Cost increase prompts small-business owner to drop group insurance

Employees of the Charles Schillinger Co., which makes equipment for industry and bakeries. Their premiums now range from $297 to $965 a month.
Employees of the Charles Schillinger Co., which makes equipment for industry and bakeries. Their premiums now range from $297 to $965 a month. (GENE SMIRNOV)
Posted: May 18, 2014

In a gritty industrial park tucked inside a middle-class Bensalem neighborhood, John F. McGeever III is living his dream.

Since he was a teenager working for his father in the firm founded by his grandfather in 1929, McGeever wanted nothing more than to own the Charles Schillinger Co.

His father sold the company in 1988. Seven years later, McGeever mortgaged everything and bought back the small metal-spinning and fabrication firm.

"I always wanted to have the company," said McGeever, 58, a tall, lean, intense man with close-cropped white hair.

The company has flourished under his guidance, growing from seven to 27 employees. And for 18 years the Charles Schillinger Co. has offered group health insurance to its employees. Talk about generous; the company has paid 100 percent of its workers' premium and 75 percent for family members.

But not this year.

For the first time, McGeever isn't offering group health insurance. It was just too expensive. No amount of tweaking could offset the 36 percent rate increase McGeever received for his traditional group insurance. His monthly premium soared from $14,000 to $19,000. The plan also had fewer benefits and higher deductibles.

"I had sticker shock," McGeever said. "Where am I going to get $5,000 a month to pay the increase?"

So McGeever decided to drop group insurance. He gave his employees a five percent pay increase and let them fend for themselves on the Affordable Care Act's exchanges. He's still consulting an expert to see if he did the best he could.

Last year, McGeever's group plan charged $439 a month for each employee, regardless of age and whether or not they smoked.

Monthly premiums for the new plans ranged from $297 a month for his youngest employees to $965 for his older workers. Smokers paid an additional 25 percent.

Depending on family, deductibles ranged from $6,000 to $12,000.

"Most of these guys are living paycheck to paycheck," McGeever said. "Something like those deductibles would crush them. They are blue-collar, working-class guys."

McGeever's broker suggested that he look for a plan on the ACA's Small Business Health Options Program (SHOP). That exchange, open and available to employers with 50 or fewer full-time-equivalent employees, sells group plans for small businesses.

"It is quite a bit more complicated than the individual market," said Ted Trevorrow, an ACA certified navigator with Resources for Human Development who works with individual and small-business clients.

To qualify, a business must offer health insurance to all full-time employees.

SHOP's great benefit is that companies with fewer than 25 employees may qualify for a sliding-scale tax credit of up to 50 percent. The company, however, must pay 50 percent of the employee premiums. And the average employee salary must also be $50,000 or less, among other requirements.

Still, a small business buying on SHOP won't receive the subsidy until next year when it files a 2014 tax return.

"The eligibility says you can participate but does not give them a tax credit," Trevorrow said. "That comes in 2015, and the Internal Revenue Service ultimately makes that determination based on the 2014 tax return."

McGeever filled out the forms and was notified by the exchange that his company didn't qualify for tax credits. He said he has talked to other small-business owners who have applied. Not one, he said, was eligible for tax credits.

"There was no benefit to us" to buy through the SHOP, McGeever said.

So McGeever sent his employees to the individual marketplaces. They weren't happy, especially the workers over 50. But McGeever said there were good things about the law, such as free physicals and pre-existing conditions no longer mattering.

"I guess that is a good thing," he said. "But it's not free. There is nothing free."

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This story was done in partnership with Kaiser Health News, an editorially independent program of the Kaiser Family Foundation.

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