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Small-Group Market Remains Stable under the ACA

A new report has concluded that the Affordable Care Act, which took full effect in 2013, did not result in a significant change in the number of employers offering health insurance, although the rate at which small employers offered coverage declined slightly by 2.6 percentage points between 2013 and 2020.

The study by the Urban Institute found that the small-group health insurance market remained relatively stable during those seven years, a period marked by employers continuing to shift more of the premium burden to their employees.

As of 2020, about half of small employers (companies with fewer than 50 employees) offered health insurance to their staff, while 99% of large companies offered health plans.

Employers with fewer than 50 workers are not subject to the ACA’s employer mandate, which requires firms with 50 or more employees to provide affordable health insurance that covers a slate of benefits mandated by the landmark law.

The study found that smaller employers are still less likely to offer health coverage than their larger peers. The share of employers of workers with group health coverage in 2020 was:

  • 81% for companies with 25-99 employees.
  • 56% for companies with 10-24 employees.
  • 30% for companies with fewer than 10 employees.

The study authors wrote that whether small firms offer health insurance coverage varies substantially. “Though many small firms such as restaurants and retail stores primarily employ low-wage and part-time workers, other small firms, such as professional services firms, primarily employ full-time and high-wage workers. Thus, average trends for all small firms may hide differences among them,” they said.

The pandemic effect

Notably, the COVID-19 pandemic had an effect on the number of small employers that offer group health insurance to their staff. Group health plan enrollment among workers in small firms dropped to 7.9 million in 2020, compared to an average of 9.2 million in the prior seven years.

The study authors say the drop was likely due to decreases in employment in small companies at the start of the pandemic.

Meanwhile, the average annual inflation rate for group health premiums remained steady between 2013 and 2020, with average increases of 3.2% in the small-group market and 3.7% in the medium- and large-group markets.

Despite that, most employers continued shifting the premium costs to their employees:

  • Workers in firms with 1,000 or more employees contributed on average 26% in 2013 for family plans, and the same in 2020.
  • Workers in firms with between 100 and 999 employees contributed on average 30.5% in 2014 and 32% in 2020.
  • Workers in companies with fewer than 50 employees paid 29% of premium costs in 2013 for family plans, a rate that had risen to 35% in 2020.
  • Employees working in firms with fewer than 10 employees have maintained the lowest contribution rates across all firm sizes for both single and family premiums over the past two decades (the report made this assertion, but provided no data).

The present

Despite early concerns that the ACA would result in many small employers dumping coverage for their workers, the changes were muted at best.

In fact, offer rates among small employers has remained steady in recent years, except for the blip in 2020. And during the 10 years prior to the enactment of the ACA, the number of small employers offering coverage had been dwindling rapidly.

Small employers have had to continue offering health benefits to remain competitive in the job market, and that shows no signs of abating now.


How HRAs Can Help Your Employees Pay for Medical Expenses

As rising health insurance premiums and out-of-pocket costs for health care are burdening workers, more employers are looking for ways to help their staff put aside money for those expenses.

While health savings accounts have grown in popularity, you can only offer them to employees who are enrolled in high-deductible health plans. Fortunately, there is another option: a health reimbursement arrangement (HRA).

Employers fund these accounts, which reimburse your staff for qualified medical expenses and, in some cases, insurance premiums.

You can claim a tax deduction for the funds you transfer to your employees’ HRAs, and the funds they withdraw from the accounts to reimburse for medical-related expenses are generally tax-free.

Unlike HSAs and flexible spending accounts, though, HRAs are solely funded by employers. Also, unlike HSAs, they are not portable if an employee moves to a new employer.

In addition, federal regulations dictate what types of health care expenses HRAs can reimburse, and those rules vary depending on the type of HRA you offer.

Depending on the type of HRA, funds may be used to reimburse:

  • Health insurance premiums,
  • Vision and dental insurance premiums,
  • Coinsurance, copays and out-of-pocket medical outlays, and
  • Qualified medical expenses.

How HRAs work

You decide how much you want to fund your employees’ HRAs. You can fund them in one lump sum. Under federal regulations, you must fund all like employees’ HRAs with the same amount. So, if you have 12 sales reps, each one would have to get an HRA funded with the same amount, but managers and supervisors could receive a different sum.

Employees can only withdraw funds from their account to reimburse them for a legitimate expense they have already paid for. Another option is to provide them with an HRA debit card, which they can use to pay for qualified medical expenses.

Once they have depleted the funds in their HRA for the year, they have to pay for medical expenses out of pocket.

Any HRA money that is unspent by year-end may be rolled over to the following year, although an employer may set a maximum rollover limit that can be carried over from one year to the next.

