Buying pool could help small firms with insurance

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Small businesses will be able to pool together to buy insurance under the new federal health-care legislation passed earlier this month.

By no later than 2014, states will have to set up small-business health options programs, or SHOP exchanges, where small businesses will be able to pool together to buy insurance at presumably lower premiums for each worker.

The legislation defines small businesses as those with no more than 100 employees, though states have the option of limiting pools to companies with 50 or fewer employees through 2016; companies that grow beyond the size limit will also be grandfathered in.

“It is likely we would have one big pool for the state,” said Lorez Meinhold, senior health policy analyst for Gov. Bill Ritter’s office. “The more people in the pool would result in less-expensive insurance costs,” but she added that Colorado already has a very competitive insurance market.

It is still unclear whether or not state exchanges could purchase a policy in another state.

Meinhold said the governor’s office will get the ball rolling on what Colorado’s SHOP exchange might look like by creating a forum for open discussions including the Legislature, insurance providers, small businesses and individuals wanting health insurance.

She said by 2012 states will have to show progress toward devising a plan. If not, they will be required to use an exchange plan created by the federal government.

The Congressional Budget Office has estimated that the exchanges would ease small-business insurance costs, albeit only marginally: premiums in the small-group market are forecast to fall between 1 percent and 4 percent under the exchanges, while the amount of coverage would rise by up to 3 percent.

But for now and until the SHOP exchanges are set up, businesses with 10 or fewer full-time-equivalent employees earning less than $25,000 a year on average will be eligible for a tax credit of 35 percent of health-insurance costs, according to the National Federation of Independent Business, an organization that among other things, lobbies Congress on behalf of small businesses.

The organization also said companies with between 11 and 25 workers and an average wage of up to $50,000 are eligible for partial credits.

Businesses with fewer than 25 employees that pay an average of no more than $40,000 will get a tax credit — up to 35 percent of the company’s share of their total health-care premium.

Companies with 26 to 49 workers are unaffected.

Starting in 2014, businesses with 50 or more workers must either offer health insurance or face a penalty of up to $2,000 per employee. The penalty amount in the original bill was $750 per worker, but was increased in the Reconciliation Act of 2010 signed by President Obama on March 30.

The tax credit will remain in place, increasing to 50 percent of costs, for the first two years a company buys insurance through its state exchange.

The coverage offered will have to meet minimum benefits — covering both a specific set of services and 60 percent of employee health costs overall — or else employers will face additional penalties.

The Congressional Budget Office predicts that the tax credit will affect about 12 percent of individuals covered via the small-group insurance market, lowering their cost of insurance by between 8 percent and 11 percent.

Insurers will no longer be able to set rates or exclude coverage based on pre-existing conditions, and can vary premiums only by geographic location, age, and tobacco use. These restrictions would not kick in until 2014.

Going into effect immediately: a ban on lifetime limits on coverage and canceling policies already issued except in cases of fraud.