Health care reform brings significant changes to small employers

Michael 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.”

Giving small employers the option of renewing their policies this year also could be a factor.

Health insurers knew that employers with the lowest rates _ those with the youngest and healthiest employees _ would be more likely to renew early. Employers with older and sicker employees would wait until next year when they might get better rates.

That would change the makeup of the “risk pool” for health plans sold next year. Those plans would have a larger share of employers with large medical claims and result in higher rates.
“That’s one of the reasons 2014 is such a transitional year,” Custer said.

Not every employer faces higher rates. And some small employers welcome the changes brought by the Affordable Care Act.

“I was hoping for this change,” said Trudi Opad, co-owner with her husband of Jemmco LLC, a small business in Mequon, Wis., that sells equipment and supplies for plastic processors.

She and her husband previously could only buy insurance through the Wisconsin state Health Insurance Risk-Sharing Plan, or HIRSP. The plan covers people who cannot buy health insurance because of pre-existing health conditions.

Opad and her husband now plan to buy health insurance through their company and provide health benefits to their two employees.

Being able to offer health benefits, she said, will make it easier to expand their business.

Jemmco was typical in not offering health benefits.

Roughly 50 percent of businesses with three to nine workers _ the vast majority of small employers _ do not offer health benefits, according to the Kaiser Family Foundation, a health policy research organization.

In contrast, an estimated 98 percent of businesses with 200 or more employees offer health benefits to at least some of their employees.

Small employers also account the steady decline in the number of businesses offering health benefits, to 50.1 percent in 2012 from 59.3 percent in 2000.
The reason cited most often is cost.

Employers with fewer than 50 workers are exempt from the “play or pay” penalty to provide health insurance to employees or pay fines of $2,000 or $3,000 for each employee. That deadline how now been pushed back a year.

Some small employers are likely to stop offering health benefits, particularly if a large percentage of their workers are eligible for subsidies to buy health insurance on the marketplaces set up through the Affordable Care Act.

Employers with fewer than the equivalent of 25 full-time employees can qualify for tax credits under the law. They must have average wages below $50,000 a year. Branshaw of Wipfli said that few employers qualify for the tax credits.

How many small employers will opt to stop providing benefits is anyone’s guess.

That is not an option, though, for Freedom Physical Therapy.

Recruiting physical therapists and competing with health systems for skilled workers would be difficult without offering health benefits, Karegeannes said.

The business has been forced to raise deductibles and have employees pay a larger share of premiums over the years, Karegeannes said. Changes from the Affordable Care Act could benefit the company.
The real test will come in 2015.

The law requires health insurers to spend 80 cents of every dollar in premiums on health care, and insurers will be forced to refund money to small businesses if rates overall turn out to be too high.
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The policies renewed this year also will have expired. And health insurers will have a better sense of how the changes from the Affordable Care Act affect the market.

That means another year will need to pass before small employers can gauge how they will fare under the law.

“We won’t know until then,” said Anderson of M3.
(c)2013 Milwaukee Journal Sentinel
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