By
Stephen Koff, Plain Dealer
Small companies with a worker or two who have the misfortune to require serious medical care know what happens at insurance-renewal time. Their premiums don’t just rise. They leap.
Small employers don’t have that happen as often when they have young, healthy workforces.
This is an old reality in the health insurance field, which until now correlated a policy’s price with a client’s risk and claims experience. Was an employee hospitalized recently? Is he at risk of cancer? The employer’s premiums were almost sure to spike.
The Affordable Care Act is about to upend these old insurance pricing models, especially for companies with 50 or fewer employees. Yet until things stabilize, this is going to mean a lot of price hikes for small businesses, according to Ohio health insurance administrators, brokers and even advocates of the health care law commonly called Obamacare.
"I’m not certain about all that many things that surround my life," says Paul Nachtwey, vice president of the employee benefits practice at Beachwood-based Todd Associates, a brokerage and advisory firm. "I am certain of that. It will be bad out of the gate, and it will only get worse."
Even Rhett Buttle, vice president of the Small Business Majority, an advocacy group allied with Democrats, acknowledges coming price changes -- some up, some down -- in a number of states.
"Is there going to be some price differential?" asks Buttle. "Most likely."
But premiums climbed for years before the Affordable Care Act, or ACA, and Buttle says the act will help stabilize them and provide more certainty, rather than disruption, to small businesses.
Predictions are in fact mixed as to whether this will be a continuous upward spiral or a temporary but worthwhile discomfort. The predictions tend to match political views and, in at least some cases, views on the insurance industry and its long-term practices and trends.
Price swings were the norm long before Barack Obama became president and Congress passed his signature reforms in 2010. Double-digit premium hikes were common. Employers complained a lot about insurance.
The ACA aimed to change that, although right now the people charged with making it work are struggling just to get the computer bugs fixed. In the long run, the ACA is supposed to change the insurance pricing structure in both the individual and small-employer group markets.
Linda Blumberg, an economist and senior fellow in the Urban Institute’s Health Policy Center, describes the change by citing the example of employers like General Motors. With thousands of employees, many of whom seldom seek medical care, GM’s premiums won’t suffer if a few employees get sick and wind up hospitalized. That’s not the case for a business with four, five or a dozen employees.
The ACA is supposed to change that. But there will be short-term price shifts in order for it to happen, she agrees.
"It’s very important to look at this as not just what happens in one year," she says.
Steve Millard, president and CEO of the Council of Smaller Enterprises, or COSE, in Cleveland, explains how it could work out, although he approaches it without blinders and sees flaws on both sides of the ACA arguments. COSE already helps thousands of small businesses in Ohio buy insurance.
"We’re estimating in the individual market between 100 and 125 percent and in the small-group market between 25 to 50 percent will be your average rate hike" next year, he says. But even that "really depends upon where you fall.
"If you have a group of old, chain-smoking, cancer-ridden employees, you’re going to see a rate reduction. And we’re seeing reductions of 25 to 35 percent in some groups, based on the fact that they’ve got a really bad demographic, if you will, in their population.
"But if you are in that pool of folks who are really critical to making this work, folks they’re trying to get in -- you’re the young, healthy folks, you’re the small computer programming shop with guys who don’t really use healthcare - your rate increases are going to be 25, 50, 75 percent."
And then?
By 2016, he says, if everything were to work out, premiums would stabilize, with rates more closely aligned to medical inflation rather than an employer’s and employee’s good or bad luck.
In hopes of this occurring, the ACA is creating broad pools of individuals who either lack health coverage now or who buy their own policies. In theory, a bigger pool spreads risk among many and holds down the cost of administering multiple separate policies. For small businesses with up to 50 employees, the ACA created so-called SHOP pools, which stands for the Small Business Health Options Program.
Enrollment in SHOP will be open to employers with 50 or fewer workers, expanding to 100 in 2016. The exact start date is not known; the U.S. Department of Health and Human Services earlier this year pushed it back from Oct. 1 to November. As recently as this afternoon HHS did not have a firm date but reiterated that enrollment would begin sometime in November.
Enrollment in the SHOP marketplace, or exchange, will be optional, and small companies may choose to still work with a broker as they navigate their SHOP options.
That’s the simple part. The bigger challenge -- and the point of complaint of many in the business -- is how, exactly, to price policies for both individuals and small businesses, whether they buy on an exchange, on their own or through a broker. Until now, policy prices in lightly regulated states such as Ohio were based on a buyer’s age (older equaled more expensive, because the risk of illness was greater, insurers said); gender (women can get pregnant and that means some will have more medical bills); state of health (those with preexisting conditions could be denied coverage because they might need very expensive treatment); smoker status (smokers require more healthcare), and location (doctors and hospitals costs more in some areas).
