RECENTLY, I HEARD a business owner tell a frustrating story about how she was forced to spend a surprisingly large sum of money for the treatment of a health condition. She was angry because her individual health insurance plan, bought through the Marketplace in 2014, had just increased in premium for the fourth time. She expected more from her insurance!
There has been a growing rift between group and individual insurance since 2015 — most business owners have not been able to keep up on all of the details. I have heard, erroneously, from many business owners that they believe:
- They couldn’t do group insurance.
- They would have to pay for all of their employees.
- Individual insurance would be cheaper.
Not true.
Individual insurance contracts (i.e., Obamacare plans) are no longer the same as group insurance plans. Differences include deductibles, max out-of-pocket financial exposures and pricing. In most cases, individual insurance is less advantageous for the consumer.
Many small business owners are not aware of the increased availability of group insurance.
In 2014, the Affordable Care Act changed many of the regulations affecting small businesses and insurance. States have also been tweaking rules applicable to groups employing between two and 50 people (small groups). In most states, businesses with two or more people are eligible to purchase group insurance. Why is this important? Because, in many states, group insurance may be less expensive per person, have lower financial exposures and have access to larger PPO networks.
How does it work? There is a little known aspect of the Affordable Care Act that makes group insurance very accessible for small businesses. If you have an inception/renewal date of Jan. 1, then the business is not required to contribute to the employees’ premiums. Further, there are no participation requirements (i.e. how many people must participate of the employed population), so the business owner could be the only one participating — a “group” of one. Some states do not allow groups of one. In these states you must have two participants. And note that husband-wife groups are treated differently and may not be eligible.
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If the group insurance plan renews on any other date of the year, then the group is subject to contribution and participation requirements. These requirements are set by the insurance companies and are typically less stringent than most business owners believe. In most cases, the employer is asked to contribute only 25 percent of the cost of individual coverage on the lowest cost plan.
Here is how this plays out in the real world: Most small businesses offer two or three plans for the employees to choose from, one of which will be the “lowest cost.” The employer then calculates 25 percent of what it costs for that single person and the employee is responsible for the remaining premium. How much money are we talking about? Typically an employer is asked to contribute between $75 and $225 per month per person depending on the age of the employee — only for the people who choose to contribute.
As for the participation requirement, it’s typically 70 percent of eligible full-time staff after qualified waivers. A qualified waiver is someone who has an insurance plan from a spouse, the government or an individual plan. Let’s say we have a group of 10 full time employees, four of whom have coverage through their spouse and one who is on Medicare. Here is how we determine the participation requirement:
- 10 eligible-5 qualified waivers = 5 employees
In this case, to attain 70 percent participation, only four people must participate!
