Health Insurance Doubts

For 15 years, Scott Magraw offered the employees of his Poulsbo fine cabinetry firm, Magraw Zecha & Associates, health insurance through a business association. But even before Washingtons new Healthplanfinder Business opened last year, Magraw decided hed had enough of trying to manage health insurance options for his employees. Quite honestly, I just hate being an insurance agent, Magraw asserts. Usually once a day, an employee would come in asking me an insurance question, and all I could say was, I dont know.

Finally, Magraw decided to give his employees an allowance and let them choose their insurance coverage independently. They seem to get way better results just taking care of it themselves, he says.

More of the states 300,000 small businesses may follow Magraws lead because of uncertainties that have emerged in the small-business insurance market in the wake of the Affordable Care Act. Today, businesses with fewer than 50 employees have four options:

Enroll in plans through the recently expanded state Healthplanfinder Business exchange. The exchange offers temporary tax-credit subsidies to employers who meet certain conditions.

Obtain a small-group plan from an insurance broker. About 140,000 employees in the state are currently covered through these plans.

Join a qualified business association that offers large-group plans. While some 512,000 Washingtonians currently get their insurance through associations and trade groups, these groups face uncertainty because the state insurance commissioner has determined that many are not eligible to offer lower-cost, large-employer rates to small businesses.

Allow employees to obtain their own insurance, with or without help from the company. Companies with lower-paid employees may find that their employees can buy subsidized individual insurance through the states health exchange.

The new player
The exchange known as Washington Healthplanfinder Business came along at the right time for Linda Strong and her husband, Andrew, who own Strong Technology Consulting in Colbert, just north of Spokane. Until recently, they had been paying for individual plans, but their business was growing and they needed to hire another employee. Even though we didnt have to, we wanted to provide insurance, says Linda Strong. We want people who know what theyre doing. Offering a health care plan makes us competitive.

Strong says she couldnt find an association or trade group in the companys line of business that offered insurance. With the group plan the business signed up for at the state exchange, she says, It ended up being quite a bit less expensive and we got better insurance than we had before with our individual plans.

The small-business part of the exchange was available last year in only two counties Clark and Cowlitz. It became available statewide on January 1, 2015.

The Affordable Care Act includes a tax benefit for employers who purchase plans through the state exchange, who pay at least 50 percent of the cost of their workers premiums and who employ 25 or fewer people. The average wage must also be under $50,000 per year. Under the current law, the credit is only available for two consecutive taxable years.

Catherine Bailey, director of Washington Healthplanfinder Business, says that as of mid-February, 57 small businesses had signed up for insurance plans covering 300 people. While the numbers are small, Bailey is encouraged. Its a pretty slow start because were just becoming known out there as an option, she says. Having this many enrolled groups by the first quarter of the year is positive.

In addition to being the only place where qualified small businesses can get tax credits for insurance, the health exchange also offers employers a selection of plans. The employer chooses what level (gold, silver or bronze) of benefits will be offered and then employees are free to choose any plan within that level. Currently, only two insurance carriers Kaiser Permanente and Moda offer plans for small businesses on the state exchange, but Bailey expects to see the options grow soon.

Business associations
The overwhelming majority of Washington small businesses that choose to offer health insurance and businesses with fewer than 50 employees are not required to do so purchase insurance plans through business associations or trade groups.

We have more association plans than any other state, says Stephanie Marquis, spokesperson for the office of the state insurance commissioner. One reason for that, she explains, is that under a state law passed in the 1990s, associations were exempt from community rating, the establishment of rates based on the health and demographics of the entire community. As long as companies had young, healthy employees, says Marquis, they were able to get better rates through associations than in the general market, which included more people who were sick or older.

However, the rules have changed with passage of the ACA. Patrick Chestnut, president of AAOA Healthcare, says he had to reinvent his firm to remain in business. Insurance Commissioner Mike Kreidler took provisions in the new law as an opportunity to crack down on associations, Chestnut says. He was not a real fan of associations. When the Affordable Care Act was passed, he interpreted the act such that associations dont meet its requirements unless they meet the very strict definition of associations under federal ERISA guidelines. ERISA is the Employee Retirement Income Security Act, which covers a wide range of employee benefit plans.

Marquis argues that the ACA left Kreidler no choice. When the Affordable Care Act passed, one of the things that it highlighted was that health insurance should be sold based on the size of the group, she explains. So you had to be an individual, a small employer or a large employer. A large employer, under ERISA, must be formed for the purpose of something other than buying health insurance. That meant groups of small businesses could no longer band together for the sole purpose of purchasing health insurance at large-employer rates as many trade associations have done.

By March 1, more than a dozen business associations had been ruled not bona fide under the federal definition, including such prominent organizations as the Master Builders Association of King and Snohomish counties. In December, a group of 13 associations represented by the Business Health Trust filed suit in federal court requesting a restraining order to prevent the insurance commissioner from determining associations not bona fide.

The difficulties encountered by business associations under the new law have led to uncertainty for many small businesses and those who provide insurance for them. Weve heard from the agents and brokers that there is just chaos out there, says Marquis.

Weve got a big split now, says John Conniff, an attorney and a former deputy insurance commissioner. Youve got the associations who were leaned on by the insurance commissioners office and told point blank, Youll never be a bona fide association so you might as well get your soul right and comply with reform. And then you have dice rollers saying, No, we trust our lawyers and were going to push the issue.

Adding to the confusion for employers is the fact that the insurance commissioner reviews associations on a rolling basis as their yearly offerings come before it. As a result, many associations are still not sure about their status. Marquis says the insurance commissioner estimates that of the 512,000 people insured through associations, more than half are in associations that will meet the large-employer definition.

The legal and regulatory uncertainties facing many of the business associations have left many small businesses uncertain about what to do. Its been very, very confusing, says Conniff. Until everything is sorted out with the associations, we wont know.

Some associations have decided to transform into private exchanges serving small businesses with ACA-compatible offerings tailored to each business. We didnt think getting into a bunch of litigation was the best thing for our members, so we decided to become a private exchange, says AAOA Healthcares Chestnut. Its a completely different way of doing business, so we had to reprogram platforms to be able to do consolidated billing and handle multiple rates for groups and all that. Not an easy task, but it has worked out well for our members.

Some small employers decided to give up on providing group plans altogether. Ive had four or five employers who are just saying, Forget about it, says Don Childs, a broker with McGregor Benefits Health Insurance Solutions in Burlington. And who suffers then? The employee. Childs says about 20 percent of his clients have left association plans for the individual market through the state exchange.

The Largest Association Health Plans in Washington

But some face an uncertain future.

1. Washington Education Association
2. Washington Alliance for Healthcare Insurance Trust (Premera-based)
3. Association of Washington Business
4. Master Builders Association of King & Snohomish Counties
5. Association of Washington Cities
6. Building Industry Association of Washington
7. Central Region Insurance Services Pool
(school employees)
8. Associated Employers Trust
(before splintering into six trusts)
9. Hanford Employees Welfare Trust
10. Washington Counties Insurance Fund
Still apparently active but no longer
taking new members as of 1/1/14:
11. Northwest Employers Trust