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Businesses are dumping health insurance for these 5 reasons

Teresa Tanoos's picture
Small businesses are more likely to drop employer-sponsored coverage for many reasons.

When it comes to the number of Americans who have signed up for health insurance under Obamacare, some refer to it as “vapor-care” because they claim that the number being touted by the administration is nothing more than “smoke and mirrors”.

Whatever the case, officials at the White House report that some 8 million folks have signed up for individual coverage via the health-insurance exchanges at HealthCare.gov. What the administration has not disclosed, however, is the number of small businesses that have enrolled in group insurance plans through the federally operated exchanges.

These federal marketplaces were created to help small businesses with up to 50 full-time workers obtain affordable health care coverage, and they are the default option in 34 states that opted to forego managing their own state-run insurance exchanges. That option may have been wise, as the number of people who signed up through state-run marketplaces is expected to be less-than-impressive.

In Connecticut’s marketplace for example, plans have been sold to only 78 businesses that cover just 330 people since April. Then there’s California, where 1.4 million residents have signed up through the individual marketplace to obtain private health insurance, whereas just around 4,900 people obtained coverage through the federally run exchanges.

Some of the blame for these low enrollment numbers can be placed on the problematic rollout of the Obamacare website at HealthCare.gov, where online enrollment for federal plans won't be available again until November 2014.

In the meantime, business owners have to complete the process offline, dealing with a broker or directly with insurance carriers, whereas numerous state-run marketplaces continue to have problems with the enrollment process through their websites.

Nevertheless, health insurance experts are growing increasingly convinced that whether the online marketplaces functioned perfectly or not, small companies still wouldn't be interested in playing "middle man" so they could offer health coverage to their employees for multiple reasons as follows.

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Five Reasons Why Small Businesses are Getting Rid of Health Insurance for Employees:

1. Their workers don't appreciate it. This is especially true for younger employees under the of 30, whose participation in large employer-sponsored health plans actually declined 7.6 percent since 2010, although the overall percentage of eligible workers has remained steady at 68 percent, according to the ADP 2014 Annual Health Benefits Report by the payroll and benefits firm. One reason for this is that young adults age 26 and under may already be covered under their parent's plan, while other young adults may decide they’d rather pay the $95 per person penalty (or one percent of taxable income) than pay the higher cost for a health plan.

2. Signing up is too difficult. Many small business owners, especially those with just a few employees, prefer not to be involved in making difficult healthcare decisions on behalf of their workers. Moreover, small businesses can’t afford to hire an insurance specialist to help them navigate their way through a process that remains complicated. Indeed, some small businesses are instead encouraging their workers to sign up for individual coverage through the marketplaces. And even though most companies continue to contribute to their workers’ coverage, they prefer to not think about health care.

3. It is too expensive. Jeff Cline, an insurance agent in Texas, says that small business owners can’t afford to purchase group plans for employees for many good reasons, but depending on the overall size of the company, the government is forcing owners and employees to participate in company group insurance. “Most small business owners are paying salaries out of their own pockets,” Cline said, adding: “There is an incredible amount of tedious paperwork connected to the plan purchasing process, and the initial mechanisms of the Affordable Care Act doesn't make that process any smoother."

4. Some employees don’t want it. Cline also pointed out that some employees don't even want employee-sponsored insurance coverage for a variety of other reasons. In addition to younger employees not feeling they need it, there are others who think it takes too much money out of their paycheck; thus, they’d prefer independent plans that are often less expensive than group plan rates. “Although small business owners care about their employee's welfare, owners have so much to deal with when it comes to the territory of owning a business, and they don't have the time or adequate resource to add insurance coverage to their plate,” Cline explained.

5. You can’t predict the future. The unpredictability for the future of the Affordable Care Act (ACA) is another factor that can dissuade business owners from offering employer-sponsored coverage. Abir Sen, president and co-founder of Gravie, a health-plan selection tool for individuals and employees, said that delays in implementing the employer mandate illustrate that implementation of the ACA is a long way from being resolved. As this pertains to small business owners who won’t have to pay much, if any, tax penalty for failing to offer employee coverage, chances are they'd rather give money to employees to purchase health insurance on their own because it’s not only easier, but it removes any unforeseeable budget problems linked to not knowing how high group premium rates will increase each year.

Meanwhile, if you’re a business owner, Cline recommends using a Professional Employer Organization (PEO) to help you save time and money, while also providing benefits your employees want and need.

SOURCE: Medicare Insurance and Medigap News, Employee Benefits, accessed April 26, 2014.