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Many small firms to opt out of health benefits in 2015

J.K. Wall
January 20, 2014
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Brian Adams had made up his mind. He was going to stop providing health insurance to his 15 employees at Indianapolis-based Godby Hearth & Home.

Then in October, Adams decided to renew his group health plan early, extending coverage until Oct. 31, 2014.

After that, however, he plans to work with his employees to help them buy insurance through the Obamacare exchanges.

Many employers with fewer than 50 workers followed Adams’ lead last year. They kept their health plans for 2014, but a growing number say they’ll drop group coverage at the end of this year.

“It’s very hard for a small-business owner to deal with this. It is very complex,” Adams said. “And it is dealing with what is probably the most crucial benefit that an employee can have.”

Things were already trending this way before Obamacare, known officially as the Affordable Care Act.

The percentage of employers with 50 or fewer workers offering health benefits in Indiana declined from 44 percent in 2000 to just 29 percent in 2011, according to a study by the Robert Wood Johnson Foundation.

Nationally, the percentage of small firms offering health benefits dropped 10 points, according to both the RWJF study and an annual employer survey by Kaiser Family Foundation.

Obamacare does not require that small employers offer health benefits, as the law does for employers with 50 or more workers. But the law does encourage them to do so by offering sizable tax credits to offset the cost of health benefits.

If Obamacare does induce small employers to rush to end their health benefits, it will be both good news and bad news for the effectiveness of the law.

On one hand, it shows that Obamacare’s overhaul of the individual insurance market has made that market a far more attractive option, by guaranteeing coverage even for unhealthy consumers and offering individual tax subsidies to lower the cost of insurance. That is allowing some businesses to pursue what they call “an individual strategy” of helping their employees obtain health insurance, but not actually buying it for them.

 On the other hand, Adams and other small-business owners are considering an end to their group benefits because they expect other provisions of Obamacare to send their group plan premiums skyrocketing at the end of 2014.

“My hands are going to be forced,” said Adams, who was an accountant before buying the Godby business. “Once this thing settles through, our group rates will jump to the point where we will not be able to sustain it.”

Community rating

Health insurers such as Anthem Blue Cross and Blue Shield and UnitedHealthcare have told small-business owners that they face premium increases of 50 percent, 60 percent, 80 percent and sometimes even 100 percent at the end of 2014.

Those predictions were given to employer clients to induce them to renew their current plans early—before the Obamacare rules kicked in Jan. 1, but business owners and insurance brokers take them seriously.

Obamacare will increase insurance rates for many employers because it will not allow health insurers to charge their oldest customers any more than three times as much in premiums as they charge their youngest customers. Previously in Indiana, the oldest customers paid six or seven times more than the youngest.

The new rules, called community rating, mean that companies with younger-than-average workers will face a big increase in insurance rates. For businesses with older-than-average workers, the new rules will probably lead to lower health insurance premiums.

Those rules apply only to individual insurance customers and employers with fewer than 50 workers.

The Indiana Department of Insurance predicted that small employers’ health insurance premiums would rise 8 percent on average this year due to Obamacare. But for all companies with younger-than-average workers, the new rules mean they’ll be paying more.

“I can’t absorb a 60-percent increase. It’s a complete deal-breaker,” said Mike Hutson, owner of Westfield Lighting Co.

He received a projected premium increase from UnitedHealthcare of 60 percent for the end of 2014, which would mean he would pay $50,000 more per year for health benefits for his 17 workers.

He currently pays nearly $5,000 per worker for health insurance, which is a bit lower than national norms.

So instead, Hutson switched his health plan to Anthem on Dec. 1, paying just 6 percent more than he did the year before. That Anthem policy, since it was sold in 2013, does not have to comply with Obamacare’s new community rating rules. But come Dec. 1, 2014, it will, which will likely send Westfield Lighting’s premiums soaring.

At that point, Hutson said, he’s almost certain to send his employees to the Obamacare exchanges. He doesn’t expect to be alone.

“I believe that most small businesses, eventually, will punt,” Hutson said. “I think there will be a tidal wave of this.”

Half could drop coverage

Health insurance consultants who work with small employers agree.

Matt Kleymeyer at Bernard Health, a health benefits consulting firm for individuals and small employers, said he has worked with 40 companies that plan to drop their group health plans, but only four of those did so on Jan. 1.

“If you’re going to be faced with a 50-[percent] or 60-percent increase, you may not have an option to keep a group plan,” Kleymeyer said. “Groups need to be aware of this. They need to start communicating to employees early. They need to think about a reimbursement program. And they need to take time to roll it out.”

The main thing that kept Adams, who is one of Kleymeyer’s clients, from dropping Godby’s health benefits was that the majority of his employees would have paid more for health insurance in 2014 on the Obamacare exchanges than in Godby’s group health plan.

