Sole Proprietor Small Group Plans Dropped Under Health Care Reform

Even musicians could qualify for sole proprietor small group plans.

Even musicians could qualify for sole proprietor small group plans.

Sole proprietors with small group plans might be surprised when they are notified that their current health insurance company will be discontinuing their coverage in 2014. With the advent of guarantee issue individual and family plans under the new Affordable Care Act (ACA), some carriers have already decided to discontinue issuing small group plans to sole proprietors.

Sole proprietor small group offered health insurance alternative

California insurance provisions allow for an owner-operator or sole proprietor with no employees to participate in a guarantee issue small group health plan. Small group plans must usually have at least two employees to qualify. For a small business owner, his or her spouse or their child who had a pre-existing condition and were denied an individual or family plan, the more expensive small group plans were the only option to get health insurance.

Owner-only plans obsolete?

Since the new individual health plans offered under the ACA mirror small group plans, are all guarantee issue and maybe eligible for a tax subsidy, there are few reasons for sole proprietors to continue with their existing small group plans. Along the same lines, there are few incentives for carriers to continue offering small group plans to sole proprietors.

More options for small business owners

It’s not that the insurance companies don’t want the business; it might become to burdensome to continue servicing a dwindling part of their business as their sole proprietor members migrate to Covered California or other state health insurance exchange for equivalent health plans. The big incentive for sole proprietors will be the potential of qualifying for an Advanced Payment Tax Credit that will reduce their monthly health insurance premium.

No owner-only small group in SHOP

Kaiser Permanente in California has already indicated that owner-only or husband and wife, wholly owned by both spouses, businesses will not qualify for small group plans. Western Health Advantage is no longer extending group coverage to sole proprietors.  In order to qualify for group coverage, an employer must submit either a DE9-C or a Schedule K1 substantiating a partnership. Other insurance carriers are looking at similar changes to their small group plans. The Covered California small group program (SHOP) for business and nonprofits will not be offering a sole proprietor option. All insurance companies participating in the Covered California market place must help migrate their existing individual members to new plans that mirror plans offered in the exchange. This might extend to sole proprietors in small group plans as well.

Carriers studying options for husband and wife businesses

Possible scenarios will be that some insurance carriers will continue to offer and support existing sole proprietor small group status outside of the state exchange. Other companies may decide to close them to new business or discontinue them altogether. If you have a sole proprietor small group plan, and your carrier decides to make changes to eligibility, you’ll be receiving a letter in the near future or close to your renewal date notifying you of the changes.

New ACA plans may have better benefits, lower premiums

Sole proprietors in a small group plan should evaluate the benefits and coverage of their current plan with the new plans offered through Covered California or their state exchange. In addition to the possibility of a lower health insurance premium with the tax credit, individual and family health plans under the ACA may offer better benefits in terms of copayments, maximum-out-of-pocket expenses and better prescription drug coverage.

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  • Eric in San Diego

    He Kevin, thanks for the article. I was notified by Kaiser of discontinued coverage for my owner-operator husband/wife business. My premiums will go from $822/month to $1260/month with ACA. My family deductible doubles from $6000 to $12,000+. Its not working for me!!! I’m skeptical that most prosperous small business will benefit AT ALL from the ACA.

    • Kevin Knauss

      First! You don’t have to accept the plan that they are migrating you into.

      Second, there are no plans with a $6,000 deductible. The highest is $5,000 under the Bronze plan. The $12,000 could be the maximum out of pocket amount which is usually capped at $$6,350 per individual.

      Third, you should at least go to the Covered California website and see if you qualify for any premium assistance based on household income.

      Finally, there is a sticker shock for some households that had older plans that had not kept pace with all the new essential health benefits and new California health services that must be included in plans.

      • VOLDDS78

        What if you have a grandfathered plan and your wife is not an owner but a common law employee in a 2 person small group. Would you be eligible then as a small group if the other employees waive coverage due to having insurance through their spouse? Can you keep your small group coverage then as a small business?

        • Kevin Knauss

          From the website “As used in connection with the Affordable Care Act: A group health plan that was created—or an individual health insurance policy that was purchased—on or before March 23, 2010. Grandfathered plans are exempted from many changes required under the Affordable Care Act. Plans or policies may lose their “grandfathered” status if they make certain significant changes that reduce benefits or increase costs to consumers. A health plan must disclose in its plan materials whether it considers itself to be a grandfathered plan and must also advise consumers how to contact the U.S. Department of Labor or the U.S. Department of Health and Human Services with questions. (Note: If you are in a group health plan, the date you joined may not reflect the date the plan was created. New employees and new family members may be added to grandfathered group plans after March 23, 2010).”

          From Kevin: as long as you stay within the rules of your grandfathered plan you should be able to keep it and add employees. You should investigate and compare you current plan to either the individual and family plans being offered or one of the SHOP plans through the exchange. Some of the grandfathered plans are great and have terrific coverage and benefits. However, I am seeing people that can increase coverage, lower the deductible and monthly rate by switching to one of the new plans being offered.

          Talk to your agent of carrier representative and they should be able to help you compare and contrast the plans.

  • mgaworecki


    I understand that a sole-proprietorship is no employees will go to the individual market and that a sole-proprietorship with at least one (non-family) employee can have group coverage. What is the role about a sole-proprietorship with five employees that do not purchase the coverage offered (i.e. the owner and employees are all offered coverage, but only the owner purchases it); is that considered individual or group? Could you please also included any sources? Thanks you!!

    • Kevin Knauss

      Most carriers have minimum participation rules where approximately 70% of the eligible employees must participate. A group of 10, including owner, needs 7 people to participate.

      However, some employees can get waivers if they have credible health insurance from another group plan, such as a spouse, or they are Medicare.

      In the 10 person group, if 5 have group coverage though a spouse, then there are only 5 eligible and they would need 4 to participate.

      Regardless of the eligibility waivers, you still need 2 employees to form that group. In California, the carriers look to the DE-9C, quarterly wage report, to determine eligible employees in terms of hours worked.

      Each carrier has slight variations within the rules and the final determination is made through underwriting.

      • mgaworecki

        Thank you for the reply. I suppose I should have be more detailed. I am in NY, which does not have a participation requirement. So, if there are 5 eligible employees, plus the owner, and only the owner accepts and purchases the coverage through the group, is that owner able to go through the SHOP or is he/she forced to go onto the individual exchange because it may be considered a group of one? I hope that clarifies my question. Thanks again.

        • Kevin Knauss

          You have just pointed out one of the unfortunate aspects of insurance in the U.S.; each state regulates their own insurance industry. Consequently, what might be true for participation requirements in one state may not apply in the neighboring state.

          That also encapsulates why health insurance can’t be sold across state lines. A policy in one state may not be compliant in another state right next door because of specific state regulations.

          Like you, I couldn’t find the answer to your question by reviewing the NY exchange website. Next step, you’ll have to call an pose the question to the NY SHOP program.

          • mgaworecki

            It is too bad that regulations are not more uniform or clearly written. Thank you for your time, I will keep searching.