Top Trends In Small Business Health Insurance During COVID-19

Small business health insurance gravitated toward level-funding and self-funding and did not shift toward significantly toward the individual health insurance marketplace during the coronavirus pandemic, according to a study from the Robert Wood Johnson Foundation.

The researchers centralized their inquiries on six states: Arkansas, Minnesota, Montana, New Mexico, Pennsylvania, and Vermont. They studied the policies that govern the small group health insurance markets in these regions and—in March and April 2021—conducted interviews with health insurers, small business employers, brokers, and other stakeholders.

Small employers gravitated toward self-funded plans during the pandemic, specifically toward level-funded plans. Some states saw an increase in self-funding even among very small businesses with only two or three employees. 

However, this form of health plan funding poses some risks for small businesses. If one or two employees’ healthcare costs increase dramatically, the insurer could drop the employer’s coverage for the following year, experts noted. The model benefits insurers by allowing them to have more control over the amount of risk that they incur.

Both insurer and broker study participants opposed level-funded plans for the small group health insurance market, warning of the negative downstream impacts of adverse selection.

The individual health insurance market failed to become a haven for small businesses during the pandemic. 

Study participants highlighted three reasons for this. Smaller networks are unappealing, age-rated policies create higher costs for older employees, and individual health insurance market plans often have higher deductibles and more cost-sharing.

However, this trend could change due to the American Rescue Plan Act’s individual health insurance marketplace subsidies. The subsidies made these plans well-suited for micro small business employers with only a handful of employees. But the fact that these subsidies are temporary presents another barrier, study participants acknowledged.

The researchers found that employers who had older or more sick populations of employees were more likely to discard their grandfathered or grandmothered health plans in favor of a plan that was compliant with the Affordable Care Act. 

While initially the grandfathered or grandmothered plans are cheaper than Affordable Care Act health plans, experts predicted that grandfathered or grandmothered health plans will raise their prices as employees get older or more sick, making Affordable Care Act plans the less expensive option for small businesses.

Experts projected that the pandemic would force small businesses to eschew health insurance benefits. However, Robert Wood Johnson Foundation’s study suggests that this projection has not come to fruition.

Study participants suspected a wide variety of causes for the small business market’s healthcare coverage stability during the pandemic. 

The researchers discovered that determining health insurance benefits is a more personal decision for small business employers since they have a closer connection with the employees that the decision may impact. Thus, small business employers were less inclined to deny needed coverage from their employees during the pandemic.

Additionally, health benefits are one of the few ways that small business employers can compete with the big corporations for applicants. Abandoning these benefits meant small businesses had to risk losing skilled employees to larger companies.

Furthermore, the pandemic’s economic impact was most severe on industries that often did not provide health insurance benefits for their workers. Thus, the individuals who lost employment due to the pandemic may not have reported a loss of healthcare coverage because their health insurance was not employment-based or they were uninsured.

The study’s results align with a previous Commonwealth Fund study which found that nearly six in ten respondents did not lose health insurance when they lost employment due to the pandemic because they did not receive healthcare coverage from their employers.

Insurer study participants argued that their own efforts to extend grace periods and premium relief protected small business employers from having to discontinue healthcare coverage.

However, many small business employer participants credited the Paycheck Protection Program from the CARES Act with allowing them to maintain their healthcare coverage benefits.