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Chris Lee’s small construction company has provided health benefits to its employees for decades, dating back long before he took over the family business from his father in 2002. His company currently covers 75 percent of the premium cost for a relatively robust insurance plan, prompting most of his workers - 72 to be exact - to sign up for coverage.
It’s a plan that has worked well for Lee’s business and his employees. However, starting next year, due to new rules in the health care law, he will be forced to change the health care coverage he offers.
“We’re going to have to step down the level of coverage,” said Lee, the fourth-generation owner of R.E. Lee Companies, a Charlottesville-based company that provides a wide array of construction services to clients throughout Virginia. “We don’t have much choice.”
What’s forcing Lee’s hand is a looming expansion in what’s known as the small group insurance market under the Affordable Care Act. Starting in 2016, U.S. businesses with between 51 and 99 employees will be required to buy health coverage in the small group market, where all plans are subject to a litany of new and expensive requirements. Naturally, that change will mean higher premiums for most small and mid-sized employers.
In Lee’s case, though his firm has about 120 employees, his company would be required to purchase through that small group market because only 72 of those workers currently enroll in coverage. His health insurance broker recently approached him with two alternatives for his company’s health offerings next year: One, R.E. Lee can head into the small group market with its additional requirements and higher costs; or two, the firm can offer a less expensive, less robust plan, but pay 100 percent of the premium costs, thereby ensuring that all 120 or so employees enroll in the plan – allowing R.E. Lee to avoid moving into the small group market.
His broker then presented quotes. It turns out, the second option (paying 100 percent of a plan’s cost and enrolling everyone) would drive up his company’s health costs by 12 percent – a substantial but manageable hit. On the other hand, the first option (moving into the small group market) would drive up his firm’s health costs more than 30 percent.
Naturally, Lee elected to add the lower-level plan, for which R.E. Lee will pay 100 percent of the premiums. It’s a decision that he said will cost the company “a couple hundred-thousand dollars to go from where we were in 2015 to where we’re heading in 2016,” but one that was necessary in order to avoid an even more crippling blow in the small group market.
R.E. Lee’s premium bump continues a trend of accelerating health insurance costs for the company. But what makes this year’s jump particularly hard to swallow, Lee said, is that it comes with a plan that will pay for less coverage for some of his workers.
“It covers fewer benefits and has a higher deductible,” Lee said of the new plan. “But that’s the only way we can afford to cover 100 percent of our workers and avoid that small group pricing.”
Companies slightly smaller than R.E. Lee will have less room to maneuver. Short of adding more workers to eclipse the three-digit threshold, those with between 51 and 99 employees will have no way to avoid being thrown into the small group market. As a result, they’ll have no way to avoid premium spikes even larger than those Lee’s firm will incur.
It isn’t merely the costs that are the problem. As Lee explained, the administrative burdens tied to complying with and adapting to new rules like the small group market expansion are making life increasingly difficult for his company and others in his community.
“It has taken an enormous amount of time and effort just to sort out the rules and requirements under the health care law,” Lee said. “It’s taking up more and more of our management’s time, and that’s burdensome for any business.”
It’s stories like Lee’s that have prompted Congress to consider legislation that would halt the federally mandated small group market expansion and let each state decide what size company should be considered small for health care purposes. The Protecting Affordable Coverage for Employers (PACE) Act would do exactly that, and not surprisingly, momentum for the bill is swelling on both sides of the aisle in the Senate and House of Representatives.
In a recent interview, Rep. Tony Cardenas, a California Democrat and one of the bill’s sponsors, explained PACE Act would let states “weigh which is the better way to go for them so they can hopefully keep the insurance costs down and also make sure that everybody else gets their coverage with the least amount of sticker shock.”
Cardenas added, “Hopefully we can get it done soon.”
For Lee and other small businesses, the bill can’t come soon enough.