Reform spares small business

Health reform spared smaller companies from mandates. Employers with fewer than 50 workers will not have to offer health insurance to their employees.

Companies with 50 or more workers may face financial penalties if they do not offer affordable insurance. Their employees will receive subsidies to buy insurance on the exchanges instead. Most large companies already offer affordable insurance and are least likely to be affected, although more employees probably will participate because of the individual mandate.

Analysts have differed widely concerning the law’s effect on workplace enrollment. The Urban Institute predicted a slight increase at companies with more than 1,000 employees, and little change in smaller companies. Consulting firm Market Strategies forecast a 10 percent decrease in the number of workers offered health insurance by 2014.

Companies are weighing whether to continue offering health insurance or simply to pay the $2,000 penalty for each employee. The decision to discontinue health insurance might be prudent for industries with high turnover, such as hospitality, restaurants and retailers. Larger companies are more likely to conclude that offering insurance is too critical for employee recruitment and retention to abandon.

During the health-reform debate, President Obama repeatedly promised that people would be able to keep their current insurance coverage if they wished to. That is unlikely to be the case.

The law exempted, or “grandfathered,” health plans in place on March 23, 2010, when the law was signed. However, that exemption places tight restrictions on changes that companies can make to their existing plans. These restrictions include no increases in cost-sharing or coinsurance, and limits on deductible increases and employer-contribution decreases. These are tactics businesses typically use to blunt the impact of medical inflation.

The Obama administration expects 39 to 69 percent of employers to relinquish their exemptions by 2013.

Employers are also concerned about the tax implications of offering high-cost insurance policies to their employees. The so-called “Cadillac” or “gold-plated” plans have low deductibles and generous premium contributions. High-cost plans are defined as annual premiums costing more than $10,200 for an individual or $27,500 for a family, including worker and employer contributions. Employers would have to pay a 40 percent excise tax on the value above those thresholds beginning in 2018.

The law targets executives with cushy benefits. However, union and public employees also have generous health insurance. Reformers believe these expensive policies encourage overuse of the medical system. Businesses and governments likely will respond by offering fewer benefits to lower premiums, and raising deductibles and co-payments for employees.

Expect Congress to revisit the Cadillac plan thresholds. A May 2010 survey by Mercer found that this was the No. 1 employer concern regarding health reform. A Towers Watson analysis predicted that more than 60 percent of large-employer plans will be taxed in 2018.

In contrast, companies with 25 or fewer workers will be eligible for temporary tax credits of up to 35 percent. They will also be able to rely on their own health-insurance exchange, called the Small Business Health Options Program (SHOP), to offer standardized, comprehensive coverage at more affordable prices. This should improve their ability to compete with larger companies for employees.

However, health-reform critics say the tax credits are too complex to attract small businesses and probably will help only those companies already offering coverage. A survey of small California businesses found that more than half were unaware of the tax credits or the SHOP exchange. The CBO estimated that the tax credits would reduce the cost of premiums for small businesses by 8 to 11 percent, which translates into a weak incentive.

The RAND Corporation has a much different outlook. Its analysis showed that the number of workers offered insurance at businesses with 50 or fewer workers will rise from the current 60 percent to more than 85 percent. The researchers say the individual mandate and lower-cost insurance on the exchange will fuel employee demand for insurance.

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