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.
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-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
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 business insurance review. Or if you prefer, request a free consultation online now.