Small Businesses: Health Law Offers Alternatives
Thursday, January 15, 2015 04:30 PM

For many small business Health-law subsidies for workers to buy their own coverage combined with years of rising costs in the company health plan made dropping those plans an obvious -- though not easy -- choice.

Companies with fewer than 50 workers provide medical coverage to roughly 20 million people. Unlike larger employers, they have no obligation under the health law to offer a plan. Now they often have good reason not to.  If employees qualify for government subsidies, like the managers who switched from corporate insurance to individual Obamacare coverage, everybody can win.

Owners don't have to pay premiums, meaning they can give workers raises, invest in equipment, or add to profits instead. And employee take-home pay can rise if subsidies -- available even to families with middle-class incomes -- are worth more than what a company was contributing.

Whether to cancel a company plan and let workers buy insurance on or another online exchange is something that comes up in every conversation with a small-group employer.  Anthem, the largest seller of small-business health insurance, lost almost 300,000 members in such plans -- many more than expected -- in the first 9 months of the year. That was 15% of the enrollment. Many of those consumers are presumably switching to individual plans sold through exchanges, including those offered by Anthem, officials said.

However, many small employers see health coverage as an essential piece of compensation. They note that premiums in company-sponsored plans are tax-deductible -- for workers as well as employers -- while the tax advantages of individual plans are limited.  No other major insurer has reported cancellation of small-business plans at the same rate as Anthem.  

Businesses shifting workers into the individual exchanges tend to be the very smallest, employing a handful of people.  Many small companies are taking advantage of rules letting them maintain insurance bought before the health law took effect. President Barack Obama, who promised consumers they could keep coverage they liked, allowed carriers to extend noncompliant plans after facing fierce criticism over their imminent extinction.  Because older policies may lack features required by the health law and because their rates are often set according to employee health history, not community-wide costs, they can be less expensive than compliant plans, say brokers and consultants.

Brokers expect more small businesses to make the move away from company plans and to Obamacare especially after the ability to extend older, noncompliant plans expires, depending on state policy,  between now and the end of 2017.