Brokers Cite Potential Problem for Small Businesses Offering Health Coverage

Andrew Kitchenman | October 17, 2013 | Health Care
Attraction of federal insurance subsidies could result in too many employees choosing to get their own insurance through ACA marketplace

Matthew Roy, president of employee-benefits broker Blue Ocean Benefits and Consulting of Red Bank.
New Jersey insurance brokers are raising concerns that some small businesses could be forced to drop insurance coverage for their employees if too many workers chose to buy federally subsidized individual health insurance.

Under state law, a small business must have at least 75 percent of its employees participate in its insurance plan in order to offer coverage to employees. But brokers say that some businesses would drop below that 75 percent level if even just one employee dropped employer coverage to buy coverage available through the Affordable Care Act.

“We are concerned about this because it’s going to affect a lot of small groups who want to do the right thing,” said Matthew Roy, president of Red Bank employee benefits broker Blue Ocean Benefits and Consulting.

The 2010 ACA established the insurance marketplace, in which people can buy health insurance for themselves and their families and learn whether they are eligible for tax credits to subsidize the purchase. Small businesses will be able to purchase insurance through a separate health insurance exchange, called the Small Business Health Options Program, or SHOP.

The subsidies will benefit people with incomes between 100 percent and 400 percent of the poverty line, which currently amounts to between $11,490 and $45,960 for a single person and between $23,550 and $94,200 for a family of four. Access to the website for the marketplace and SHOP,, has been marred by technical problems since it was launched on October 1.

The marketplace was designed to avoid the problem that the brokers are raising, since workers whose employers offer affordable plans that offer a minimum set of federally defined benefits aren’t supposed to be eligible for the subsidies.

However, brokers contend that there are potential loopholes that could affect some employees, such as newly hired workers whose income has changed. This could lead to those workers being able to receive subsidies and refusing the insurance offered by employers.

Any outcome that leads to fewer small businesses offering insurance is expected to have a harmful economic impact on brokers.

The New Jersey Association of Health Underwriters (NJAHU), which represents many insurance brokers and consultants, would like to see changes to either state law or state regulations to allow employees who purchase subsidized insurance through the marketplace to be granted a waiver, allowing those employees to be counted toward the 75-percent minimum level for employers.

But the state’s insurers are wary about making a change, arguing that state regulations should conform with federal rules, which currently don’t allow for such a waiver. Wardell Sanders, president of the New Jersey Association of Health Plans, a trade group, said state officials need to take a “hard look” at the effects of changing how the state regulates the small-group plans.

“Sometimes these decisions produce unintended consequences,” Sanders said.

The brokers and the small employers concerned about the issue may receive some relief from the federal budget and debt-ceiling deal that was being worked on in Congress yesterday. The deal reportedly included a provision that would increase federal efforts to verify employees’ income when determining whether they are eligible for insurance subsidies.

Roy, the immediate past president of the NJAHU, said concerns about having more employed people buy subsidized insurance grew when federal officials issued regulations earlier this year that made it easier for workers to determine for themselves whether they are eligible for subsidies.

Roy expressed hope that the reported agreement in Congress will lessen the risk of applicants improperly receiving subsidies.

But the possibility of problems for small employers points to a broader problem with the ACA, Roy said. Many brokers feel that the law is being implemented without a good understanding of its effects, he said.

“This has not been 100-percent thought out,” Roy said of the effect on businesses,
Other business groups that represent small employers are keeping a close eye on whether the brokers’ concerns are borne out by business owners’ experiences in 2014.

John Sarno, who advises employers as the president of the Employers Association of New Jersey, foresees potential problems for employers navigating the new regulations affecting the small-group insurance market.

“There’s a pretty big disconnect between the New Jersey small group market and the rules of the Affordable Care Act,” Sarno said.

Sarno noted that roughly half of the state’s 110,000 employers with between two and 49 employees currently offer insurance. He expects that these employers will want to continue to offer coverage to workers in the short term, but it’s not clear what the long-term effects of the subsidies in the individual market will be on those companies.

If employers drop coverage, it could benefit some of their employees who are eligible for subsidies, while other employees who aren’t eligible for subsidies would pay more.

In addition, the full effect of the new option for employers to purchase insurance through the federal small group SHOP exchange is not yet known. Some employers with low-wage employees will be eligible for tax credits if they purchase insurance through the SHOP. The SHOP is launching with a limited range of insurance plans in 2014, although the range of options is expected to expand in future years.