Q: My husband works for a much larger company than I do. I have always been covered under his plan because it is more affordable than the one offered by my smaller company. We received a letter in the mail from his company stating that beginning in April if I had access to health insurance that I can no longer be covered under his insurance. Is this legal? I know it’s not good for my family. This will cost my family a great deal more money.
A: Yes, an employer can offer insurance to his employees, but not to their family members.
Your husband’s employer is basically saying that he doesn’t want to subsidize your employer (who isn’t paying anything toward your benefits or your children’s benefits.)
Meanwhile, your small employer has to pay more for insurance than a large employer because the administrative costs of selling insurance to small groups are much higher. When insurers sell to large companies, they enjoy economies of scale. In addition, insurers can charge small firms more if many of their employees are women (who tend to use more health care) or suffer from a pre-existing condition.
(By law, they cannot charge large companies more based on the gender or health status of employees.)
Typically, small employers pay 18 percent more for the same policy.
But in 2014, under the Affordable Care Act, your employer’s insurance may become less expensive. This is because small companies (with fewer than 100 full-time employees) will be able to purchase insurance for their employees in a health insurance exchange, or marketplace set up specifically for small companies. In these exchanges, your employer will immediately become part of a large group, and so the rate he pays may well be lower. And insurers won’t be able to discriminate against small firms because many of their workers are women or have been labeled with “pre-existing condtiions.”
But, in the exchanges, insurers will have to cover all “essential benefits” and offer preventive care at no cost. (No co-pays and no deductible.) Out-of-pocket costs will be capped at $6,000 for an individual and $12,000 for a family, and deductibles will be capped at $2,000.
For these reasons, your employer may find that insurance in the exchange is more expensive than the policy he now offers. In that case, he might decide to stop offering insurance. But if he does that, and has at least 50 full-time employees, he may well end up having to pay a penalty.
See our post on the penalties for employers.