Businesses with fewer than 50 workers are exempt from the
most stringent requirements for larger employers under the federal health-care
law. But that doesn't mean they're off the hook entirely. Smaller employers
aren't required under the Affordable Care Act to offer coverage for
their full-time workers—as larger firms must by 2016 or face penalties. But
many owners of small ventures and startup entrepreneurs are nonetheless facing
big changes to how they obtain their own health coverage, as well as to the
benefits they're able to offer employees.
Several thousand of the nation's smallest business
owners—sole proprietors and the self-employed—were kicked off their
small-business plans by carriers earlier this year. That is because new
guidelines define "employers" as having at least two full-time
employees, not including a spouse, in order to be eligible for group plans.
In all, more than 78% of the estimated 28 million small
businesses in the U.S. have no employees, according to the Small Business
Administration. These business owners must now seek coverage as individuals, or
face fines.
Many consumers and small-business owners are finding
affordable plans on the individual market but at least some of the business
owners who were excluded from group plans as a result of the health law are
struggling with higher premiums, less robust benefits or uncertainty within a
new, unfamiliar network.
In December, the association's own group plan, which
currently has 4,000 small-business members and covers about 40,000 workers and their
families, was forced to kick out 700 sole proprietors.
Here's a closer look at recent changes for three different
businesses with fewer than 50 employees:
An Engineer's Higher-Cost 'Group' Plan
Raymond Pezonella currently receives health coverage for
himself and roughly 30 workers at his Reno, Nevada, engineering firm through a
local builders' association. He pays about $9,000 a month into the plan, known
as an Association Health Plan, or AHP.
The plan includes 220 other local businesses, from
carpenters to painters and plumbers, covering more than 5,000 workers and their
families. His employees pay around $1,800 each in monthly premiums. By pooling
together with other employers he was able to save nearly 14% on annual
insurance costs for his company, which designs foundations for homes, schools
and other buildings.
But earlier this year, his policy, administered by the
Builders' Association of Northern Nevada, was defined as a "small
group" plan under federal guidelines, because none of its members have
more than 50 employees and each pay separate rates. As a result, the plan faces
a number of new requirements, such as a ban on charging higher premiums to
riskier members. Most large group plans are exempt from that requirement.
Mr. Pezonella might now opt out of the plan. He's worried
the company's workers won't be able to find comparable plans on their own. He's
also worried about losing access to his longtime network of doctors and
physicians by switching plans.
Not Defined As 'Employers'
Sandy and Larry Eiler, owners of an Ann Arbor, Mich.,
marketing firm, were bumped off their group plan late last year. The plan covered
the bulk of their health-care costs, including a regimen of blood-pressure,
heart- and other medications worth more than $3,000 a month.
But according to the small-business group, Eiler
Marketing—with 17 independent contractors and just under $1 million in annual
revenue—is no longer considered an "employer" under the health law.
In a letter late last year, the carrier said the plan would be terminated for
2014.
The Eilers, who are in their 60s, obtained coverage under
Medicare in January. But while their premiums dropped to just $272 apiece
monthly, they face certain periods when they will temporarily bear up to 72% of
the cost for their monthly medications, as a result of an annual funding gap in
Medicare Part D drug plans, known as the "doughnut hole." That is
causing a strain in the firm's monthly cash flow even if the total annual costs
are lower.
Adam Okun, senior vice president of Frenkel Benefits LLC in
New York, says many private plans have richer drug plans than Medicare, in part
due to a government subsidy for employers who offer comparable coverage. He
says the health law is taking steps to close the funding gap in Medicare drug
plans by 2020. Until then, the couple is looking into buying cheaper
medications from Canadian online pharmacies
Owner Ditches Employer Plan, Offers Raises
Randy Butler says the health law allows him to disband a
small-group health plan offered to employees at his Carson City, Nev.,
real-estate firm since 2002.
He initially created the plan because of a past illness,
hepatitis C, which prevented him from getting insurance on his own. He
currently pays about $4,500 a month into the plan, which covers himself and
four office workers ranging in age from 20 to 51, he says.
Yet by October, Mr. Butler says he plans to close the group
plan, give his workers an extra couple of hundred dollars a month, and let them
shop for their own health plans on the open market. Under the health law,
individuals cannot be denied coverage as a result of an existing condition, or
be charged higher rates. After consulting with his carrier, he expects to pay
no more than $1,200 for his own individual plan.
Such a move may come with hidden costs. By shifting monthly
expenses from health coverage to payroll, employers face payroll taxes on that
amount and employees may be paying higher income taxes. Depending on the size
of the raise, some workers may even lose their eligibility for tax subsidies
for the costs of individual insurance.
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