Health Care Reform Brings Significant Changes to Small Employers

Affordable Care ActMichael Karegeannes, owner of Freedom Physical Therapy Services, was given a choice in October: He could renew the health insurance policy for his employees in December, locking in a 7 percent increase, or he could wait until next June and face a 25 percent to 30 percent increase in the premium.

Wisconsin-based Freedom Physical Therapy?s premiums already had increased 10 percent last June when it renewed its policy, and Karegeannes was skeptical.

?How could they possibly know what the rates would go to in June?? he asked.

Karegeannes played it safe and renewed his existing policy.

The Affordable Care Act brings significant changes to the health insurance market for small employers, and Karegeannes? experience is common, according to insurance brokers.

Many small employers ? those with fewer than 50 employees ? face significant increases in rates, and many have opted to renew their existing policies early, buying time to see how the law affects the market.

?The fortunate group of my clients are staying about par, but I would say that fortunate group is very small,? said Jeff Anderson, a small-business account executive with M3, an insurance broker.

A few clients, he said, face increases in the range of 50 percent to 60 percent.

The employers most affected have younger workforces, and the increases stem largely from provisions in the Affordable Care Act.

The law prohibits health insurers from basing rates on an employer?s past medical claims or the health status of its employees and their family members. It also caps how much more an insurer can charge an employer with an older workforce.

The provisions will remake the small-group market.

Rates now are tied with some limits to the health of employees and family members, as well as to their age, sex and other factors. As a result, rates can soar if an employee or family member has a serious illness.

The result is that the cost of health insurance can vary wildly for small employers. The provisions in the Affordable Care Act are designed to change that.

The net effect ? at least in theory ? will be to raise rates for some employers and lower rates for others. The net effect should be a wash.

But insurance brokers report that many of their clients face large increases in rates.

Some businesses with healthy workforces are seeing rates increases of 25 percent to 40 percent, and this is to renew their policies early, said Pam Branshaw, a partner who oversees the employee benefit practice at Wipfli, an accounting and consulting firm.

Nor are insurers providing much information on the reasons for the sharp increases.

In Minnesota, where the state generally requires more standardization in insurance sold to small employers, the rate increases are much smaller than in Wisconsin.

?My advice to a Minnesota client is much different than to a Wisconsin client,? Branshaw said.

The Affordable Care Act requires health plans to provide a basic set of benefits. But the package is based on a popular health plan, and unlike the market for insurance sold to individuals, most plans sold to small employers already provide most of the required benefits.

The law also imposes two new taxes on health insurers and health plans. But the taxes are relatively small compared to the cost of health insurance and the size of the rate increases.

The size of the increases, which other states also are experiencing, surprises William Custer, an associate professor and director of the Center for Health Services Research at Georgia State University.

?There is no doubt that you will see some small groups with significant price increases,? Custer said. ?But they should not be the average.?

One possible explanation is that insurers decided it?s better to raise prices and lose market share than to set prices too low and lose money.

?Insurers to some extent are in a brave new world,? Custer said, ?and they may have chosen to price cautiously.?

Source: MCT Information Services