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Small Businesses Struggling with Health Insurance Woes

By Floyd Arthur

The new year is starting out with more health insurance headaches for small businesses,

thanks to the expanded Obamacare “employer mandate” that went into effect on Jan. 1,

2016. As of that date, employers who have between 50 and 99 full time employees (or

full-time equivalents) were required to offer health insurance to 95 percent of their

employees or pay a fine of $2,000 per employee.

Health Insurance Woes

Reporting requirements also increased in 2016, and many small business owners are

simply unsure how to comply. What’s more, failure to submit all the required

documentation can result in a potentially costly audit by the Department of Labor--and

some hefty fines. According to Steve Jackson, senior vice president of strategic

development at PrimePay, a payroll services company in West Chester,

Pennsylvania, "Employers are seeing more audits because they are not disclosing

appropriately or maintaining documentation. We've seen a 300 percent increase year-

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over-year in the number of Department of Labor audits, and we fully expect to see an

increase in audits into 2016."

Health Insurance Costs Rising for Small Businesses

Employers are also seeing a steady increase in the cost of providing health insurance for

employees. According to the Henry J. Kaiser Family Foundation, premiums for all-sized

businesses rose 61 percent between 2005 and 2015, and are expected to increase

another 4 percent this year. Furthermore, while employee contributions have gone up

83 percent, employers continue to carry the lion’s share of the cost.

Small businesses have been particularly hard hit by premium increases, since they are

generally less equipped to negotiate lower rates. According to a recent analysis by the

Urban Institute, businesses with fewer than 50 employees pay about 18 percent more for

health insurance than their larger counterparts.

Nor does the future hold much chance for improvement. Under the ACA, small-group

insurers are required to use “community ratings” when setting premiums rather than

the risk-based pricing model of old. While the traditional model took into account

factors such as claims history and health status, insurers are now limited to considering

only age, family size, geography and tobacco use. Although the change was supposed to

increase the fairness of the ratings system, it has had the opposite effect on small

businesses with young, healthy workforces, who have been hit by even greater premium

increases than small businesses overall.

Some businesses have been able to avoid the premium increase by “grandfathering” into

their traditional plan through 2017. However, when community ratings become the

norm, prices are expected to increase by another 30 to 40 percent, forcing many small

businesses to either stop insuring their employees or move to a self-funded plan.

Health Insurance Still Offered by Most Firms

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Despite rising costs and regulatory headaches, the vast majority of small business

owners still believe that health benefits are an important tool for recruiting and

retaining employees. According to the Kaiser Family Foundation report, 89 percent of

employers with between 50 and 99 workers and 54 percent of those with fewer than 50

workers offered health insurance to their employees in 2015 --before the mandate went

into effect.

Recruitment and retention notwithstanding, however, many employers are beginning to

feel the financial pinch. For small business owners who are not required by law to

provide insurance, deciding whether or not to continue to insure their workers becomes

more difficult every year.

Running a small business is demanding and time-consuming, and finding the resources

to deal with regulatory and financial challenges becomes more difficult every day.

Nonetheless, no business can afford to ignore its insurance needs. Let us help you

examine your options and select the coverages that are right for you. Our business

insurance experts are available every weekday from 9 a.m. to 6 p.m., so call us at 516-

292-3780 to set up an appointment for your insurance review. Or if you prefer, request

a free consultation online now.