How COVID-19 impacted small businesses' health coverage

Despite the challenges presented by COVID-19, the small group insurance market remained stable over the past year, according to a new study.

A new analysis released by the Urban Institute shows that while the pandemic was a massive hurdle, small businesses worked hard to maintain or offer new benefits to employees. The researchers studied federal policies impacting this market, as well as conducted interviews with 19 market actors and observers.

For example, a business owner in Minnesota said that while maintaining coverage even as workers were furloughed was financially burdensome, "people can't lose their health insurance during a pandemic."

"Though small businesses were among the employers most negatively affected by the pandemic, respondents indicated that few major changes in offer rates, employer contributions to premiums, or benefits have occurred in the last year," the researchers wrote.

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However, while they may have found a way through the COVID-19 storm, the news isn't all rosy, according to the study.

The share of small employers offering comprehensive health benefits has been on the decline for some time, though these firms increasingly recognize that benefits packages are critical tools for recruitment and employee retention, the researchers said.

Rising costs have pushed these employers to seek alternatives to Affordable Care Act-compliant group coverage, according to the study. These options can include renewing grandfathered or grandmothered plans, which are exempt from ACA requirements, or switching to a health reimbursement arrangement, in a which an employee receives a stipend to purchase coverage on the exchanges.

One insurer told the researchers that this leads to a "lot of activity" in the small group market, as these firms are "so price sensitive that they’re always shopping and looking for a deal.”

There is a risk for adverse selection, according to the study, if significant numbers of small employers leave the ACA-compliant coverage market. So there's still work for policymakers to do in finding ways to help stabilize this market and drive down costs.

“The small-group market may have survived the pandemic, but its structural problems have not improved,” said Katherine Hempstead, senior policy adviser at the Robert Wood Johnson Foundation, which backed the study, in a statement. “Going forward, a newly competitive individual market may offer an attractive alternative.”