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Small businesses helping employees buy health plans

Monty Hagler, president and CEO of RLF Communications

Monty Hagler, president and CEO of RLF Communications in Greensboro, N.C., has decided to pay his employees more to compensate them for lost health care benefits instead of offering health insurance. He was in his office on Sept. 19, 2014. Credit: AP / Gerry Broome

When Monty Hagler learned 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,' " says Hagler, owner of RLF Communications, a Greensboro, North Carolina-based marketing company.

So Hagler told his 12 staffers he would give them money starting in May to buy their own insurance, coverage likely to be better than what he could offer. He joined a growing number of small-business owners who are forgoing coverage and paying staffers more to compensate for the lost benefits. Health insurer WellPoint said last month its roster of small businesses has shrunk by 12 percent so far this year.

Losing coverage at work
Insurance brokers are getting more inquiries about individual coverage, a sign many people are losing coverage at work. The brokerage HealthMarkets Inc. has had a 40 percent pickup in applications for individual insurance.

"We're seeing this happen with increasing frequency," says Ken Fasola, CEO of HealthMarkets in North Richland Hills, Texas. Policy cancellations may continue to rise this fall, as small businesses' policies come up for renewal.

Owners like Hagler aren't required to offer insurance. The law exempts companies with fewer than 50 workers. But many of these owners provided coverage because insurance is a benefit that helps retain staffers and recruit top talent.

Workers may get a better deal on government-run health insurance exchanges, especially if they qualify for government subsidies that 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.

Grateful for assistance
Kim Sink, the company's director of projects and production, says she's grateful Hagler gives her a stipend that covers two-thirds of her $711 monthly premium. "I'm tickled that he still helps me. Most employers don't in this day and time," she says.

Giving workers extra compensation to help buy insurance can result in higher income tax for the employees, and it can also mean employers will owe payroll tax on the money. Benefits attorneys and accountants recommend owners talk to a tax professional to see what their options are.

When HM Risk Group, an insurance brokerage in Austin, Texas, made the switch, owner Ashley Hunter says she explained to employees, "you probably are going to come out ahead. You will get a stipend and a subsidy and coverage will be better than what you were going to get with the group plan."

Hunter paid 80 percent of premiums under the plan she dropped as of this month. Under the plan, an employee paid $140 a month; now the employee is paying $24.12 a month for more comprehensive coverage, she says.

Workers can do better on their own because they have more options than businesses, says John O'Donnell, president of Insurance Consultants of Central Florida in 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," he says.

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