As more and more small businesses discover the expense involved in upgrading their employee insurance plans in compliance with the health care overhaul, many business owners are having to get creative to ensure that their employees continue to receive benefits. A growing number of small business owners are forgoing coverage altogether and paying employees more to compensate for the lost benefits, enabling those staffers to go out and purchase individual plans.

The Society for Human Resource Management recently found that nearly 3 percent of the 1,600 small businesses they surveyed were planning to give their employees subsidies next year rather than provide traditional insurance. This would enable those employees to go out and buy their own coverage on private insurance exchanges. In addition, the health insurer Wellpoint is reporting that its small business clientele has shrunk by 12 percent so far in 2014.

This trend offers benefits and disadvantages for workers. On the upside, if the employee qualifies for government subsidies that will lower their premium costs, then he or she might up getting a much better deal than with an employer sponsored plan. (Currently, the government will subsidize coverage on health insurance exchanges for individuals earning up to $45,960 and $94,200 for a family of four.) However, when workers receive extra compensation to help them buy insurance, this can result in a higher income tax. It can even leave small business owners with a higher payroll tax bill as well.

Despite this, the general consensus is that under the new health care law employees can do better procuring an insurance plan on their own because they have more options to choose from than businesses do. While small businesses only have a couple of plan options, there is much more flexibility in the individual market.

Many small business owners aren’t required to offer insurance (under the health care law, companies with fewer than 50 employees are exempt). But many business owners choose to offer this coverage, either because they believe in this business practice or because a good benefits practice is part of their effort to attract top talent and retain staff.


Rosenberg, Joyce M. “Small Businesses Helping Workers Buy Health Plans.” ABC News. 9/24/14.