How health care reform will change health insurance purchasing for small businesses

Albert Ertel, COO, Alliant Health Plans

Much attention has been paid to the American Health Benefit Exchange, the facet of the Affordable Care Act (ACA) designed to help individuals who do not have employer-provided insurance.

The ACA also requires states to utilize Small business Health Options Program (SHOP Exchange). Each state is required to set up these exchanges by Jan. 1, 2014.

“Both the state of Georgia and Georgia businesses will face challenges when it comes to meeting requirements set forth in the ACA, or health care reform law,” says Albert Ertel, COO of Alliant Health Plans.

Smart Business spoke with Ertel about how health care reform is changing how your company purchases health insurance.

How can SHOP exchanges help small businesses with health care costs?

The whole idea of health care reform is to reduce the number of uninsureds by lowering costs. But the law is not addressing the cost of care. It is attacking the cost of insurance, and adding hopefully lower-cost alternatives.

The goal of these exchanges is to create a well-functioning marketplace providing an array of affordable, high-quality health insurance plans for small businesses and their employees.

States can combine individual and small business exchanges — an option with many proponents, because expanding the pool would mean more competition among insurers, which leads to more choice and should result in better pricing for consumers.

Also, companies that purchase insurance through the approved exchanges may be eligible for a sizable health insurance tax credit. The credit is based on an employer’s number of employees and average payroll. If the average payroll is less than $25,000, the employer receives 100 percent of the premium through the tax credit. It declines proportionally as average payroll increases to $50,000, at which point the credit is no longer available.

How will small businesses determine whether they’re eligible to participate in an exchange?

Currently, Georgia law defines ‘small businesses’ as two to 50 employees for insurance purposes. The federal law indicates eligibility is up to 100 employees. This leads to two important questions: Will single entrepreneurs become eligible? And what will Georgia decide?

What issues will the state of Georgia run into when implementing exchanges?

Numerous decisions will have to be made. First, whether the exchange is going to be public, private or a combination — the state of Georgia is working through that now.

There are questions about whether the SHOP exchange, single or multiple, will end up competing with individual exchanges. Also, there will be competition outside of the exchanges. For small business health insurance, price is king.

Additional considerations include a regional approach to the exchange, dividing Georgia into regions, similar to the approach used to enhance competition for Medicaid plans. Or another option is joining states to form a ‘compact.’ Adding multiple states to an exchange is a double-edged sword. With that expansion, you may eliminate competition by turning it over to the big players in those states, because they are already there.

What can states do to help exchanges be successful?

They have to understand what their constituencies are: small and medium-sized businesses. They must decide if they are going to do it on a defined contribution basis, and whether they are going to set up an active or passive exchange. Competition should rule, and my bet is that Georgia will choose a ‘passive’ approach. Most involved in the current committees do not want to add more levels of bureaucracy, which is something they would have to do with an ‘active’ exchange. The state would have to set up a separate committee to approve not only the carriers, but also the plan designs.

One of the keys to the success of the exchange will be the technology that is needed. If the exchange is going to be charged with approving and monitoring whether individuals qualify for the tax credit, there has to be successful transfer of qualifying data sets and information provided by the employer to the exchange. An example is payroll through the IRS. Ensuring qualification may need to occur as often as quarterly, or will be an annual process, so there will have to be an active link to the IRS, Department of Labor, HHS and several state agencies. There are many issues yet to be defined.

What are some potential problems ahead?

Health care reform expands the definition of eligibility for Medicaid. With the increased definition, Georgia may add up to an additional 850,000 to Medicaid. That’s going to be very costly.

Also, as long as it is an employer-sponsored plan, health insurance is deductible as a business expense, allowing employers to continue to provide the insurance. Also, the current system allows employee payroll deductions to be done on a pre-tax basis. That option will be lost in the individual exchange, because individual insurance is purchased with post-tax dollars.

That whole system could be up in the air, because Congress has talked about an option to reduce the deficit, which is to eliminate the tax deduction for employer-based health insurance. You talk about blowing up a system — with unintended consequences. With no incentive for employers to provide insurance, the number of uninsured goes through the roof. If you give the individuals the choice without serious penalties, many would take the ‘insurance’ dollars and fend for themselves. The result is the loss of a significant amount of people in the insurance pool, which hurts these exchanges, because insurance relies on a large pool of covered lives to be successful. I agree changes are needed, but an exchange may be unnecessary when we already have one — it’s called ‘the market.’

Albert Ertel is COO of Alliant Health Plans. Reach him at (706) 629-8848 or [email protected]