The Switch to Small Business Health Insurance

How the ACA has drastically impacted the group health insurance market.

The Old School way of Offering Benefits

Change is inevitable—and with health insurance it’s become predictable.

For the first few years after the Affordable Care Act was implemented, it was more cost effective to give your employees dollars to shop individual health insurance exchanges instead of offering employer sponsored health insurance.   There were multiple carrier options to choose from, plans were lower in cost and individuals were potentially eligible for a subsidy meaning the government would pay a portion of their plan so their employer didn’t have to. There was an ease of employer administration. Employers would hand their employees money and the weight was off their shoulders. The benefit of these individual health insurance exchanges was unbeatable—until the insurance carriers no longer benefited.

Many carriers weren’t able to sustain a consistent cash flow this way and quickly went out of business. This year in the state of Illinois, Land of Lincoln Health was forced to close its doors for this very reason. Other carriers like United Healthcare simply did not have a product offering for individuals but are still successful in the group health insurance market (i.e. employer sponsored health plans).

The Shift Back to Group 

The shift has gone back in favor of group health insurance for the following reasons:

  • Limited carriers in the individual market,
  • Of the participating carriers, very limited plan options,
    • In Illinois, Blue Cross Blue Shield is only one carrier in the individual market that is offering access to a PPO and it is a narrowed network,
  • Of plan options available, extremely restricted access.
  • Certain hospitals and doctors will not be available to you,
    • For example, Blue Cross Blue Shield of Illinois does not offer coverage at major teaching hospitals in the Chicagoland area such as Rush University

By law, individual premiums must be paid for with post tax dollars, making individual monthly premiums more expensive.
Carriers filed for up to a 50% rate increase in 2017.

On the other hand, Group Health insurance allows employees to pay for premiums with pre-tax dollars, direct from their paychecks before they are taxed.

Overall, individual plans versus plans that are run through a business are just not as accessible today. Our advice is to get onto group coverage or (if you are in a position to) offer an employer sponsored health plan to your employees.

Large Group vs Small Group

A large group is defined as greater than 50 employees.  For small groups made up of less than 50 employees—rates are based on age similar to individuals. Groups 50+ use a tiered rating system with 4 tiers:

  • Single rate
  • Family rate
  • Employee spouse rate
  • 21-65 rate

Numbers are factored into blended rates based on medical history of the company. If you have someone on staff who is very ill—they will drive up everyone else’s rates.  50 + is also not guaranteed issue as it is in the small group market. Carriers can rate up more than in small groups or even decline the whole company.   Pre Affordable Care Act even 2 life groups were medically underwritten—they wouldn’t decline you but they would max rate you at extremely high premiums.

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