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Covered California Q&A

Covered California and Obamacare related questions from consumers, employers and agents are answered by Phil Daigle with the best information available at the time. Archived entries may no longer be accurate as the Covered California and Obamacare knowledge-base is evolving quickly. TO REQUEST A PERSONAL RESPONSE INCLUDE EMAIL ADDRESS.


Dissolve Small Business Coverage?

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Question: I am a small business with under 40 employees who has always paid 100% of employee and family medical coverage since 1977. With the changes in healthcare coverage would it be more beneficial to me to have my employees go individually under California Coverage or would it be cheaper for me as an employer to continue cover them as a business under my current provider?

Answer: You’r right to reconsider the decision you made in 1977. Things have changed. There are so many elements to be considered that this decision lends itself to the classic Ben Franklin weighing of pros and cons. If you continue to provide a group plan with 100% coverage for your employees you get loyalty, employee good will, easier to recruit new employees, a big tax-deductible expense. On the con side a you get a huge business expense that will only continue to grow beyond your control. If you dissolve your group plan, there are many other considerations. How many of your employees will qualify for subsidies in the individual exchange. Will you provide extra compensation to “sweeten the deal” particularly with your higher-paid or key people? What are the tax consequences to your business and your employees? It’s complex and illustrates why you need a knowledgable professional insurance broker to guide and advise you.

2 Comments

A viable alternative to the SHOP exchange for businesses with up to 50 employees is one of the “private exchanges” that are popping up. A few of these have been around for many years, while others are entirely new entries for 2014 and may not be as well-equipped to provide benefits and services as the ones with longer histories.

A business owner will give up any tax incentives in a private exchange, but may have access to different plans and networks that won’t be participating in the SHOP. Several of the private exchanges offer significant “value-added” services at no or low cost, such as vision and dental discount plans with no premiums and benefits roughly equivalent to some premium-paid plans.

All private exchange-based plans are fully ACA-compliant, and some may have premiums slightly lower than SHOP plans on the same metal level.

Making the comparisons will be well worth a business owner’s time.

If you have fewer than 50 full-time employees, there is no mandate in the ACA for you to provide health insurance for your employees. It makes no difference whether any would qualify for premium tax credits or not.

I don’t know whether dropping health insurance that you’ve been paying for these last 35 years is a wise idea or not. But you have an excellent option available that could be a win-win for you and your employees.

You should strongly consider purchasing your health insurance through the SHOP Exchange. You can choose the tier of coverage, the benchmark plan for determining base premium, and you could shift some or all of the spouse and dependent cost to your employees, if you chose to do so. Your only responsibility is to pay at least 50% of the employee-only cost.

By purchasing through the SHOP, your employees have the freedom to choose any available plan on the same tier as you have chosen. Depending on what you have been paying in the past, you might choose the platinum level, and benchmark the lowest cost plan. You could pay 100% of the employee-only cost and require employees to pay the full cost of their dependent coverage.

If you haven’t claimed the 35% credit in the past two years, you have two years of 50% tax credits available if you have less than 25 employees earning an average of no more than $50,000. If not eligible for the tax credit, then you still have 100% deductibility of the premiums you pay for your employees’ health insurance (including any part of the dependent coverage you pay).

The downside to dropping health insurance altogether is that your employees will be disgruntled, more likely to leave for another employer, and the negative implications that would mean for your continued business operations.

My recommendation would be to find a knowledgeable agent or Life & Disability Insurance Analyst (there are only 24 of us in all of CA) and take a good hard look at all sides of the issue. A meeting with all of your employees might also be beneficial in determining a course of action.

If your employees will not, for the most part, be eligible for premium tax credits in the individual exchange, you will be doing them a favor by continuing their coverage in the small group market. Whether you do that through the SHOP exchange or not, their cost of insurance will be less than in the individual market. All of you, together can figure out what’s best for both the business and the employees and their dependents.

It shouldn’t be too difficult, but it’s not a task for an inexperienced agent and, frankly, there are going to be many of those in circulation this year.

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