Small Talk: Family insurance in jeopardy at small companies
One casualty of the new health care law may be paid coverage for families of people who work for small businesses.
Insurance companies have already warned small business customers that premiums could rise 20 percent or more in 2014 under the Affordable Care Act. That's making some owners consider not paying for coverage for workers' families, even though insurance is a benefit that helps companies attract and retain top talent. If more small business owners decide to stop paying for family coverage, it will accelerate a trend that started as the cost of health insurance soared in recent years.
Under the law, companies with 50 or more employees are required to provide affordable coverage for their workers. They also must offer health insurance to employees' dependents, but don't have to pay for it. And they aren't required to offer insurance at all to employees' spouses.
Mike Shoop got a taste of what buying insurance will be like under the ACA when he shopped for a policy that will take effect Sept. 1. His insurer quoted premiums 8 percent higher than his current policy, and warned Shoop that he'd get an even larger increase a year from now. Shoop, who owns a debt collection company in Greeley, Colo., said he may have to cut back on insurance for his employees' families if rates keep soaring.
"We're very generous in what we pay," says Shoop, the owner of Professional Finance Co. "But like most companies, we're about at our maximum of the total dollars that we can spend on health care."
Shoop pays between 70 percent and 90 percent of an employee's premium, and between 10 percent and 30 percent of family premiums, depending on how long a worker has been with the company. He declined to say how much he pays for health coverage. Shoop has 150 full-time and 20 part-time workers.
Premiums have been soaring for years because of the rising cost of medical care. But the ACA also has requirements that may drive premiums higher, including a tax on insurance companies that is expected to be passed along to employers. Shoop's insurer has warned that the tax could send his premiums up more than 20 percent a year from now.
"It's going to be very significant," Shoop says. "We're really going to have to do a juggling act, and so are our employees."
It's hard to know at this point how many owners will forgo family coverage, because much about the law is unknown. The government last this month gave employers an extra year, until Jan. 1, 2015, to comply with the health care law. The Internal Revenue Service has drafted regulations to implement the employer mandate, but they haven't taken effect. And premiums for 2014 haven't been set in most states.
Reduced coverage a trend
The ACA is accelerating a trend toward reducing family coverage that has been in place for a number of years at companies of all sizes as employers try to cut costs, according to health insurance brokers. But family coverage is particularly in jeopardy at small companies.
"I would say 99 percent are giving it some consideration," says Rich Fahn, owner of Excell Benefit Group, an employee benefits broker in Northbrook, Ill. "They don't know what the cost impact will be, so everything's on the table."
Owners are aware that by reducing family coverage they'd be cutting back on a benefit that's important to their workers, so many ask Fahn about benefits that will please employees but not cost the company any more money. Among them: voluntary life and dental insurance that they could buy at a group rate that would cost less than individual coverage.
Anthony Mongeluzo provides health insurance for the 41 employees of his computer services and hardware company and their families, paying between 50 percent and 55 percent of the premiums. But his costs have been going up 20 percent a year, and he's concerned about what will happen under the ACA. If premiums balloon under the law, he might have to cut back on family coverage to be sure he's offering insurance to his workers that meets the law's affordability requirements.
"I would have to weight it toward my employees," says Mongeluzo, president of Pro Computer Service, based in Moorestown, N.J. "It's something I've definitely thought about."
Mongeluzo isn't required to provide insurance under the ACA because he has fewer than 50 workers, But if he meets his goal of expanding his staff to 100 employees in the next three to five years, he would be subject to the law. He's aware that reducing family coverage might not go over well with his workers. He says he will discuss his plans with his staff, and see how they feel about it.
Small businesses owners are delaying decision
Small business consultants say their clients are holding off on making decisions about dependent coverage because it's such a sore subject with employees, and because owners have so few answers about their costs at this point. Not only are premiums for 2014 not set, many consultants and benefits advisers also say it will take at least a year, and perhaps two or three years, to get a true picture of how much the ACA will cost.
"What business with 60 or 70 employees is going to want to tell anybody that they're going to cut the coverage for the families until they've implemented the law?" said Henry Hutcheson, president of Family Business USA, a consultancy based in Chapel Hill, N.C. "They're going to batten down the hatches and wait for the reverberations to bounce."
But owners like Butch Yamali believe they may be forced to reduce dependent coverage.
"You'd probably have to do that for survival," says Yamali, owner of Dover Group, a Freeport, N.Y.-based caterer and food service provider.
Yamali has between 460 and 480 employees, but currently pays for insurance for only 125, because many of his workers are covered by their spouses' or parents' health plans. He's worried that his costs will soar if more of his staffers want to join his plan.
"It scares me to think about it. If I had to buy insurance for everyone who works for us. We wouldn't be able to be in business anymore."