When the ACA was signed into law five years ago, many people expected small employers to drop their group health coverage and send their employees to the individual market. And some have, but we haven’t seen a huge percentage of small employers make this decision…..yet.
There are two primary reasons companies might choose to stop offering group health insurance, and understanding those reasons is key to predicting what will happen over the next couple years – and reacting appropriately.
The first reason, of course, is price. Small employers, just like all of us, have a budget, and the ACA’s plan design and rating rules will make premiums unaffordable for many of these groups. However, due to the 12/1 strategy adopted by many groups in 2013 to postpone the impact of the law, followed by the transitional plan option which allows companies to renew their non-compliant plans in a number of states, most small employers who will ultimately be harmed by the new rules have yet to feel the impact.
The other reason companies might eventually drop their health coverage is because offering a group plan blocks most employees and their dependents from receiving a premium tax credit in the individual market. Since many small employers think of their workers as family and wouldn’t want to do anything to harm them, business owners might decide to ditch their group plan if they find out that their employees would do better without it. However, even with the solid enrollment numbers in the individual market, there are still a lot of people who don’t understand the tax credits, and to date there hasn’t been a huge pushback from employees who want their companies to drop the group health plan.
When that pushback may come is anybody’s guess – certainly the number of people who realize their company plan is actually hurting their family members will increase as more and more people become aware of the tax credits, but whether that’ll be next year or even three to five years down the road remains to be seen. The other compelling reason for employers to drop coverage, though, could end up happening sooner rather than later. That’s because the transitional plan option will soon be ending in a number of states.
In California, for instance, the transitional plans go away at the end of the year. As the LA Times reports, quoting California Association of Health Insurance Underwriters president Patrick Burns, “grandmothering ends December 2015, so a lot of the companies that have avoided the rate changes due to the legislation will be facing that this year.” And when he says a lot, he means a LOT: “an estimated 70% of California’s small firms that offer employee health insurance…haven’t yet faced all the sweeping changes that resulted from the Affordable Care Act.”
A similar decision has been made in Colorado. As reported by LifeHealthPro, the Colorado Division of Insurance “says the remaining ‘grandmothered’ major medical plans will have to shut down in 2016.” This includes “about 115,000 people in 11,000 grandmothered small-group plans.”
With hundreds of thousands of small employers forced to move into the new ACA-compliant plans no later than October, 2017, and many of them starting in just a few months, certainly some of those groups will decide they can no longer afford health insurance for their employees. These plans chose to keep their old plan designs for a reason – because the ACA’s modified adjusted community rating rules will cause their premiums to go up. So when they’re no longer permitted to circumvent the rules, they may have no option other than dissolving their group plan and hoping their employees will qualify for premium tax credits in the individual market.
As this shift begins – admittedly, a couple years later than many of us expected – brokers with an individual private exchange will be well-positioned to help these clients with the transition. The time to plant that seed, though, is now. During the downtime between open enrollment periods, brokers would do well to start talking with small employers about the changes that are on the horizon – and the solution you can provide to help them with those changes.