The challenge of providing health care coverage to employees is not new for small businesses. Small employers typically face higher health care costs (8-18% higher than large employers), volatile premiums, and more administrative effort to provide this important benefit. Since enactment of the Affordable Care Act in 2010, small employers have also had to adapt to the roll out of changes in federal health benefit rules, coverage options, and reporting requirements. So, how are small businesses faring and what can they expect in 2017?
According to a recent analysis by the Employee Benefit Research Institute (EBRI), larger employers have maintained health care coverage for their employees in the last decade, while small business coverage has declined. From 2004-2015, 99% of the nation's largest businesses offered health benefits to their employees, and businesses with 100-999 employees maintained coverage for employees at a rate of 93-95%. Looking at smaller companies during the period from 2008 to 2015, coverage by the smallest employers dropped by 36%, coverage by employers with 10-24 workers dropped by 26%, and among companies with 25-99 employees, coverage dropped by10%. Not surprisingly, this downward trend started during the recession, but it has continued even in the wake of health care reform.
Under the Affordable Care Act's (ACA) employer mandate, only companies with 50 or more employees are required to provide health care coverage to their employees or face a penalty. Though smaller companies are not compelled to offer health benefits, if they choose to, they are subject to the changes in the small group market that place new requirements on fully insured plans as of 2014. For some companies, these changes may have been a bridge too far, and they dropped coverage entirely. Others may have avoided change by holding on to plans that were grandfathered (purchased prior to ACA enactment) or grandmothered (purchased before 2014). A recent study by the Urban Institute suggests the significant utilization of these non-ACA-compliant plans has delayed the full effect of the law's small market reforms.
For smaller companies not inclined to offer or continue coverage, the individual exchanges created by the ACA offer a health insurance option for their employees, including subsidies to offset the cost in some cases. This alternative may take some pressure off of the smallest employers to offer a health care benefit. The viability of the individual exchanges, therefore, may be of interest to small firms, including premium rates and the level of plan participation.
Other provisions of the ACA that sought to create more choice and affordability for small businesses to provide coverage to employees, namely the Small Business Health Options Program (SHOP) exchanges and tax credits, have not yet been utilized at the rate anticipated and have had a muted impact on small business coverage to date.
Expectations for 2017
Premiums are expected to rise again in 2017. Unfortunately, these increases are above inflation, even for larger businesses (a 5-6% increase is anticipated). For the small group market, premiums will increase by a larger margin -- double digits in most places. An analysis by the Kaiser Family Foundation predicts that in the individual exchanges, where some small business employees get coverage, we can expect an average premium increase of 9%, and in some cases rates will rise as much as 40 to 60%.
Like small businesses, insurers are adjusting to changes in the health care marketplace. They have made assumptions and estimated their costs under new rules with mixed success. Many are losing money, and a few have decided to leave the exchanges. Kaiser's analysis of 35 states where data exists reveals that 60% are expected to see fewer plans participate in exchanges in 2017. Those that are staying will have to adjust premiums in line with what they've learned about the risk pools and utilization, among other factors, during the past few years since the ACA has been implemented. While some are alarmed by premium increases and insurers exiting the market, others see the developments as expected market adjustments.
As the transition to Obamacare continues in 2017, more market adjustments are certain. One example may be found in the status of the grandfathered and grandmothered plans alluded to earlier. In an effort to ease the transition to new rules under the ACA, the law allowed businesses to keep their plans if they were purchased prior to the law's enactment in March 2010, as long as the plans don't change significantly. In addition to these "grandfathered" plans, the federal government decided that plans purchased prior to 2014 may be "grandmothered" and allowed to continue even if not fully ACA-compliant. Under current regulations, these transitional grandmothered plans will expire at the end of 2017. As more of these plans lose their protected status, businesses will have to make a determination about how to provide coverage under the ACA's requirements. The Urban Institute's study surmises that this may increase utilization of the SHOPs or other options such as self-funding or purchasing groups. As companies decide to offer or drop coverage, the individual exchanges could feel the impact as well.
There is no shortage of ideas, on both sides of the aisle, for how to tweak the ACA to meet a variety of policy objectives. To date, it's proven politically difficult to make adjustments. The outcome of the 2016 elections will determine the extent to which changes are likely in 2017 and beyond. Regardless of the results in November, the legislative process is rarely speedy, so any major changes will take some time to work through and implement.
Despite the gridlock, there are a few examples of bipartisan efforts to address the law's glitches. For example, earlier this summer, the House passed the Small Business Health Care Relief Act of 2016, by voice vote. The bill would allow small businesses (less than 50 employees) to help employees purchase a health plan in the individual market through a Health Reimbursement Arrangement (HRA). Under current law, such arrangements do not meet the ACA's minimum benefit and annual dollar cap requirements, so companies offering this assistance to employees are actually subject to monetary penalties. There is broad consensus that these penalties are misguided and a correction is warranted. The bill now awaits a vote in the United States Senate.
The health care system is enormously complex. As it continues to evolve, small businesses are wise to monitor trends, stay informed of changes in the law and keep abreast of their options to offer the benefits they feel are best for their employees.