The Affordable Care Act (ACA) has brought about a big shift for brokers—a shift that has meant new challenges, frustrations and unknowns. However, the ACA has opened new doors that allow brokers to retain clients and attract small business prospects. How? Let’s explore an idea to keep brokers relevant in the health insurance conversation by advising small businesses about ways to control their employee benefits budgets.
Consider: Only 35 percent of employers offer a health insurance option. The 2011 Statistics of United States Business from the Census Bureau suggest that approximately 33 million people work for small employers (5 to 99 employees). The majority (25.4 million) work for firms that employ 5 to 49 workers. Referring to 2013 data from the Supplemental Health Care Exhibit, about 8.9 million small group policies were underwritten last year, which amounts to an estimated 35 percent.
But these statistics don’t mean small businesses are abandoning health benefits altogether. Instead, they are looking for new approaches to offering health benefits that allow for predictable health benefit costs.
The challenge: Unpredictable premium costs. The number one challenge small businesses face in offering health benefits is cost. To combat premium cost increases, employers of all sizes have shifted more costs to employees, decreased coverage or networks, and/or implemented consumer-driven health plans. Others have dropped group health insurance altogether because they cannot absorb the premium increases.
According to the Kaiser Family Foundation, the nationwide average group health insurance premium cost for small businesses in 2014 was $6,025 per year, with the business paying $4,944 per employee. Over the last 15 years, the cost to cover employees with traditional health insurance has increased 174 percent (for single coverage).
Consider a new health benefits financing approach for more predictable premium costs. Whether your clients offer health insurance now or have recently canceled due to the cost, you may feel like traditional group health insurance is the only way to offer quality health benefits.
New, affordable alternatives are rapidly being adopted by small businesses, such as:
• The Small Business Health Options Program (SHOP) Marketplace and Small Business Healthcare Tax Credits.
• Co-ops or professional employer organizations (PEOs).
• Individual health insurance (with or without a premium reimbursement contribution).
What’s the most budget friendly option? An individual health insurance policy with a premium reimbursement contribution is one option. Why? Because, on average, individual health insurance may cost up to 60 percent less and businesses can control the cost completely.
As an alternative to purchasing group health insurance, businesses all over the nation are reimbursing employees for their individual health insurance. With new rules and regulations, however, businesses need to go about it the right way to avoid costly fees and penalties.
Ask: Is the employer reimbursing employees directly, or paying for employees’ premiums directly?
• If Yes—If the employer is reimbursing employees directly or paying employees’ premiums directly to the insurance company, this is considered a type of “employer payment plan.” Under the new market reforms, employer payment plans are out of compliance. The employer must adopt a compliant plan by June 30, 2015, to avoid penalties.
• If No—If the employer is providing a bonus or stipend (taxable), no action is needed. Your arrangement complies.
Ask: Does the employer have a formal reimbursement plan? As more and more employees purchase health insurance coverage on their own, it is common for businesses—especially small businesses—to help employees with their premium cost. Are employers reimbursing employees’ health insurance correctly?
When a business has a formal reimbursement plan, the business has official plan documents outlining how the reimbursement plan works. A formal reimbursement plan is a type of group health plan. In many cases, reimbursements are tax deductible to the business and received tax-free by employees.
Ask: Does the reimbursement plan comply with the new market reforms? As of January 1, 2014, the ACA introduced new market reforms that impact all group health plans, including reimbursement plans. To comply with the market reforms (PHS Act 2711 and PHS Act 2713), reimbursement plans must: 1) not place an annual or lifetime limit on essential health benefits, and 2) cover basic preventive care 100 percent.
Types of reimbursement plans that generally comply include:
• Section 105 Healthcare Reimbursement Plans (HRPs).
• Stand-alone Health Reimbursement Arrangements (HRAs), with only one participant.
Types of reimbursement plans that generally do not comply include:
• Stand-alone HRAs with two or more participants.
• Employer payment plans.
If Yes—If the plan complies with the new market reforms, no action is needed. The employer’s arrangement complies.
If No—If the plan does not comply, the employer must adopt a compliant plan by June 30, 2015, to avoid penalties.
If the plan does not comply with the new market reforms, the employer does not have a formal reimbursement plan.
Conclusion: Take control of escalating premium costs. Escalating premium costs do not have to be the end for employee benefits. By adopting individual health insurance reimbursement, your clients may gain better control of health benefits costs and break the cycle of unpredictable annual premium cost increases.
