Short Takes On News & Events

Some Small Businesses Say Health Insurers Are Dropping Their Coverage

By Bara Vaida

July 25th, 2011, 3:03 PM

One in eight small businesses told the National Federation of Independent Business that since the health law passed in 2010, their health insurer had either terminated their plan or notified them it is going to be eliminated.

The NFIB said it couldn’t say for certain that small businesses were losing their insurance because of the health law, but the organization is “pretty sure” that costs related to the health law were the cause, said Denny Dennis, a senior fellow at the NFIB and author of the report released today.

Dennis said the NFIB was “not aware of any data that suggested” insurers had dropped coverage of small businesses in such large numbers in years before the passage of the health law. For this reason, they felt confident the health law was the cause, he said. The NIFB opposed passage of the final health reform law over concern about its costs, though it had initially supported the legislative effort toward health reform. It also is a plaintiff in the Florida vs. HHS lawsuit that seeks to overturn the law.

The NFIB developed today’s report from a survey of 750 small employers with 50 or fewer employees conducted by polling firm Mason-Dixon during April and May 2011.

As part of the health law, businesses employing 25 people or fewer are eligible for a tax credit to help them offset the costs of insurance. The NFIB said it doesn’t know just how many small businesses have applied for the small business tax credit, but it estimates that 245,000 businesses are eligible for a full tax credit and 1.165 million are eligible for a partial credit.

The White House said in 2010 that it estimated 4 million businesses would be eligible for the tax credit.

6 Responses to “Some Small Businesses Say Health Insurers Are Dropping Their Coverage”

  1. This report is way too speculative to see the light of day. First, the way the question was apparently asked, “health insurer had either terminated their plan or notified them it is going to be eliminated” could yield an affirmative “Yes” answer when the benefits are simply changing and alternatives are being offered by the insurer. Second, nobody, including me, knows the historical record on terminating plans – before we jump to a conclusion, that should be found out. We do know that the small group business has never been very stable, lots of changes in carriers and book of business every year. Third, the NFIB speculates about “costs related to reform” — what costs? It’s 2011. And, how do they imagine that dumping customers will help them avoid costs? All it will do is ruin their economies of scale.

  2. Isocort says:

    This article is a must read for the small business owner or self-employed consumer who is tasked with purchasing their own health insurance policy. It offers great insight on how to achieve balance between four important variables that affect plan price and quality. It also includes a list of 10 key questions that business owners should know about their current health insurance policy, but often don’t. It also offers tips on how to find a reputable health insurance agent and advice on how to avoid falling prey to an insurance scam.

  3. inchoate but earnest says:

    NFIB’s press release is sharply at odds with the content of its survey results. A couple of examples:

    From page 4 of their report: “Small-business owners forecast no major changes in the number of small firms offering employee health insurance in the next year”

    Executive Summary, 1st bullet: ” In the last 12 months, 1 percent of offering small employers added health insurance as an employee benefit while 4 percent of non-offering employers dropped it.”

    Note that NFIB has mislabeled the 2 data elements; probably they meant that 1% of NONoffering small employers added it, and 4% of OFFERING employers dropped. And those figures are at odds with their press release assertions.

    As for: “Since enactment, one in eight (12%) small employers have either had their health insurance plans terminated or been told that their plan would not be available in the future.”

    There doesn’t seem to be supporting data, but that assertion is not the same as “coverage for these groups has been dropped”. It’s more like “insurers have chosen not to continue to offer a particular policy”.

  4. Mark Dietrich says:

    I am co-author of John Wiley & Sons forthcoming (2012) Financial Professional’s Guide to Healthcare Reform and a small business person as well. I found the Survey’s analysis to be balanced and, in fact, more optimistic than an in-depth analysis of the legislation would suggest. From my own research, it does not seem that the legislation was well-thought out, the claims made for it by its proponents as far as small business are concerned are overreaching or inaccurate in many cases, and very few people have any idea what is really in it. A totabl example is that the legislation expands certain nondiscrimination rules in the Internal Revenue Code to the provision of health insurance, in a manner analogous to those of qualified retirement plans (Section 2716 of the PPACA). The penalty imposed on small business purchasing health insurance for failure to comply is, incredibly, $100 per day per individual discriminated against, while larger employers who are able to self-insure simply lose the tax deduction for the health insurance premiums. The disparity in the treatment of the insured and self-insured in the legislation and the resultant costs and exposure have received insufficient analysis in my view.

