Small companies are starting to turn away from offering health
plans as they seek to reduce costs and increasingly view the health law’s
marketplaces as an inviting and affordable option for workers. In the latest
sign of a possible shift, WellPoint Inc. said Wednesday its
small-business-plan membership is shrinking faster than expected and it has
lost about 300,000 people since the start of the year, leaving a total of 1.56
million in small-group coverage.
During a call with analysts to discuss third-quarter
earnings, the No. 2 insurer said it had projected a five-year migration to
“significantly reduce” small-employer membership, but it now thinks the dropoff
will be compressed into two years. Going forward, with the health law’s
marketplaces running and functioning well, small employers will likely
re-evaluate exchanges as an option for their employees.
Some other insurers have flagged a similar trend. Aetna Inc.
Chief Financial Officer Shawn M. Guertin said the company was seeing “some
erosion at the bottom of the market” among employers with two to 10 workers. Kaiser
Permanente is seeing “some contraction” in the small-group market, particularly
in places where insurers are offering cheap individual plans, said Joe Smith,
the nonprofit’s vice president for small business.
It’s not yet clear how widespread the shift will ultimately
be. An April survey by the International Foundation of Employee Benefit Plans
found that 22.5% of employers with 50 or fewer employees said they “definitely
will” still be offering health benefits in five years, while an additional 42%
said they “very likely” would. Among large employers with 500 or more
employees, about three-quarters fell into those two categories.
The health law doesn’t penalize companies with fewer than 50
workers that don’t offer coverage, and those with fewer than 100 employees
won’t face fines until 2016. Some employers are facing premium increases to
keep offering coverage as they shift to plans that meet the law’s
requirements—though this impact has been delayed for many because the Obama
administration has allowed states and insurers to keep older plans in effect.
The law has also eliminated several reasons small employers
offered group plans to ensure employees could get coverage. Workers with
pre-existing health conditions can now buy coverage on their own, and insurers
can’t charge them more based on their health history, as they could before the
law took effect. The law includes subsidies for lower-income workers that can
sometimes be as generous as the amounts small employers were paying toward
health benefits. Indeed, insurers and brokers say small employers in
lower-income industries are far more likely to switch.
Insurers, for their part, are moving to recapture the lost
business by signing up employees to their individual plans. Medical Mutual of
Ohio, which said it is seeing the strongest shift away from offering health
benefits among the smallest employers with just two to four workers, is working
to ease the transition for companies that want to move from a group plan to
individual coverage.
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