The Affordable Care Act has small businesses grappling with tough choices on employee health plans
The enrollment period for small businesses seeking coverage via the health insurance exchanges is around the corner, but financial advisers are warning their small business clients to pause before making changes to their plans.
The Affordable Care Act not only spawned insurance exchanges for individuals, which went into effect earlier this month, but it also established the Small Business Health Option exchanges – marketplaces for operations with up to 50 employees.
Business owners will be able to buy coverage on exchanges starting Nov. 1, with coverage beginning Jan. 1. However, consultants are telling them to proceed with caution when shopping for new policies or restructuring their benefit plans.
“You're reading some stories where larger companies are adjusting their benefits,” said Don McAnelly, a principal at Rehmann Financial. “I can't say we've seen that yet with smaller businesses; they are waiting to see things play out.”
In recent months, Mr. McAnelly has been talking to clients who are small business owners about the upcoming changes in healthcare insurance. Those clients, he said, are anticipating changes to their businesses as a result of the Affordable Care Act.
Buying time
One way clients are buying themselves more time is to renew policies now at 2013 levels, giving themselves close to a year to figure out how to proceed.
“The pricing sets in on renewals in 2014, so you are locking in that 2013 rating methodology through the better part of 2014,” said Jonathan Greif, vice president of insurance and a financial adviser with PSA Financial Services Inc.
The problem is that after Jan. 1, small employer plans will adopt member-level pricing, so that rates will be assessed depending on the worker's age and the age of his or her dependents. That means prices can vary dramatically for a group of workers, which can be a headache for employers, who won't be able to pass those higher costs on to workers, as that could be considered discriminatory, Mr. Greif observed.
“If you and I work for an employer and we're the same age and have no dependents, we should have the same rates,” said Mr. Greif. “But if we are the same age and have spouses who are different ages, we'll each get different rates.”
Tightening hours
Tightening up on employee hours is another possible way to throttle the cost of providing employer-sponsored coverage, but employers will want to weigh what that means for their own productivity and bottom line.
“My concern is how will you manage the business,” Mr. McAnelly said. “It costs money to bring on employees, and if people want to mitigate hours, they may have some turnover and thus higher costs of hiring employees.”
Should that turnover result in the loss of veteran workers, employers will have to worry about the length of time needed to bring new recruits up to speed, and that can hurt productivity.
“People who will implement this need to think about how it will impact their business,” Mr. McAnelly said. “Don't make the decision in a vacuum.”
It remains to be seen whether small businesses will begin cutting health benefits altogether, opting instead to send individuals to the exchanges.
Mr. Greif said that employees and employers get considerable tax leverage for purchasing insurance through the workplace. Employers receive a tax deduction for premiums they pay and the coverage isn't considered taxable income to the worker. At the same time, the worker is able to buy insurance with pretax dollars. On the individual exchanges, those employees would be buying insurance with after-tax money.
“The realization is that tax savings via the employer more than offsets the advantage of buying as an individual,” Mr. Greif said. So we expected many small employers to say 'Go buy it on your own.' I'm finding more employers are saying, 'This is still a better deal.'”
Nevertheless, some small businesses might decide to drop coverage altogether, due to the additional complexities of pricing and providing coverage for part-time workers who spend more than 30 hours a week on the job.
“I do anticipate some clients looking at dropping health care altogether if they think it's too much of a hassle factor,” Mr. McAnelly said.
