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Few Small Business Owners Likely to Drop Health Insurance

Though one in five small business bosses say they’re likely to drop health plan coverage for their employees when insurance exchanges come online in 2014, few are likely to do so, a new study reports.

While employers are encouraged to offer coverage under the new health care reform rules, they can choose not to and (starting in 2014) pay a penalty that may be less than what they currently spend on health benefits.

The Patient Protection and Affordable Care Act (PPACA), which was signed into law this year by President Obama, includes a provision requiring the establishment of state-run exchanges to make it easier for individuals to buy coverage.

In a new survey, consultants at Mercer asked employers how likely they were to stop providing health care insurance for their employees once the state-run exchanges open for business. For the great majority, the answer was “not likely.”

A fifth of small employers (those with 10–499 employees), though, said they were likely to terminate their health plans, especially those with low-paid workers and high turnover, like retailers. These small employers generally offer fully insured health plans and, with small risk pools and little purchasing power, are vulnerable to large rate increases.

“You can see why the idea of dropping employee health plans would be attractive to small employers,” said Beth Umland, who directed the study for Mercer. “On the other hand, when you look at the experience in Massachusetts, where insurance exchanges have been operating under state-based health reform for over three years, it hasn’t happened.”

A recent study found that enrollment in employer plans in Massachusetts grew during the four years in which many of the reforms on which PPACA is based have been in place. This suggests that few employers have chosen to drop plans despite the low penalties under the state’s "play or pay" rule.

Employers have never been required to offer coverage. They do so to promote a healthy, productive work force and to attract and retain employees, who place a high value on health coverage because it can be expensive to purchase as an individual and, especially for those with health problems, difficult to obtain.

“Employers are reluctant to lose control over a key employee benefit,” said Tracy Watts, a partner in Mercer’s Washington, D.C., office. “But beyond that, once you consider the penalty, the loss of tax savings and grossing up employee income so they can purchase comparable coverage through an exchange, for many employers dropping coverage may not equate to savings.”

Reach BusinessNewsDaily senior writer Ned Smith at nsmith@techmedianetwork.com. Follow him on Twitter @nedbsmith.

Ned Smith
Ned Smith

Ned was senior writer at Sweeney Vesty, an international consulting firm, and was Vice President of communications for iQuest Analytics. Before that, he has been a web editor and managed the Internet and intranet sites for Citizens Communications. He began his journalism career as a police reporter with the Roanoke (Va.) Times, and was managing editor of American Way magazine and senior editor of Us. He was a Captain in the U.S. Air Force and has a masters in journalism from the University of Arizona.