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Making the Right Call: Group Health Coverage versus a Public Exchange

Is group health insurance the best option for your employees? Here’s when it can make sense to have workers buy their own coverage through a public exchange.

Offering group health insurance versus a public exchange

As a small business, health insurance for your employees is a big consideration. While companies with fewer than 50 full-time equivalent employees are not required by the Affordable Care Act to provide health coverage, you may be thinking about it.

Providing health benefits can set you apart from the competition, making it easier to recruit and retain talent over time. At the same time, affordability is often a concern.

Employer-sponsored group coverage is one option. Another is to have workers buy their own coverage through a public exchange. This online insurance marketplace allows individuals to shop for a qualified health plan through either the federal government website or their state’s website.

So are your employees better off buying coverage from a public exchange?

Affordability Matters

A business with fewer than 25 full-time equivalent employees earning annual average wages below $50,000 may qualify for a small business tax credit worth up to 50 percent of its premium costs. However, this tax incentive won’t help employees meet their share of the monthly premiums.

If you’re a company with young workers or low wage earners, your employees may fare better with individual or family coverage purchased through a public exchange. That’s because the government offers subsidies that will lower premium costs for individuals and families who meet certain income requirements. In 2016, subsidies are available for individuals earning up to $47,520 or a family of four earning up to $97,200.1

Subsidies Make a Difference

In 2015, more than eight million people were able to get premium subsidies for purchasing coverage through the exchanges, and the subsidies covered an average of 72 percent of their premium costs.2

Workers are guaranteed insurance on the exchange, but they won’t qualify for subsidies or other savings if they buy an exchange plan while their employer still offers affordable comprehensive health insurance. To be considered “affordable,” an employee’s share of the premiums for the lowest cost self-only plan must be less than 9.66% of his total household income.3

Running the Numbers

In 2015, the average employer-sponsored individual health insurance plan cost $6,251 per year, or about $521 per month.4 How does that cost compare on the public exchange? A 40-year-old non-smoker earning $30,000 a year would have paid about $299 per month for one of the least expensive silver plans on the exchange, according to the Kaiser Family Foundation.5 With subsidies the number drops to $205 per month.

It’s worth considering, however, that higher wage earners won’t fare as well on the exchange because they won’t qualify for subsidies. This may be a sticking point if your workforce contains a mix of high and low salaries that average below $50,000.

Consider that a 40-year-old non-smoker earning $50,000 a year would pay the full $299 a month for a silver plan on the exchange, with no subsidies available.6 It’s less than the $521 monthly average for company-provided insurance overall, but may be more expensive for employees than if the company covered part of their premiums (which is required for the employer to qualify for tax credits).

Insurance costs vary by state, so employers should get both sets of numbers—group health insurance and individual exchange prices—to make an informed decision. Kaiser’s Marketplace Insurance Calculator can help to estimate what your employees might pay on your state’s exchange.

Keep in mind, if employees do purchase insurance on the exchange, employers are not permitted by law to reimburse for or contribute to their premiums and would face fines if they do so.7 You can, however, put money into employee Health Savings Accounts if workers choose a high-deductible health plan that’s compatible. And of course, you can raise wages.

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