Some Small Businesses Restore Group Health Coverage

A worker welds at Modern Automotive Performance in Cottage Grove, Minn., on August 18. ENLARGE
A worker welds at Modern Automotive Performance in Cottage Grove, Minn., on August 18. Photo: Ackerman + Gruber for The Wall Street Journal

Some small companies that dropped group health insurance for their employees are reversing course, driven by a tightening labor market, rising costs and fewer choices for individual coverage.

Laura Cottrell, owner of a seven-person home-furnishings and home-improvement products business in St. Louis, dropped group coverage in 2014, not only because of the cost but also the complexities of picking the right plan within a short deadline. Instead, she gave her employees a raise that they could use to buy their own health plans, sparing her from choosing for them.

Now Ms. Cottrell is looking at adding health benefits to make a cabinetry business she launched this year more attractive to potential employees. If she makes the change, she says she would offer coverage to employees of both of her businesses.

“People are looking for health care,” said Ms. Cottrell, who said she was recently turned down by one job candidate because she doesn’t offer health benefits. Adding to her pain: UnitedHealth Group Inc., UNH -0.09 % her personal carrier, won’t offer individual coverage in Missouri next year.

Emily Bremer, Ms. Cottrell’s insurance broker, said she is seeing more small businesses that stopped offering health benefits looking to bring them back. “Individual policies seemed like a good option” when the Affordable Care Act took effect, she said. “But group plans have more value now.”

Unlike large employers, small businesses—those with the equivalent of fewer than 50 full-time employees—aren’t required to offer health benefits under the ACA. Many do so anyway, to be competitive in the job market or because they think it’s the right thing to do.

Chris Carey, president of Modern Automotive Performance in Cottage Grove, Minn., eliminated group health coverage in 2014 in an effort to rein in costs. “This made a dramatic impact on our culture, as employees felt they were missing out on a benefit that was standard in other organizations.” The online auto-parts retailer and manufacturer backtracked last year and now pays 50% of the premiums for its 38 employees.

Chris Care,y president of Modern Automotive Performance in Cottage Grove, Minn. ENLARGE
Chris Care,y president of Modern Automotive Performance in Cottage Grove, Minn. Photo: Ackerman + Gruber for The Wall Street Journal

Questions about the merits of individual versus group coverage are intensifying as changes continue to roil the insurance market. Michael Stahl, a senior vice president at HealthMarkets Inc., an agency that works with small businesses across the country, says most small businesses making changes continue to shift to individual coverage because their workers are eligible for significant government subsidies.

“But the trajectory of that is slowing,” he said. For the first time, “we are seeing a reverse migration back from individual to group.”

Conflicting forces are buffeting small companies. Transitional rules that allowed certain companies to continue offering existing plans that don’t meet certain ACA requirements expire at the end of 2017. In North Carolina, some companies could face cost increases of as much as 40% for ACA-compliant plans, said Michael Matznick, a Greensboro, N.C., insurance broker. Costs and terms vary from state to state.

At the same time, prices for individual coverage are climbing and insurance companies are dropping out of the state and federal marketplaces that sell individual coverage. Last week, Aetna Inc. AET -0.79 % said it would withdraw from 11 of the 15 state exchanges on which it currently offers coverage, making it the latest major insurer to pull back from that business.

Estimates of how many small businesses offer group coverage vary. Fifty-four percent of companies with three to 49 workers offered health benefits last year, about the same as in 2014 but down from 66% in 2000, according to a 2015 Kaiser Family Foundation survey.

Companies with three to 50 employees paid an average of $ 15,602 annually for each worker who elects family coverage, according to Kaiser, up from an average of $ 12,809 in 2010.

Government subsidies can make individual coverage attractive to small firms employing workers earning as much as four times the poverty rate. For 2016, the ceiling generally was $ 97,200 for a family of four. Employers, however, generally can deduct the cost of group health-care premiums.

Before the ACA, insurers often denied coverage to individuals with existing conditions, one reason costs were often higher for small groups. But the price gap has “narrowed significantly,” said Matthew Byrne, an insurance broker in Dublin, Ohio.

Individual coverage, meanwhile, has grown less attractive as insurers narrow options for physicians, hospitals and prescription drugs in an effort to cut costs. Zach Obront, founder of Book In A Box LLC in Austin, Texas, added group coverage in July in an effort to reduce stress on his 13 employees.

“There were a lot of bad surprises, like showing up at a hospital and a doctor and being out of network,” said Mr. Obront, whose two-year-old company helps experts publish books on their subjects.

But finding affordable coverage remains a challenge. Michael Hobbs, president of a Chicago real-estate appraisal company, some days turns down as much work as he accepts because he hasn’t been able to hire more workers. “In the competitive environment we are in,” he said, “insurance and benefits are becoming a critical factor.”

At the company’s current size and revenue, “it’s not economical” to offer health benefits, said Mr. Hobbs, who currently has four employees and six independent contractors. “If we are successful in picking up a significant amount of the business we are turning down, we could get toward insurance being burdensome but affordable.”

Write to Ruth Simon at [email protected] US Business

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