NEW YORK -- When Monty Hagler learned that his employee insurance premiums could rise as much as 38 percent, the small-business owner decided he couldn't afford coverage that complies with the health care overhaul.
He considered a variety of plans from different carriers, but they were too expensive or bare-bones.
"Unless we dramatically changed our plan and went with the most basic plan, I said, 'This is not sustainable,'" said Hagler, owner of RLF Communications, a Greensboro, N.C.-based marketing company.
So Hagler told his 12 staff members that he would give them money starting in May to buy their own insurance, coverage likely to be better than what he could offer.
By doing so, he joined a growing number of small-business owners who are forgoing coverage and paying workers more to compensate for the lost benefits.
Last month, Health insurer Wellpoint said its roster of small businesses has shrunk by 12 percent so far this year. Nearly 3 percent of 1,600 small businesses surveyed by the Society for Human Resource Management plan to give employees subsidies next year so they can buy their own coverage on private insurance exchanges.
Insurance brokers are getting more inquiries about individual coverage, a sign to them that many people are losing coverage at work. The brokerage HealthMarkets Inc. has had a 40 percent pickup in applications for individual insurance since the open enrollment period for insurance ended March 31. Spring and summer are normally a slow period for policy purchases.
"We're seeing this happen with increasing frequency, and we're believing we'll see it with greater frequency this fall," says Ken Fasola, CEO of HealthMarkets, based in North Richland Hills, Texas.
If policy cancellations do rise this fall, it would likely be because many small businesses renewed their coverage before Jan. 1, 2014, when policies were required to comply with the health care law. As those policies come up for renewal, owners will have to decide whether to buy the new insurance.
Owners like Hagler aren't required to offer insurance. The health care law exempts companies with fewer than 50 workers. But many of those owners provided coverage because insurance is a benefit that helps retain workers and recruit top talent. But workers may get better deals on government-run health insurance exchanges, especially if they qualify for government subsidies that will lower premium costs for individuals and families. The government will subsidize coverage on the exchanges for individuals earning up to $45,960. The income limit for a family of four is $94,200.
About half of Hagler's employees bought their insurance on the North Carolina exchange, while others got insurance through their spouses' plans or bought it privately.
Giving workers extra compensation to help buy insurance can result in higher income taxes for the employees, and it can mean employers will owe payroll taxes on the money. Benefits attorneys and accountants recommend that owners talk to tax professionals to see what their options are.
Some owners enlist insurance brokers or benefits consultants to help workers find new insurance.
The coverage now available to individuals in Texas is more comprehensive than the insurance Ashley Hunter, owner of HM Risk Group, an insurance brokerage based in Austin, provided her own workers under a group plan.
And it's cheaper. Hunter paid 80 percent of premiums under the plan she dropped as of this month. Under the plan, an employee paid $140 a month. But with the stipend and government subsidy, the employee is paying $24.12 a month, Hunter says.
Workers can do better on their own because they have more options than businesses have, says John O'Donnell, president of Insurance Consultants of Central Florida, a broker based in suburban Orlando.
"Small groups have to pick from two or three plans, whereas employees can go to the individual market, exercise more flexibility and have more autonomy," O'Donnell says. He estimates that 10 percent of his company's small-business clients have ended insurance and given their workers money for coverage or are seriously considering it.
SundayMonday Business on 09/28/2014