But if premiums spike at the end of this year, as Adams expects, the exchanges will become the most attractive option.

Tony Nefouse, a health insurance broker for individuals and small businesses at Indianapolis-based Nefouse & Associates, is also seeing small employers end their group health benefits.

“I’m chopping up groups left and right,” Nefouse said in late 2013, noting that about half his clients with fewer than 50 workers have either already dropped coverage or have decided to drop it at the end of this year.

It’s firms with fewer than 30 workers that are most likely to end group coverage now, Nefouse said. And among firms with fewer than 10 workers, about 80 percent are working to drop coverage.

Employers with lower-wage workers, or that have had low participation rates in their group health plans, are most likely to drop coverage, Nefouse added.

“With skyrocketing premiums over the years, you have employers who feel like their profits are all going to health insurance premiums,” Nefouse wrote in an email.

 But more could add coverage

Certainly not all small employers are talking about ending health benefits. Some are even adding them, as Obamacare encourages them to do.

Indianapolis-based Sun King Brewing Co. decided to add health insurance for the first time, starting on Jan. 1. That was partly because the company expected to exceed 50 employees by the end of 2013 and partly because its owners felt it was the right thing to do.

“Since we founded the company, we planned to offer health insurance, as soon as we could afford it,” said Sun King President Omar Robinson.

In fact, several national studies have concluded that Obamacare will lead to a slight increase in the number of firms offering coverage.

For example, survey data collected by the National Federation of Independent Businesses last fall found that 13 percent of employers with 50 or fewer workers planned to add coverage in 2014 — wice as many as planned to drop it.

Also, a simulation conducted in early 2013 by California-based RAND Corp. found a slight increase in small firms offering insurance by 2016. Small-business coverage will decrease in some states, Rand’s model found. But in either case, the change will be modest, with increases topping out at 5 percent and decreases bottoming at 2 percent.

Obamacare tries to encourage the smallest employers — those with fewer than 25 workers — to continue offering health benefits by allowing them to deduct as much as 50 percent of their health insurance premium contributions from their 2014 corporate income taxes.

Obamacare, since it was passed in 2010, has allowed small businesses to claim a tax credit equal to 35 percent of the money they spend on employee health benefits. But few small businesses have taken advantage of it, according to a 2012 report by the Government Accountability Office.

That’s surprising because so many employers could qualify for the credits, according to data crunched by two liberal health insurance advocacy groups, the Small Business Majority and Families USA.

In Indiana, an estimated 61,410 employers, or 71 percent of all firms with fewer than 25 workers, would qualify for a tax credit, which would average $857 per worker.

Westfield Lighting is one of the companies claiming the credit in Indiana. But Hutson said the tax credit won’t stop him from dropping his group health plan next year.

“While it helps, it is still a cash-flow killer,” he said in an email. “I have to put up the money and then wait for the benevolence of our ‘statesmen’ in Washington to give it back at the end of the year. No thanks.”

Also, a lot of small employers don’t qualify for tax credits. Adams at Godby Hearth & Home, for example, said his employees on average earn more than $50,000, making his firm ineligible for the credits.

Instead of paying for health insurance directly for 2015, Adams said, he will pay Bernard Health to guide his employees through the maze of choices and incentives that now exist for buying health benefits individually. Adams will also contribute what he was paying before for group coverage to subsidize his employees’ insurance purchases.

“It is really taking this responsibility of insurance out of the business owner’s hand and putting it into the individual’s,” he said. “The old system clearly was going down, heading toward a cliff, anyway. I think the simple point of empowering people to take control of their own destiny for health care is a good thing.”•
 

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  1. Yes diversity is so very important. With justice Rucker off ... the court is too white. Still too male. No Hispanic justice. No LGBT justice. And there are other checkboxes missing as well. This will not do. I say hold the seat until a physically handicapped Black Lesbian of Hispanic heritage and eastern religious creed with bipolar issues can be located. Perhaps an international search, with a preference for third world candidates, is indicated. A non English speaker would surely increase our diversity quotient!!!

