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California health insurance  -   Group health insurance in California  -   California company penalty

Small Group Moving to Individual California Health Insurance

There's a big question yet to be answered on whether employers will just pay a penalty rather than provide group health insurance once the Exchange plans are in full force.

This a great question and it's still hard to figure out which way the market will go.

Let's at the pro's and con's of this decision both from the employer's point of view and from the employee's.

The new group landscape for California health plans

First, we have to establish what we mean by group health plans since the Health Reform bill only applies to certain companies.

The bill mainly applies to what's termed large group companies. This will be defined as companies with more than 50 employee equivalent hours.

Okay, what is that?

Let's say you have 100 employees that all work part time..say 20 hours per week each. That company would actually be subject to the law since the 20 hours times 100 employees is the equivalent of 50 employees at full time.

Most companies do not realize this equivalence calculation yet and they're in for a big surprise. What's interesting is that most employees are actually employed by small companies in California with the average size being 2-5 employees.

We usually think that large companies are the main employers but small business really drives our employment in the U.S. Small companies will not be required to offer health insurance to employees or suffer from penalties. That leaves larger sized companies to consider implication of offering or not offering group California health coverage.

What about them?

Enter the stick

This is the basic set-up.

Effective Jan 1st, 2014, larger companies can either offer eligible group health coverage to their employees or pay an annual penalty of $2000 per employee.

The first question to ask is what do we expect the premiums to be for group health plans per employee?

Group health premiums in California will go up due to mandates and health reform rules but we don't expect them to go up nearly as fast as they will on the individual family market due to Guaranteed issue. Guaranteed issue means that a person cannot be declined for health coverage due to health. The California group health market has had guaranteed issue for years now due to AB1672.

This goes a long way to explaining why group health premiums were roughly double those of equivalent plans on the individual market. This doesn't bode well for the new individual health plans and is a major reason why we're starting to hear the term "Rate Shock" regarding that market.

There will be increases in group health premiums...probably around 10-20% in addition to the standard annual inflation. So let's estimate (very rough at this point) that the middle option plan will run $400/monthly for an employee (age 45). That's $5K annually for which the employer may pay between 50-100%.

This is the consideration an employer will have to make.

How to compare the penalty versus premium.

On a straight cost analysis, it makes sense to just pay the penalty and employers that currently do not offer coverage are more inclined to go this route. Keep in mind that the employees still must secure (and pay) their own individual health insurance.

This is why employers that offer coverage now will likely continue to unless they're just getting coverage or themselves (and family).

Some companies right on the cusp of small or large group may decide to reduce payroll in order to avoid the penalty.

Many large companies will likely continue to offer coverage but require more cost sharing since the premiums will go up.

The small mom and pop companies (of which there are many) will likely drop group health and buy individual family coverage since most of them bought group due to the inability to qualify based on health.

Your companies options for health insurance

Ultimately, this is a good time to walk through your companies situation and rates with a professional. You can instantly quote the new group health plans (available Summer of 2013) to compare with an potential penalties.

We're happy to walk you through this process of course.

 

You can run your Group Health Benefit Quote here to view rates and plans side by side from the major carriers...Free.

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