Insurance Companies Say No to New York Small Group Health Insurance Exchange Plans

Credit: Keoni Cabral via Flickr under Creative Commons. Small Group Health Insurance

A lot has been made about the Affordable Care Act, also known as Obamacare, and its potential impact on small businesses when shopping for small-group health insurance. Talking heads from all sides of the political spectrum have weighed in on the issue with no successful conclusions being drawn. Much of that has to do with the delay of the implementation of the ACA’s employer mandate until 2015.

For those who do not know, the ACA requires all businesses with at least 50 full-time employees (working 30 hours or more each week) to offer their workers an affordable, comprehensive, health insurance option or pay a penalty. That penalty is $2,000 per employee after 30 employees. So in other words up to $40,000 per year for a business with 50 workers.

Small Group Health Insurance and the ACA

Now the vast majority of small businesses with fewer than 50 employees already offered their workers NY Health Insurance options when the ACA became law back in 2010. But those businesses subject to the employer mandate and not already offering their employees health insurance are now facing a dilemma for how they should deal with this issue.

You would think that small business owners would have plenty of options to choose from for health insurance for their workers, but sadly that is just not the case. Under the ACA small group plans, the bread and butter for small businesses, are more expensive and less comprehensive than ever.

In fact, for the most part in New York State health insurance companies are getting out of the small group health insurance game altogether.

SHOP Exchange

The Small Business Health Options Exchange (SHOP) was conceived as a health insurance exchange for small businesses. Last year though, the federal version of the SHOP exchange was delayed for a year along with the implementation of the employer mandate until 2015. However, in New York State the SHOP exchange went ahead and opened on time as planned, though without the extra incentive for businesses of the employer mandate.

Together those factors translated to a very low enrollment number for the limited selection of small-group health insurance plans being offered at the New York State SHOP exchange.

Essentially, it could be said that the small group plan is becoming endangered in New York State with only three health insurance companies in the downstate region offering the plans. That number is a little higher in the upstate areas, but it is still nevertheless a low number.

From the employer’s perspective

A certain subset of businesses have been griping about the employer mandate for some time now. These businesses are largely in the service sector and pay close to or minimum wage to their workers. As has become typical in certain media circles these business owners are universally labeled as greedy and cheap to their employees. Of course, there is certainly some truth to that, especially the larger corporations like Papa John’s and Regal Cinemas who take home millions of dollars worth of profit every year.

But for smaller service sector businesses that aren’t part of big corporate chains, the issue of having to purchase an expensive group health insurance plan from the limited options on the SHOP exchange could ultimately be the death knell for their business.

One of the reasons that these new small group plans are so expensive for employers to purchase is that these businesses cannot always guarantee a minimum level of participation. That is, they cannot tell the insurance company that “without a doubt we’re going to have 50 percent of the workforce enrolling in this health insurance.”

The issue with that is, that the lower the enrollment is for a small group plan, the more expensive it is for the company to offer. Especially now with such a limited selection of small group plans available in New York State, there is much less incentive for health insurance companies to compete on prices.

Another aspect that plays into the low participation level is the naturally high turnover rate for employees in the service sector. Why should a company jump through expensive federal hoops to stay compliant and offer an employee a health plan when an employee might only stay for five or six months? That expense repeated over time could easily put a business underwater.

One aspect of the employer mandate that not many media outlets seem to be touching, is that workers don’t have to enroll in the employer’s health insurance plan. They don’t have to do it.

Of course, they would be subject to the financial penalty under the ACA’s mandate, but that’s only $95 for 2014. When you’re making minimum wage and working 30 or 40 hours a week, are you going to want to give up half of your paycheck just to have health insurance, and still have a few thousand dollar deductibles to deal with? It’s just not realistic that the majority of service sector employees are going to do this.

An argument could be made that service sector employees would be much better offer simply buying a plan on their own from the New York State of Health Insurance Exchange rather than being subject to their employer’s decisions about health insurance.

Something else is that the employer mandate does not require that businesses cover health insurance costs for their workers’ families. They only need to worry about the worker being covered. So if an employee enrolls in a plan themselves, the business is likely paying for some of that premium, but if they added their spouse and children to the plan, the worker would be responsible for paying the full premium for each additional member.

What’s a solution?

There sadly are no easy answers to the lack of small group health insurance plans, and the employer mandate in New York State. Many businesses have seen this coming and have either been in preparation mode, or they’re trying to cut back on workers and their hours as a way to stay under the 50 full-time employee mark.

It’s hard to tell at this point what the real impact of the ACA will be on small businesses in New York State, but come 2015 when the employer mandate kicks in I think we’ll have a better idea.