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Drop your group insurance? Adviser says it’s best for workers

For small business owners still muddling through the requirements of the Affordable Care Act, Alex Tolbert has some surprising advice: Dropping your group plan might be best for your employees.

The Obama Administration recently delayed enforcement of the ACA until 2015, so regulated employers who don’t offer insurance will not be fined this year. Meanwhile, public exchanges set to open in October 2013 will supposedly offer affordable insurance to individuals and families. And lower income families who do not have access to employer-sponsored plans will qualify for government subsidies.

Tolbert, whose company Bernard Health offers health insurance advice to individuals and small employers the way H&R Block provides tax guidance, says dropping health insurance coverage now could actually make insurance more affordable for your employees.

To be sure, many employers with 50 or more full-time employees have already calculated that paying the government fine of $2,000 per employee for each one beyond the initial 30 employees would be less costly than offering insurance for all of their employees. An employer’s cost to insure one employee averages $6,000 annually, according to the Center for Health Reporting.

An employer with 230 employees, for instance, who offers insurance to each worker, even at a low estimated rate of $300 per month, would pay more than $800,000 annually. And each employee would pay an additional $600 per month out of pocket to get coverage for his family. The employer's cost in fines to not offer insurance? $400,000 a year. It’s obvious which option is more affordable to the employer.

But Tolbert says most don’t realize that their employees might also be better off with such an arrangement. He explains: Many of those employees could be at an income level that would qualify them for government subsidized insurance on a state exchange, but only if they are not eligible for a qualified employer-sponsored plan. Not only is your employee ineligible for subsidized insurance; his spouse and children are not eligible if he has access to affordable health insurance through his employer.

To qualify for subsidized coverage individuals must meet two conditions: Their household income can be no greater than 400 percent of poverty line, and they cannot be eligible for a qualified plan through their employer or their spouse’s emplyer. According to Families USA, in 2013, 400 percent of poverty line for a 4-person household is $94,200.

Subsidies for the lowest income employees could render insurance essentially free. “The kicker,” Tobert says, “is that these lower-paid employees have friends and neighbors who are going to get these subsidies and will say, ‘I got free health insurance.’ Small business owners are going to have employees coming to them asking about that.”

“Employers generally offer health insurance because they think they’re doing their employees a favor. But starting in 2014 it’s going to be a disservice,” Tolbert says.

While no one can be sure what rates individuals can get on the exchanges until they open in October, Tolbert predicts that they will be significantly lower than what employees can get from employers. “These aren’t 5 percent differences, these are order of magnitude differences,” he says.

His advice: Drop your plan and help your employees get subsidies on the exchanges. “We see employers who can save $1 million by dropping their insurance plans.”

Are you a small business owner who will be regulated by the Affordable Care Act? How are will you comply with the new law? Tell us in the comments section.

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