Expenses HRAs can’t cover:

  • Maternity clothes,
  • Gym membership fees,
  • Marriage counseling, and
  • Childcare.

Rules differ from one HRA to another and there are a number of different HRAs:

Integrated HRA — This type of HRA requires employees to also be covered by a group major medical plan. It generally reimburses out-of-pocket medical expenses.

Dental/vision HRA — This type of HRA limits reimbursements to only dental and/or vision expenses.

Qualified Small Employer Health Reimbursement Arrangement (QSEHRA)  — This type of HRA is only available to employers that have fewer than 50 employees. The maximum annual reimbursement amount is $5,450 for self-only employees ($454.16 per month) and $11,050 for employees with a family ($920.83 per month).

QSEHRAs are typically used to (legally) allow employers to reimburse their workers for individual health insurance premiums, in addition to other out-of-pocket expenses being reimbursed.

Individual Coverage HRA (ICHRA) — This type of HRA is available to employers of all sizes, and employees must be covered by an individual health insurance plan to be eligible.

The primary intent of the ICHRA is to allow for the reimbursement of individual health insurance premiums, but other out-of-pocket expenses, such as copays and deductibles, can also be reimbursed. 

ICHRAs have only been around since January 2020 thanks to a law that allowed HRA funds to be used to pay for individual health insurance premiums.

Employees can use these HRAs to buy their own comprehensive individual health insurance with pretax dollars either on or off the Affordable Care Act’s health insurance marketplace.

Excepted Benefit HRA (EBHRA) — This HRA will allow for the reimbursement of COBRA premiums, short-term medical plan premiums, dental and vision expenses. The annual reimbursement limit for an EBHRA is $1,800 (adjusted for inflation).

The takeaway

There are a variety of HRAs that let you help your employees pay for their health care expenses. These valuable savings vehicles give both your organization and your staff a tax break on the funds, and they are another tool in helping you retain and attract talent.

In fact, you can even pair an HRA with an HSA, as long as the HRA is HSA-qualified.  

In these instances, you would need to offer a “limited-purpose HRA” that only reimburses employees for expenses that are exempt from the HSA deductible requirement.

These expenses are:

  • Health insurance premiums
  • Long-term care premiums
  • Dental expenses
  • Vision expenses.

Health Insurance Considerations for Workers Who Move Out of State

One fallout from the COVID-19 pandemic has been an increase in the number of Americans who are working from home permanently.

With so many people being freed from the yokes of the office, many have chosen to move to other states for a variety of lifestyle or cost reasons. But while these arrangements can be a boon for workers, they can make it difficult when it comes to your workers’ group health insurance.

One of the main stumbling blocks is that most group plans are local or regional at best, as they contract with providers and hospitals in the area where an employer is located.

For employers that suddenly have staff now working far afield from their headquarters, securing health insurance coverage in other states can create headaches, particularly if they have contracted with a local or regional insurer.

And to make matters worse, some employees who are working remotely don’t bother telling their employers they are moving, which can render their coverage obsolete if they locate to a place out of their insurance policy’s coverage area.

Remote employees who fail to inform their employers when they relocate could suddenly find themselves in an area with no access to their insurer’s preferred network and they could have their claims denied if they seek out medical care. To avoid this issue, consider instituting a policy that they have to inform you of any move to another state.

What you can do

If all of your staff are working in a single location, city or state, there are usually plenty of options for group health insurance. But if you now have people working out of state, you have choices to make for how to get them covered.

Many national insurance companies don’t have the same type of network in every state, and even among those that do, health care providers may not offer the most cost-efficient networks for out-of-state employees.

Some carriers offer national group health plans that are available to employees in most states. If you now find yourself with employees who are scattered around the country, a national plan helps you avoid having to comply with different state regulations and finding carriers with good networks in other states.

In these types of plans, all of the employees in your organization receive the same group benefits regardless of where they live and work, and they all have access to the same quality coverage.

But there are just a handful of carriers that offer this type of group coverage. Talk to us if you want to know more.

One option is to find local coverage for employees in specific locations, but if you don’t have many employees in that region, you may not be able to find preferable rates for their group coverage.

If that is too difficult, you can set up a taxable stipend that your employees could use to purchase their own health insurance. A stipend is a fixed amount of money paid to an employee in addition to their basic salary, designed to cover whatever extra costs the employer allows, such as health insurance, internet and other expenses.

The takeaway

As more U.S. companies have workforces spread across many states, health insurance needs to be on the top of the list of considerations.

The health insurance you choose will depend largely on your budget and coverage preferences, and what is available to your staff in the state they are working in.