For years, the small business market for health cover has been in serious trouble. Unless the small and medium sized businesses banded together into trade associations, they did not have the buying power to get better premium rates from the insurers. As a result, they often paid as much as 20% more than large businesses for their health insurance. Worse, with smaller numbers of employees, insurers were very quick to raise premiums if one fell ill. This forced up the cost and made it difficult to fund expansion of the business. New Mexico is now a view into what could be the future for all small businesses.
A new marketplace is due to open on October 1st called SHOP (Small Business Health Options Program). This will allow businesses to compare rates side-by-side. The expectation is the open competition between the insurers will force down the rates and produce a range of more affordable policies. When this is allied with the tax credits intended to set-off the costs of insuring the employees, small business should be able to expand their health coverage. For the record, business with less than 25 employees are already entitled to a credit representing 35% of their health insurance costs. Come 2014, this will rise to 50%. Put this alongside the new rules requiring insurers to spend at least 80% of the premium income on health benefits to the insured, and you have a recipe that should offer far better value to small businesses. If the insurers fail to spend the 80%, the amount unspent must be returned to the employers.
When you put all this together, the effect of the Affordable Care Act has already been felt in falling premium rates and the reduction of waste and some of the fraud built into the current small business insurance market. There’s also some evidence suggesting an improvement the quality of care given to people in the hospitals and clinics contracted into the networks. Given that the majority of new economic growth comes from the small business sector, it has been unfair to see the insurance industry act in a predatory way by forcing high premium rates on to start-ups and small businesses. As from October 1st, the final steps should be taken to greater transparency in setting the rates.
It’s also worth remembering that businesses with less than fifty employees are not obliged to buy group health insurance. The research suggests that the vast majority of businesses employing more than fifty already have adequate insurance in place. It’s easier to recruit the right people and keep them motivated to do their best with a good health plan in place. Small business insurance is all about treating all the employees as if they were family. Adding together personal injury and health insurance gives everyone confidence. In this instance, the route being followed by New Mexico suggests all small business insurance problems may be eased.