They’re called “Employee Benefits,” but in the Obamacare era they often do more harm than good.
Most small employers provide some kind of health insurance plan because they want to attract and retain good employees, and because they genuinely want to take care of their people.
And that made a lot of sense… until now. Read on to find out why.
The Most Common Small Business Benefits
Here’s the most common way small businesses handle health insurance:
- The employer pays 50% of the employee’s premium.
- The employees dependents can be on the plan, but he has to pay 100% of their cost.
And that was an advantageous arrangement for most people, because employer plans sometimes included benefits that individual plans didn’t offer (like maternity coverage), and they included coverage for pre-existing conditions.
But Obamacare changed that.
Now anyone can get individual health insurance plans with the same level of benefits and have pre-existing conditions covered.
Why Premium Tax Credits Matter
Of course, one result of those changes is that the price of individual health insurance went up. A lot.
To help people pay those higher costs, the Affordable Care Act provides eligible consumers with “premium tax credits” (government subsidies) to help pay for health insurance premiums. These income-based subsidies can dramatically reduce the price of health insurance for many (most) families.
The Key Question: Who is Eligible for Premium Tax Credits?
There are two primary factors that determine whether someone is eligible for premium tax credits:
- Income. To receive premium subsidies, you have to make between 100-400% of the Federal Poverty Limit (FPL). That’s a lot of people. A family of 4, for example, would be eligible for some level of help if they make less than about $95,000/year.
- Availability of other plans. You are not eligible if you have the ability to get covered elsewhere, such as through the VA or through employer-sponsored health insurance.
Did you catch that?
By offering employee benefits, you are causing your employees and their dependents to not be eligible for subsidies to lower the cost of individual health insurance.
How Many Families Get Stuck
We don’t have to tell you that your small business health insurance plan is expensive. You’ve probably had to reduce the benefits and/or increase the deductible to maintain coverage. It’s probably a strain on you to even pay half of the employee-only price.
Remember the typical scenario?
You may be helping your employee by paying half of his/her insurance. But guess what? If he wants health insurance for his spouse and children, he’s having to pay the entire price himself. And that’s not fun.
There could be a great alternative in the individual health insurance market. Many, if not most, of your employees could get pretty good coverage. The price is similar, but it could be a LOT lower with the premium tax credits.
But those aren’t available because they can be covered on your plan.
The Bottom Line: How You Might Be Harming Your Employees
The result in our scenario is that many of your employees are forced to pay hundreds of dollars more each month for health insurance because of your employee benefits.
Obviously, you don’t want to harm your employees! Heck, you’re trying to help them.
But the game has changed, and sometimes the best way to help them is to stop offering group health insurance.
We can show you how to make that transition. Let’s talk about it.