Small businesses shift employees to Obamacare

For two decades Atlanta restaurant owner Jim Dunn offered a group health plan to his managers and helped pay for it. That ended Dec. 1, after Obamacare made him an offer he couldn't refuse.

Health-law subsidies for workers to buy their own coverage, combined with years of rising costs in the company plan, made dropping the plan an obvious -- though not easy -- choice. Dunn and five managers are now covered under individual plans bought on healthcare.gov.

"I had a lot of regrets going into it," Dunn, who owns three Italian Oven restaurants in suburban Atlanta, said of his decision. "I don't think I have as many now — only because I've seen the affordability factor for my managers improve."

How many other owners make the same decision will help set the future of small-business health insurance. Although the evidence so far is mixed, brokers expect more firms to follow in the next few years.

Companies like Dunn's — those with fewer than 50 workers — provide medical coverage to roughly 20 million people. Unlike larger employers, they have no obligation under Obamacare to offer a plan. Now they often have good reason not to.

If employees qualify for government subsidies, 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 are worth more than what a company was contributing.

Whether to cancel a company plan and let workers buy insurance on healthcare.gov or another online exchange "is something that I would say comes up in every conversation with a small-group" employer, said Adam Berkowitz, a consultant with Caravus, a benefits firm based in St. Louis.

Anthem, the largest seller of small-business health insurance, lost almost 300,000 members in such plans — many more than expected — in the first nine 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.

Related: Obamacare premiums: Going up unless you shop

It's far from clear, however, that most companies will take the same steps as Italian Oven.

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.

"I feel like we have to have a medical plan in order to hire people and keep them employed," said Dan Allen, head of a 15-worker engineering firm in Decatur, Ill. Allen Engineering renewed its Coventry Health Care plan for 2015 even though the premiums rose 21%, he said.

No other major insurer has reported cancellation of small-business plans at the same rate as Anthem.

"We didn't see that," said Rick Allegretti, vice president of marketing at Health Care Service Corp., operator of Blue Cross plans in five states including Illinois and Texas. "We actually saw our [small-group] business grow slightly — mind you it's probably a tenth of a percent."

Share your story: Are you seeing higher premiums on the exchanges?

Businesses shifting workers into the individual exchanges tend to be the very smallest, employing a handful of people, said Skip Woody, a partner at Hill, Chesson & Woody, a North Carolina benefits firm. "Anything above 15, we haven't had any dropping coverage," he said.

Instead, many small companies are taking advantage of rules letting them maintain insurance bought before the health law took effect. President Obama allowed carriers to temporarily extend noncompliant plans after facing fierce criticism over their imminent extinction.

Most, but not all, states approved the adjustment. Because older policies may lack features required by the health law and their rates are often determined by employee health history, they can be less expensive than compliant plans, say brokers and consultants.

Brokers expect more small businesses to drop coverage, especially after the ability to extend older, noncompliant plans expires between now and the end of 2017, depending on state policy.

Heavy renewal of old plans plus workers shifting to individual coverage help explain why the health law's online portal for new small-business plans has attracted only modest interest, analysts say.

Related: The Obamacare tax at center of Gruber firestorm

For some companies, there is logic to ending coverage altogether.

Italian Oven employs the equivalent of about 30 people — less than the 50-worker threshold that would get it fined for not sponsoring insurance. The company does not offer coverage to servers and kitchen staff, but full-time managers have always had a plan.

All are eligible for tax credits to buy insurance on healthcare.gov, said Dunn. Next year, the subsidies are available for individuals with income of up to $46,680 and families of four with income of up to $95,400.

With subsidies factored in along with unrelated pay increases, the managers "are going to be saving money out of the deal" while getting coverage comparable to what they had before, Dunn said. "My managers actually got excited about it because they're saving money on their health insurance."

Kaiser Health News is an editorially independent program of the Kaiser Family Foundation.

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