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In 25 years running a flower shop, Steve McCulloch always felt like he should provide health insurance to his employees.
But finding affordable coverage was a struggle, and ultimately forced McCulloch to make a tough decision in late 2013.
Confronted with a more than 100 percent increase in premium costs, McCulloch decided to drop the small business health plan for 2014 — an easier option because all three workers at the flower shop had other ways to get coverage.
“If I had hired someone new who didn’t have insurance, I don’t know how I would have proceeded,” said McCulloch, who has since sold his St. Louis Park shop and retired. “As a small business, we don’t have access to the same discounts that unions get or big businesses get.”
McCulloch’s flower shop was part of a trend in Minnesota last year.
The number of Minnesotans covered by fully-insured small group health insurance policies dropped by about 55,000 people, or 16 percent, between 2013 and 2014, according to figures released last week by the Minnesota Council of Health Plans.
There’s been a slow, steady decline in small group coverage for years, due in part to the growing expense of coverage. But the pace significantly increased last year, according to the trade group for seven nonprofit health insurers in Minnesota.
Some small employers that dropped fully-insured plans last year might simply have switched to “self-insured” coverage, where the small business takes more financial risk for medical claims, said Scott Reid, vice president of commercial products and operations at Minnetonka-based Medica.
But Reid said he thinks more small groups simply directed workers to buy coverage on the individual market, where people could buy non-group coverage with comparable benefits at lower rates.
Officials with Eagan-based Blue Cross and Blue Shield of Minnesota offered a similar explanation. Small groups have 50 or fewer workers, but Blue Cross found that most small employers dropping coverage last year could be described as “micro groups,” meaning 10 employees or fewer.
“Our data suggests that … people did pick up coverage in the individual market,” said Eric Daniels, director of consumer markets at Blue Cross.
The shift isn’t surprising, said Scott Keefer, vice president for public affairs and communications with Blue Cross. The federal Affordable Care Act was designed to make the quality of benefits in individual market policies more like those in group plans, he said.
There are tax advantages for group health insurance plans that aren’t available to individuals buying coverage, Keefer noted. But the health law tries to compensate for this by making income-based subsidies available to people who buy through government-run health exchanges.
“If you’re a person running a small business with seven or eight employees … in many respects it doesn’t make sense, if the individual market is becoming a more stable marketplace, for you to bear the administrative burden of providing health benefits,” Keefer said. “So, that’s sort of an economic efficiency that was expected.”
Historically, there’s been concern that declines in small group coverage would result in more people lacking health insurance overall. But that apparently didn’t happen in Minnesota last year, said Christopher Schneeman, president of SevenHills Benefit Partners in St. Paul.
A report last year from University of Minnesota researchers suggested that the state’s uninsured rate plunged to just below 5 percent.
The concern now should shift to taxpayers, Schneeman said, depending on how many people move from small groups to subsidized health insurance.
“Somebody’s got to pay that bill,” he said.
Starting in 2014, the federal Affordable Care Act required that small group premiums be set by insurers according to “community rating” standards, which pushed some small groups to drop coverage.
The change was important in Minnesota, where insurers previously could discount premiums for small groups that used less health care. Conversely, insurers previously could charge higher premiums to small groups that used more care.
With community rating, the financial discounts and penalties went away, with sicker groups benefiting and healthy groups experiencing sticker shock.
“There were some clear winners and losers,” said Jean Abraham, an associate professor of health policy and management at the University of Minnesota.
To the extent that small employers are dropping group plans, it’s unclear whether they’re giving workers a wage bump to compensate for the lost value of tax benefits in the old group plans, Abraham said. Either way, declines in small group coverage likely will continue.
“My impression is that a lot of employers have held onto this position until they have some assurance that the individual market will be stable enough,” Abraham said.
If the day is coming when small employers won’t feel obliged to provide coverage, that won’t be a bad thing, argued McCulloch, the retired flower shop owner.
“In the end, government should get businesses out of the business of providing health insurance,” he said. “Employers are not required to provide auto insurance. Employers are not required to provide homeowners insurance. … The same should be true with health insurance.”
But insurers said they don’t expect the small group market will go away.
Doug Smith, senior vice president of sales with Bloomington-based HealthPartners, said his company actually saw an increase last year in small group membership.
Schneeman of SevenHills Benefit Partners said that even with the decline in small group coverage last year, most employers continue to offer health insurance.
“Our experience is that employers are even more committed to providing the coverage today than they were a couple years ago,” he said. “An employer will compete better in the marketplace for quality people by having a robust benefit program.”