A key tax hits firms that are fully insured, making self insurance look more attractive
Author: Jayne O’Donnell
Publication: USA Today
The new year will bring tough new health care decisions for many businesses, especially those that are too small to easily absorb new costs and too big to think about dropping coverage, experts say.
These midsize businesses, particularly those with 50 to 200 workers, are having the toughest time affording escalating health care costs, says Nancy Taylor, a health care lawyer with Greenberg Traurig.
“I’m most worried about them,” she says.
Federal regulators define small businesses for the purposes of the Affordable Care Act as those with 50 or fewer employees, so a midsize company by some definitions could be one 51 or 1,000 or more workers. A mandate for businesses with 50 or more employees to provide insurance to all full-time employees was delayed for a year. But businesses are already bracing for 2015.
Three ways midsize employers are feeling it:
Taxes and fees. Most of the largest employers are self-insured, which means the companies cover employees’ claims, while insurance companies help administer the plans. Starting in 2014, businesses that are fully insured — as opposed to self-insured — will be hit with an $8 billion tax that is estimated to add 2%-3% to premiums for each covered employee. This tax is expected to increase every year for the next several years. By 2018, It’s expected to be about 4%. A so-called reinsurance fee of $63 for every person covered by a plan also kicks in for the new year.
These additional costs have prompted employers to add restrictions such as dropping coverage for working spouses who can get benefits at their own companies.
Premium increases. A November survey of more than 2,800 employers by consulting firm Mercer showed health cost growth slowed among employers of all sizes. For those with 10-499 employees it rose by about 1%, while among very large employers – those with 5,000 or more employees – it rose 3.7%. Most employers expected costs to go up more in 2014, in part because fewer employees will waive coverage due to the new mandate that everyone have insurance.
But some midsize employers saw 20%-30% premium increases this year, says Russ Carpentieri, an insurance broker with Opus Advisory Group in Rye Brook, N.Y. He acknowledged many large increases can be negotiated down.
Insurers “are so super conservative right now that they’re exploiting the opportunity and pricing up dramatically,” Carpentieri says. “There’s no rhyme or reason; it’s not like there is such increased risk in healthcare.”
But Robert Zirkelbach, spokesman for trade group America’s Health Insurance Plans, say “premiums are not set arbitrarily” and are closely regulated by state and now federal officials.
“Health care costs continue to increase every year,” Zirkelbach says. “Premiums reflect those underlying cost increases.”
Challenges getting insurance. It’s becoming increasingly hard for some midsize businesses to even find insurance carriers willing to cover them. As insurance premiums and deductibles rise, many lower-paid employees are opting out of insurance and insurers often require a certain level of employee participation to take on companies, Taylor says.
These and other factors may combine to persuade more smaller- and medium-size employers to turn to self-insurance, says Sandy Ageloff, health and group benefits leader for the Southwest with benefit consulting firm Towers Watson. Companies see it as a way to “mitigate the cost impact of the Affordable Care Act,” Ageloff says.
In a fully insured marketplace, insurers dictate price and companies have little control over the design of their plans, Carpentieri says. A midsize company might pay a major insurer $1 million a year, have low claims and still face a 15% increase the following year, he says.
Self insurance can save money for employers and employees, but it adds a lot more risk and potentially a lot more cost, especially if several employees at smaller firms develop costly health conditions. That could lead the companies to shift more costs onto the workers in the form of higher premiums and cost sharing.
“While a new year comes with promise, 2014 may prove to be a challenging one for midsize employers as they continue to navigate health care reform, exchange options and health care cost increases, which often impact them the most,” says Craig Maloney president of health care services company Univers. “The confusion will require innovation on multiple levels to enable employers to help employees and their families.”