    Although PPACA proponents point to the positive impact on individual health insurance premiums in that state as a result of its Reform, they fail to mention that there was an offsetting increase in the premiums in the small group market where small business obtains its health insurance. Massachusetts mandated merger of these two markets and the PPACA through its actuarial rules effectively does the same thing. There is never any free lunch.

    I could, as they say, write a book about the issues associated with this legislation and the adverse impact on small business. I would encourage those who want to gain a better understanding of the real legislation to read the CMS Actuary’s analysis and the various analyses prepared by the Congressional Research Service.

  5. John N says:

    The NFIB has put out a very interesting survey of small businesses, defined as those with fewer than 50 employees, and PPACA. They surveyed 750 businesses:

    42% or 314 offer health insurance to their employees.
    78% purchased through brokers/agents.
    30% could qualify for full or partial small business tax credits.

    Unfortunately the really interesting and valuable parts of the study are getting no attention but the headline grabbing sound bites that fit the anti PPACA meme are getting reverberated across the right wing echo chamber online.

    Let’s do a quick summary. One year after enactment of PPACA, 42 percent of small businesses (<50 lives) offer employee health insurance.

    This group fall into 3 distinct sub categories of size and often life cycle of a business:

    <1o employee – 35 % provide health insurance
    10-19 employees- 56 % provide it
    20-49 – 80 % provide it

    Approximately 10-12% of the firms surveyed have started are new in last 3 years and according to Denny Dennis at NFIB the annual "failure rate of businesses is in the same 10% range so this is a very dynamic and fluid part of the economy.

    The main headline out there today is that because of PPACA 11.7% of these businesses report that their insurer has terminated the specific health insurance plan they had, or have said they will in the near future.

    When I spoke with Mr. Dennis, an expert on small business trends, about this he agreed that plan terminations for this size employer are common but that this seems higher than in the past. He also commented that this rate of loss was consistent with what CBO had predicted might happen as the transition to PPACA occurred prior to 2014 and the Exchanges coming into existence.

    The real message that has gotten no attention is that 57% of firms responded positively to this question which describes what can be done under the law once Exchanges are in place, ie defined contribution plans they contribute to:

    "Suppose you had a new option to purchase health insurance. Under the new option, employees would purchase health insurance in the open market and the business would send a tax-excluded contribution to the insurer to help employees pay their premiums. The business could send as much or as little as it liked. If this proposal were to become law, how likely would you be to consider substituting it for current your health insurance plan (OR as appropriate) paying a portion of your employees’ health insurance premium? "

    So 57% of all 750 firms – or 454 – responded that they would likely participate in a defined contribution plan for their employees.

    This actually represents an increase of nearly 50% over the 42% providing plans today that could provide some form of employer funding to their employees.

    So pre PPACA 42% are providing coverage and post PPACA 63% would likely provide a defined contribution style plan to their employees.

    This looks to me like the law may actually work as intended to close the coverage gap for the <50 market and especially under 20 employee market.

    More details here:

  6. There is a solution to this problem – IMO. Small companies can offer an “onsite clinic” that will provide employees with preventive services such as annual physicals, comprehensive lab work, education, blood pressure screenings and flu shots. Also, they can assist employees with making good decisions about purchasing health insurance with a high deductible as they will be receiving other services through their company clinic. There is a government grant that is a result of the new healthcare reform law that will pay for small companies to have a comprehensive wellness program. Lotusea Wellness Group, Inc., has positioned our company to assist small companies with getting the grant and provide the onsite clinic that will include “financial wellness.”