Employee medical insurance benefits often complicate things for small business owners, and that fact is unlikely to change.  Recent developments in the employee medical benefit arena offer some good news, some bad news, and some options yet to become available. 

You might be relieved to know that medical insurance premiums for small business employers have increased at a slower rate than those for large employers. Despite sharp increases across the board in 2011, rates for small business programs showed a 6% increase versus 8% for large employers.

Small businesses, on the average, sponsor programs with higher deductibles, co-pays, and less comprehensive coverage. On the other hand, small businesses pay more of the cost per employee than the larger companies do. According to the Kaiser Family Foundation, small business owners pay a surprising 85% of single person plans and 64% of family plans. Fully 35% of small businesses pay 100% of the premium for their employees although this percentage has declined steadily in recent years.

Over all, the percentage of employers offering medical insurance has continued to decline. In addition, the percentage of employees declining coverage when it is offered has increased. It would appear employees feel so pressed by the economy that they decline the cost of the benefit offered. At the same time, employers are pressed by the economy into withdrawing the offer.

The Patient Protection and Affordable Care Act takes effect fully in 2014. It will enable employees, without medical insurance at work, to purchase insurance on the open market. Theoretically, that market will prove competitive. The PPACA will protect applicants with pre-existing condition, and the market should offer a variety of options and plan prices – in time.

There are some signs that employees are risking loss by opting out of insurance now in anticipation of the protections afforded by the PPACA. And, some employers may slim down their benefit programs in advance of the Act. How this will affect premium costs is a mystery at this time. Medical insurance is still a risk pool; fewer participants increase the risk. If the employees secure their insurance – and there is no guarantee they will – outside of the employer’s group, they may or may not reduce the loss ratio experienced by the employer group.

If we assume that the insurance underwriters/companies are working forward on these issues, they will aggressively move into the 2014 market with attractive offers for uninsured workers. However, I believe they will prudently develop plans and rates attractive to employers because employers provide a filtering underwriting screen for them. Underwriters know that steadily employed workers have an edge in character, life style, and longevity.

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