Obamacare’s Success Has Small Business Dropping Coverage

U.S. small businesses are dropping health insurance for their workers, as Obamacare lets them send employees to new marketplaces where they can often get subsidies from the government to buy coverage.

WellPoint Inc. (WLP)’s small business insurance products lost 300,000 people this year, the company said today. Business owners are dropping coverage they previously bought through WellPoint and other insurers, and instead sending employees to shop for it on the government exchanges created under the Patient Protection and Affordable Care Act known as Obamacare.

“You’ve got exchanges up and running and functioning well,” Wayne DeVeydt, WellPoint’s chief financial officer, said today on a call with investors. “Small group employers will have an opportunity to re-evaluate whether they choose to go to an exchange for their employees.” The company is the second biggest U.S. insurer by market capitalization.

The trend will continue into 2015, DeVeydt said, and WellPoint will try to recapture those lost customers on the Affordable Care Act markets, where the insurer offers plans in 14 states. The Indianapolis-based company, the second-biggest U.S. insurer by market value, currently covers about 1.6 million people on small business plans.

Small businesses “are dropping coverage and moving to exchanges,” with the smallest businesses in particular driving the trend, said Ana Gupte, an analyst at Leerink Partners LLC, in a telephone interview. “They’re seeing that happening faster than expected.”
Coverage Options

The Affordable Care Act this year required all Americans to have health insurance or face a financial penalty. While businesses with 100 or more employees have to offer coverage or pay a penalty, small businesses don’t, meaning it may make more sense for them and their employees to drop coverage and buy it elsewhere.

The law provides subsidies to individuals. A family of four making $50,000 a year, for example, would get about two-thirds of their $9,500 insurance premium paid for by Obamacare, according to the Kaiser Family Foundation. Before the law took effect, the majority of small businesses with 100 or fewer workers offered some sort of insurance coverage, according to the foundation.

Earlier today, WellPoint reported third-quarter earnings, excluding one-time items, of $2.36 per share, beating the $2.26 average of 22 analysts’ estimates compiled by Bloomberg. The company raised its full-year earnings forecast.
Earnings Report

Third-quarter net income fell to $630.9 million, or $2.22 per share, from $656.2 million, or $2.16, a year earlier. WellPoint shares rose 1.8 percent to $122.20 at the close in New York.

Health insurers are racing to capture the new customers added by Obamacare, which helped 7.3 million Americans enroll in plans as of mid-August, according to the U.S. The Congressional Budget Office expects about 13 million people to sign up next year.

WellPoint plans to offer Obamacare plans in 14 states again next year, and UnitedHealth Group Inc. (UNH), the nation’s largest insurer, is expanding to as many as two dozen states. Penalties for Americans who choose to go without coverage double in 2015 to as much as 2 percent of their incomes, which may drive increased business to the insurers.

The law has also expanded Medicaid, the joint U.S.-state insurance program for the poor, by raising income thresholds for the program to get more people to qualify. Next year, 11 million people will be covered by Medicaid, according to the Congressional Budget Office, up from 7 million this year.

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