6 Points for Small Businesses to Consider

Before dropping their Group Health Plan and having employees instead purchase coverage via the individual ‘marketplaces’ created by the Affordable Care Act (also known as the individual ‘exchanges’):

  • Loss of Business Expense Deductions:Employer contributions to a group health plan are deductible business expenses.
  • Added Salary Expenses:If employers drop coverage, employees are likely to request a pay raise to recapture the amount the employer contributed to the cost of group health insurance.
  • Increased Tax Liability:Increased wages raise employer tax liability; FICA and unemployment costs go up when employee wages are increased.
  • Higher Costs:Premiums paid for coverage through the individual marketplace must be paid with post-tax income; this means paying an extra 25%-30%; by contrast, group health insurance premiums can be paid pre-tax which means employee-paid portions of group premiums provide a 25%-30% savings for an employee (and the employer pays lower taxes/FICA/Unemployment as a result paying all on a lower salary).While some employees may qualify for premium subsidies through the individual marketplace, those subsidies will not cover the full cost of coverage. In addition, subsidies are based on total household income resulting in less of a chance for an employee to qualify (and an even lesser chance if they get a raise from the employer to pay premiums!)
  • Decreased Ability to Attract and Retain Employees:Studies show that health insurance is listed as employees’ #1 concern. Employee retention rates might be impacted by employers not offering group coverage–an employee with less income and higher expenses can result in an unhappy employee.
  • Employers Are Affected Too:A business owner without a group health plan must also purchase individual coverage, often without a subsidy, using post-tax income, and must select a plan option (where there is less choice and plan flexbility, and oftentimes smaller networks) via the marketplace.