  2. First, I want to thank Justice Rucker for his many years of public service, not just at the appellate court level for over 25 years, but also when he served the people of Lake County as a Deputy Prosecutor, City Attorney for Gary, IN, and in private practice in a smaller, highly diverse community with a history of serious economic challenges, ethnic tensions, and recently publicized but apparently long-standing environmental health risks to some of its poorest residents. Congratulations for having the dedication & courage to practice law in areas many in our state might have considered too dangerous or too poor at different points in time. It was also courageous to step into a prominent and highly visible position of public service & respect in the early 1990's, remaining in a position that left you open to state-wide public scrutiny (without any glitches) for over 25 years. Yes, Hoosiers of all backgrounds can take pride in your many years of public service. But people of color who watched your ascent to the highest levels of state government no doubt felt even more as you transcended some real & perhaps some perceived social, economic, academic and professional barriers. You were living proof that, with hard work, dedication & a spirit of public service, a person who shared their same skin tone or came from the same county they grew up in could achieve great success. At the same time, perhaps unknowingly, you helped fellow members of the judiciary, court staff, litigants and the public better understand that differences that are only skin-deep neither define nor limit a person's character, abilities or prospects in life. You also helped others appreciate that people of different races & backgrounds can live and work together peacefully & productively for the greater good of all. Those are truths that didn't have to be written down in court opinions. Anyone paying attention could see that truth lived out every day you devoted to public service. I believe you have been a "trailblazer" in Indiana's legal community and its judiciary. I also embrace your belief that society's needs can be better served when people in positions of governmental power reflect the many complexions of the population that they serve. Whether through greater understanding across the existing racial spectrum or through the removal of some real and some perceived color-based, hope-crushing barriers to life opportunities & success, movement toward a more reflective representation of the population being governed will lead to greater and uninterrupted respect for laws designed to protect all peoples' rights to life, liberty & the pursuit of happiness. Thanks again for a job well-done & for the inevitable positive impact your service has had - and will continue to have - on countless Hoosiers of all backgrounds & colors.

  3. Diversity is important, but with some limitations. For instance, diversity of experience is a great thing that can be very helpful in certain jobs or roles. Diversity of skin color is never important, ever, under any circumstance. To think that skin color changes one single thing about a person is patently racist and offensive. Likewise, diversity of values is useless. Some values are better than others. In the case of a supreme court justice, I actually think diversity is unimportant. The justices are not to impose their own beliefs on rulings, but need to apply the law to the facts in an objective manner.

  4. Have been seeing this wonderful physician for a few years and was one of his patients who told him about what we were being told at CVS. Multiple ones. This was a witch hunt and they shold be ashamed of how patients were treated. Most of all, CVS should be ashamed for what they put this physician through. So thankful he fought back. His office is no "pill mill'. He does drug testing multiple times a year and sees patients a minimum of four times a year.

  5. Brian W, I fear I have not been sufficiently entertaining to bring you back. Here is a real laugh track that just might do it. When one is grabbed by the scruff of his worldview and made to choose between his Confession and his profession ... it is a not a hard choice, given the Confession affects eternity. But then comes the hardship in this world. Imagine how often I hear taunts like yours ... "what, you could not even pass character and fitness after they let you sit and pass their bar exam ... dude, there must really be something wrong with you!" Even one of the Bishop's foremost courtiers said that, when explaining why the RCC refused to stand with me. You want entertaining? How about watching your personal economy crash while you have a wife and five kids to clothe and feed. And you can't because you cannot work, because those demanding you cast off your Confession to be allowed into "their" profession have all the control. And you know that they are wrong, dead wrong, and that even the professional code itself allows your Faithful stand, to wit: "A lawyer may refuse to comply with an obligation imposed by law upon a good faith belief that no valid obligation exists. The provisions of Rule 1.2(d) concerning a good faith challenge to the validity, scope, meaning or application of the law apply to challenges of legal regulation of the practice of law." YET YOU ARE A NONPERSON before the BLE, and will not be heard on your rights or their duties to the law -- you are under tyranny, not law. And so they win in this world, you lose, and you lose even your belief in the rule of law, and demoralization joins poverty, and very troubling thoughts impeaching self worth rush in to fill the void where your career once lived. Thoughts you did not think possible. You find yourself a failure ... in your profession, in your support of your family, in the mirror. And there is little to keep hope alive, because tyranny rules so firmly and none, not the church, not the NGO's, none truly give a damn. Not even a new court, who pay such lip service to justice and ancient role models. You want entertainment? Well if you are on the side of the courtiers running the system that has crushed me, as I suspect you are, then Orwell must be a real riot: "There will be no curiosity, no enjoyment of the process of life. All competing pleasures will be destroyed. But always — do not forget this, Winston — always there will be the intoxication of power, constantly increasing and constantly growing subtler. Always, at every moment, there will be the thrill of victory, the sensation of trampling on an enemy who is helpless. If you want a picture of the future, imagine a boot stamping on a human face — forever." I never thought they would win, I always thought that at the end of the day the rule of law would prevail. Yes, the rule of man's law. Instead power prevailed, so many rules broken by the system to break me. It took years, but, finally, the end that Dr Bowman predicted is upon me, the end that she advised the BLE to take to break me. Ironically, that is the one thing in her far left of center report that the BLE (after stamping, in red ink, on Jan 22) is uninterested in, as that the BLE and ADA office that used the federal statute as a sword now refuses to even dialogue on her dire prediction as to my fate. "C'est la vie" Entertaining enough for you, status quo defender?

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