Small-Employer Responses to ACA Provisions Extending Employee Insurance Coverage

January 2013

One of the principal aims of the Affordable Care Act (ACA) is to expand access to affordable insurance coverage. Currently, individuals who receive employer-sponsored health insurance predominantly work for large employers. As such, small employers are a specific target in the ACA to expand access to coverage for their employees. In a recent New York Times article, Reed Abelson and Steven Greenhouse review the ACA regulations aimed at small employers, particularly the requirement for small employers to offer insurance to their employees or face a financial penalty.

The ACA establishes penalties for employers with 50 or more employees who do not offer full-time (30 hour/week) employees health insurance. The penalty is anticipated to be $2,000 per worker, excluding the first 30 employees. In their article, Abelson and Greenhouse reviewed small employer responses to these impending fines. Among some employers, there is concern that this provision may lead to hiring freezes, laying off workers, or shifting full-time workers to part-time status to avoid the penalties. Many of these provisions do not go into effect until 2014, and small employers who already offer health insurance to their employees will experience little to no changes. However, employers that rely on a low-wage workforce, such as retail and hospitality businesses, often do not offer health insurance, and these businesses will likely be greatly affected. This has prompted some small employers to speak out against the regulation and the anticipated burden. Yet, employer attempts to avoid the penalty through shifting workers to part-time status comes with its own disadvantages, including reduced productivity and less appealing recruitment tools to attract the most qualified workers.

In a HCFO-funded study, Mark Hall, J.D., Wake Forest University, explored another ACA provision to expand affordable coverage offerings to small employers through the small-group insurance exchanges that are part of the Small Business Health Options Program (SHOP). These exchanges are intended to offer streamlined benefits and more diverse, affordable insurance plans. Hall found that the Massachusetts insurance exchange, the Connector, struggled to attain small-group employer participation. In fact, only ten percent of individuals purchasing insurance through the Massachusetts Connector were part of an employer group. Through in-depth, key informant interviews and document review, Hall uncovered several barriers to small employer participation, which are described below as well as in Hall’s full report.

The first barrier centered on a lack of clear communication to small employers about the value of participating in the state-based exchange. The value proposition was further limited by community rating, which required identical pricing for equivalent plans inside and outside the exchange. As a result, the Connector could not offer a price advantage on its products. Employers also experienced negligible, if any, administrative cost savings from participating in the exchange. Employers and insurers alike were hesitant to embrace the diverse plan offerings inherent in the Connector. Many employers resisted altering their traditional ways of providing coverage, especially when they did not see innovative features in the Connector products. Insurers feared adverse selection risks inherent in offering employees more choice of plans. Finally, there were market factors that inhibited small employer participation, including some resistance to greater government regulation and a lack of participation initially from the state’s largest insurers.

Both the New York Times' article and Mark Hall’s study underscore the challenges to broadening insurance coverage to small-group employers and their employees. Abelson and Greenhouse pointed to mixed responses from small employers in terms of deciding to offer coverage to their employees, and Hall’s report shows that states need to do a better job constructing and communicating the value for small employers to participate in state-based exchanges. Addressing these barriers will be essential to expanding insurance coverage to small-group employees. On January 24, Mark Hall will host a webinar to review his findings and their implications for other states designing and operating SHOP exchanges. Click here to register.