One of the most misunderstood elements of the Affordable Healthcare Act (ACA) may soon cause a shocking rate increase for small business owners. While all states have taken the option to hold off until 2016, the Small Group Market for insurance coverage will be extended to include those businesses with between 50 and 100 employees.
Previously, the Small Group Market was limited to businesses with less than 50 employees, which naturally have higher premiums. The higher premiums for this group are due to economies of scale.
For example, it’s cheaper to insure 200 people under a single contract than it is to insure 40 groups of five under 40 contracts, or 200 individuals.
With that said, small business owners should be thinking about the best approach to this issue now, or they may have an unpleasant surprise in 2016.
One option that may eventually become popular is to self-insure. Although most financial advisors and tax accountants wouldn’t normally recommend this for small businesses, there are more solutions becoming available as the insurance market begins to create new products and adjust to the new requirements.
Similar circumstances have been seen before in Massachusetts early in the decade – when the state instituted its own insurance reform program. This started a pattern of “looking for self-insurance,” which has been running in the state for eight years.
However, in this matter, it’s important to seek the advice of the appropriate professionals – most likely your tax accountant or CPA. Every business is unique, and a good look at your numbers will ultimately lead you to the best decision.