encouraging them to get their own insurance and then increasing their pay by some amount to help offset the cost of paying their own way on the exchange. While there are some technical nuances to this concept, it does appear to be the emerging trend.
10. Exchanges allow options. Some top consultants offer individual private exchanges, which are technology platforms that can be used to search, compare and ultimately purchase the plan that is best suited to fit an employee's individual needs. An employee can search multiple carriers and plans at once. He or she can also search by deductible, price, network and other plan specifics. With a private individual exchange, a person can select a plan that is specifically tailored to his needs and ability to pay, rather than paying a high price for one offered by his employer.
While all of the above may be incentives for small businesses to discontinue their plans, employers still should consider the consequences. For instance, employer-sponsored health plans still serve as an effective recruiting perk in a competitive marketplace. And some employers may find an insignificant cost savings between subsidizing employees who find their own health plans versus offering a company plan. The best option is the one that works best for your company. The key, however, is understanding every option.
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