Read below to learn about employer size and health care reform; some conflicts of interest and an overview of the impact on small businesses by the Center for Insurance Policy and Research, in the National Association of Insurance Commissioners. (www naic.org)
What is not widely understood is how different businesses are impacted by insurance regulations and how they pay for health care. There is no level playing field. Different rules exist for different sizes of employers and sometime types of employers or employer groups. Insurance regulations are developed at the state level. Consequently, insurance regulations vary state by state which makes life miserable for multi-state employers, unless they self-insure.
Large, often multi-state employers, like Wells Fargo, Ford, or Boeing, can self-insure (self-fund) their health care insurance benefits. They put the amount they would pay to a health insurance company into a separate ‘account’ specifically for employee health care benefits. Then they often hire a “third party administrator” to manage the benefits. These third party groups are often insurance companies, so often an employee would not necessarily know that they do not have private insurance from an insurance company.
These self-funded plans have many advantages small employers do not:
1) They can deduct their employee health care insurance costs from pre-tax dollars, thereby lowering their tax liability to the federal government;
2) They are not subject to state insurance regulations or state mandated benefits;
3) They do not have to pay state insurance premium taxes because they are not insurance companies.
To self-insure, however, there needs to be enough employees to cover the potential risk of costly diseases. For example, if an employee has cancer and the treatments are $80,000, there needs to be enough funds to cover that care or the costs of the care will be spread out among all the company employees in terms of higher premiums. A small business of 50 to 100 usually cannot afford that kind of risk.
How Businesses React to Health Care Reform Depends
Not only are there are many different regulations, there are many conflicts of interests. Many business associations have health care committees, but many of those committees are dominated by other ‘business’ interests, such as pharmaceutical companies or health insurance companies that join these associations and become members of the health care committee that plans and sets priorities for the Association’s health care policies and legislative action.
Add to that, the potential conflict of interest because some of these associations offer/sell health care insurance policies for their members. For example, the Association of Washington Business (AWB), an association of the chambers of commerce in Washington State, offers its own health insurance product to its members. These associations often use health insurance as a way to attract and retain members. Consequently, they will react to anything that impacts the costs or availability of an income producing product.
ACA and Small Businesses
Here are several sources on how the ACA will impact small employers and who is considered a small employer. Basically a small employer is up to 100 employees, but states have the ability to cap small employers to 50 employees until 2016.
Here are some interesting reports. This from the State Health Access Data Assistance Center:
For a quick overview of how employers are specifically impacted, here is an excerpt from a longer report from the Center on Budget and Policy Priorities: www.cbpp.org
Employers with 50 or more FTEs will pay a penalty of $3,000 a year for each full-time worker who is offered employer coverage but instead receives a premium credit to buy coverage in the exchange. The total amount that an employer will have to pay with respect to such employees will be capped at an amount equal to $2,000 times the total number of full-time workers in excess of 30 that the firm employs. These dollar amounts will be adjusted annually after 2014 by the growth in health insurance premiums.
Employees offered coverage by their employer will generally be barred from purchasing coverage in the exchange — as long as the coverage meets a minimum standard (it must have at least a 60-percent actuarial value) and the worker does not have to pay more than 9.5 percent of income for the employee share of the premium. If an employee has to pay more than 9.5 percent of income for coverage and the employee’s family income is below 400 percent of the poverty line, the employee will be eligible to receive a subsidy to help him or her buy coverage in the exchange.
Most firms that offer coverage will meet the 60 percent actuarial standard for coverage. A substantial number of low-wage workers at these firms, however, likely will be charged more than 9.5 percent of income for the employee share of the premium. As a result, the number of low-wage employees who are offered employer coverage but receive a premium credit to purchase coverage in the exchange instead could be substantial. Since the penalty the employer will pay in such cases — $3,000 — will generally be less than the cost of providing employer-sponsored coverage (which averages around $5,000 for an individual), employers who offer reasonable coverage should not find the penalty a deterrent to hiring a worker who buys subsidized coverage in the exchange rather than enrolling in the employer’s plan.
Employers must offer what the legislation refers to as “free-choice vouchers” to employees whose share of the premium for employer-sponsored coverage would be between 8 and 9.8 percent of their income. The amount of an employee’s voucher would equal the contribution the employer would make to its own health plan on behalf of the employee, and the employee could use the voucher to purchase insurance in the exchange. Employees receiving free-choice vouchers are not eligible for subsidies.
Then this just in from January 2013 newsletter from the Center for Insurance Policy and Research at the National Association of Insurance Commissioners about the ACA’s impact on consumers and small businesses.
There are heated discussions in many states now about the role of the Navigator who will help individuals and presumably small employers as well and the traditional role of agents and brokers who have assumed that function in the past. Agents and brokers have traditionally been paid a fee or commission for selling an insurance product. What I just learned in reading the above materials, is individuals and employers can continue to purchase insurance from a broker, they will not be eligible for subsidies unless they purchase insurance through the new state and/or federal Health Benefit Exchange, according to CIPR newsletter.
Coming Next Week: Health Care Costs and Paying for Health Care—some new things in the works.
Kathleen O’Connor, February 6, 2013