Will the Kentucky Health Insurance Exchange Discourage Employers from Offering Group Coverage?

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Following the Supreme Court ruling to uphold the Affordable Care Act (ACA), the state of Kentucky has moved ahead to establish its own Health Benefit Exchange. The online Exchange will begin operation on January 1, 2014. Individuals without employer-based coverage will receive generous tax subsidies to buy Kentucky individual health insurance through the Exchange. However, the big question is now is whether these subsidies will discourage employers from offering group coverage.

Significance of the Kentucky Health Benefit Exchange

• It is expected to be a one-stop online market place where individuals can enroll in qualified health coverage plans
• Individuals and small businesses can compare health plans at this virtual Exchange and find out if they are eligible for tax credits for private health insurance or programs like Medicaid
• Eligible individuals can enroll in a health plan that meets their needs through the Exchange
• Kentuckians will receive subsidies to help pay for insurance that they purchase through the Exchange (not through an employer)
• Small businesses in Kentucky will be eligible for tax credits to provide health coverage to their employees through the Exchange
• Starting in 2014, Kentucky firms with 50 or more workers that do not provide group coverage and have at least one-full time employee who receives subsidized health insurance through the Exchange, will have to pay a fee of $2000 per full-time employee. The firm’s first 30 workers would be excluded from the fee.
• Firms with 50 or less than 50 workers will not have to pay any penalties.
• Small businesses with 25 or fewer full-time workers who earn an average yearly salary of $50,000 or less can get tax benefits of up 35 percent of the cost of premiums. The credit will increase to 50 percent in 2014. 

Why Tax Subsides on Kentucky Individual Health Insurance May Affect Group Coverage

Starting in 2014, individuals who do not have employer-based coverage and have a household income that is less than 400% above the federal poverty line, can get tax subsidies to enroll in a Kentucky health plan through the Exchange. For instance, a family of four with $90,000 projected annual income in 2014 could get a government tax subsidy which covers nearly 50% of the overall health insurance premium. Similarly, a single individual with a projected income in 2014 could get a tax credit that covers 75% of the overall premium.

Experts are saying that these generous tax credits on the individual Kentucky health insurance market will encourage both big and small businesses to give up group coverage. Instead, firms will use the health reimbursement arrangement (HRA) to provide their workers with tax-free allowances to purchase private health insurance. As employers with less than 50 employees are not charged any penalty if their employees are eligible for the federal subsidy, they will be among the first to drop group coverage.