The ACA's architects said many of these factors were unfair or discriminatory, so the bill put limits on the pricing factors, starting next Jan. 1. In both the individual and small-business markets, preexisting conditions will no longer be grounds for denial, and health status won’t drive up a policy’s premiums. Gender cannot be considered. Premiums for the oldest person covered cannot be more than three times as high as premiums for the youngest. The insurance industry and Obama administration call this "modified community rating."
What could be wrong with such a concept?
Insurance brokers and even health-plan operators say that by changing the pricing structure, the federal government guaranteed that companies that now have relatively low premiums -- because of younger workers, healthier workers, an all-male workforce -- would have to shoulder a bigger share of the general workforce’s health costs.
While companies with older or sicker workers might see their prices drop, insurers say these will be in the minority. And because companies with fewer than 50 employees will be exempt from an ACA requirements to provide health coverage, those with rising costs could be tempted to just drop it or become self-insured and take their chances, critics say.
"When you dislocate premium from risk," says Nachtwey, "and you are counting on people paying more for what they don’t need, they will find something else or not buy."
Companies with fewer than 25 employees and wages below $50,000 can temper the price hikes by getting ACA tax credits on the SHOP exchange. But those are expected to be a minority -- 15 percent by some estimates -- of small firms.
"We sampled our small business clients to forecast the impact of community rating and the results are sobering," Nachtwey said on LinkedIn. "Of the 61 businesses we looked at, only 13 are projected to see any rate reduction, 15 we were unable to make a forecast, while 33 face rate increases."
Of those in the latter group, 21 -- representing 46 percent of businesses for whom the firm could forecast -- face increases of 25 percent or greater, he said. Three of the companies could see hikes of 55 percent or more.
Mike Troyan, a former Medical Mutual vice president who now owns an employee benefits brokerage agency, said his firm projects hikes between 30 percent and 105 percent for small businesses, "all because of community rating."
"Medical risk is gone," says Troyan, of TMC Employee Benefits Group. "Gender is gone. You compress all these rates and, as you look at them, 75 to 80 percent of small-group employers are going to see their rates go up."
Asked about this, Anne Armao, vice president of marketing at SummaCare, the Akron-based health insurer, said, "I think they’re right on. That’s exactly what we’re seeing."
And Dan Polk, vice president of small group sales for Medical Mutual of Ohio, says when asked what share of small-business policyholders will see increases versus decreases, "That’s the thing about this. We’re really in uncharted water."
For now, Ohio brokers and insurers say their small-business clients are avoiding the big, coming hikes by renewing current policies before the year's end. That places them under 2013 rules. But they say the high prices will hit hard when renewal comes around in 2014.
ACA supporters and researchers don’t dispute this entirely. But they say the doomsayers overlook two important factors.
The premium reductions for small companies with older or sicker workers will be greater than the increases for the companies with younger and healthier workers, says Gary Claxton, vice president of the Kaiser Family Foundation and director of its Health Care Marketplace Project.
"The people who come down will come down more than the ones that will go up," Claxton says. "Because the groups that are sick get hit pretty hard."
But those rates should then stabilize and, under the new pricing structure, companies should not be hit with the kinds of sudden, unpredictable swings they face now when one or two employees become ill, say Claxton and other policy analysts.
So if it all comes together -- if the ACAs current technical glitches are overcome and the pricing works out for at least some -- will next year’s pain for others be worth it, or at least fairer?
COSE’s Millard spoke this this when asked for his personal opinion of the Affordable Care Act.
"I think there are some aspects that are beneficial to small businesses, such as getting off the volatility of the experience rating," he says. "Because in most cases employers cannot affect their employees’ health status. Moving to a more modified community rating is probably a good thing overall for employers."
But on the flip side, Millard said, "small employers are really challenged right now with the cost of all this stuff. The Affordable Care Act doesn’t do anything to really reduce costs," and the penalties for individuals who don’t sign up on the individual exchange are too low to make them do so. And if they don’t get insurance, "these changes won’t work."
Yet "it’s not all bad," he concludes. "I think the advocates on both sides who are totally for it or totally against it don’t know enough of the details to have a balanced view. They’re just driving their talking points. By the way, I haven’t seen a better solution laid out there, either. We have to do something, because the system as designed is unsustainable."
Troyan, the brokerage owner and former Medical Mutual executive, is far less convinced.
"In the end," he says, "the answer can come down to a single measurement: Are more people insured, and are rates lower? And you can put me on the record with an answer to both: No."
Source: WorldNetDaily
