Written by The Business Journal Staff
Covered California rates for individual plans are on the rise in 2017, with plans in Fresno County expected to climb an average 10.8 percent. But the escalation in the individual market doesn’t necessarily signal an increase for employer-based plans.
Nicole Evans, the vice president of communications for the California Association of Health Plans, said even small employers opting for group plans within the exchange shouldn’t worry too much about price hikes.
The individual market, she said, is more volatile because of turnover — people in and out of the exchange as they lose and gain employment or as they decide they need or don’t need coverage. All in all, she said the individual marketplace is seeing an increase in claims from the sick, while healthy people are opting out. This is just one reason for the increases in individual Covered California plans. Other factors include skyrocketing drug prices and the discontinuation of federal programs that assisted insurance companies with the Affordable Care Act (ACA) transition early on.
Among these factors, the soaring cost of prescription drugs is the only one that should concern employers, she said. Still many employers won’t see substantial increases to insurance costs in the upcoming year.
Group rate hikes vary
On or off the exchange, Victor Gunderson, vice president at Der Manouel Insurance Group in Fresno, said rates will be consistent for employers. He said some will see increases mostly in the single-digit percentages, but those will be determined by the age of employees within a small group or the number of claims filed the previous year within a larger group.
“I’ve seen some group rates go up four or five percent and others as much as 18 percent — it just depends on the region and type of plan,” Gunderson said.
Representatives from the two major insurance carriers, Kaiser Permanente and Anthem Blue Cross, say small business rates have yet to be released but should be available later this month.
Bill Wehrle, Kaiser’s vice president of health insurance exchanges, said Kaiser Permanente’s overall rate increase is 6 percent.
“We are committed to offering stable rates over the long term,” Wehrle said.
Anthem Blue Cross representative Darrel Ng said increases for groups will depend on their risk pool.
“The risk for a small business is based on its employees, so if you have 15 hemophiliacs in your group, your rates are going to be high, versus if you’re a small ice cream shop with young healthy employees,” Ng said. “For larger companies, risk is determined by the number of insurance claims made in the previous year.”
Other challenges remain
Even though premiums for group plans aren’t set to increase overall, Gunderson said businesses are struggling for many other reasons and those companies with less than 50 employees, which aren’t required to provide insurance, may place health benefits on the chopping block.
“Businesses are really getting squeezed right now because if you have good employees, you want to be able to offer them some sort of benefit so you don’t end up training your competition down the street,” Gunderson said. “But minimum wage is going up and that also affects workers’ comp rates. At the same time, if you have under 50 employees, you’re not mandated to provide benefits so as minimum wage continues to climb, you may see some small employers just throwing up their hands and saying they can’t offer benefits anymore.”
The Obamacare option
There is an initial incentive, however, for small businesses that do purchase insurance through Covered California.
“When an employer goes through Covered California, they can receive a tax credit for each employee on a group plan for the first two years,” New York Life Insurance agent Gordon Paul said. “Many companies don’t realize they can take advantage of this by switching and they can often stay with the same provider.”
Fresno dentist Dr. Douglas Halloran is currently entering his second year of offering insurance to his three office employees through the exchange. Providing insurance, he said, is not inexpensive, but it is something he wants to do for his employees.
“I had a plan outside the exchange before and it was very expensive, but I didn’t want to drop it because some people in my office would go uninsured, which is crazy,” Halloran said. “To me, it’s a priority. I don’t think people should go uninsured. “
Halloran believes Covered California gets a bad rap at times, especially in the eyes of employers and doctors. But he believes it has led a lot of people who were uninsured to sign up. While challenges remain with getting doctors to accept the plans, he still supports it enough to purchase a gold plan with 100 percent coverage for his employees.
“It is expensive too — $27,000 annually for three employees — but I consider it a business expense. I am getting a tax credit the first two years. Last year, I was able to write off $8,000, which is a nice advantage.”
Gold plan is appreciated
Halloran’s employee Jennifer Biard said she is grateful to her employer for offering benefits even though it’s not a requirement.
“As a single person in my bracket, I would probably have to go without insurance if my employer didn’t offer it,” she said.
Although Halloran said he wants to remain supportive of Covered California and health care reform, he said once the tax credit runs out, it may not be financially feasible for him to continue providing insurance. Most likely he’ll have to reduce the plan to silver or bronze and/or lower the percentage he pays for each employee —both undesirable alternatives for Halloran.
“I want to provide insurance as a benefit to my employees without having to take money out of their paychecks,” he said. “I don’t know if I’ll be able to do that once the tax credit runs out.”
Mandates vs. bottom lines
While small employers like Halloran have the unpleasant option of nixing insurance offerings altogether, those with more than 50 employees are required to provide some benefits. Those with 50-100 employees can choose small group plans through the exchange, while those with 100-plus employees must search outside the exchange.
Gunderson said employers that are mandated to offer health insurance have some options for cutting back their expenses.
Many employers are selecting plans with higher deductibles to save on premiums or are switching to HMO plans, which typically have lower rates than their PPO counterparts. Larger employers are also getting creative with Health Reimbursement Accounts (HRAs) and self-funding alternatives.
“We’ve had a number of large employers choose a higher deductible plan, but then set up an HRA for the first $5,000 and they reimburse employees for actual expenses within that first $5,000,” Gunderson said. “You have to find more creative ways to help reduce costs because if you choose a $1,000 deductible plan and the majority of your employees don’t use it, you’re paying a high premium when it’s not needed.”
Instead, the employer can choose a $5,000 deductible plan but self-fund that first $5,000 under HRA rules and then whatever isn’t spent is savings to the employer. Self-funding also reduces federal and state premium taxes, he added.
“Self-funding is not for every employer, but it is an option to look at. If you are a high utilizer or you have a lot of older employees, it may not work as well,” Gunderson said.
Stick with what you got
Right now, Gunderson said congress is considering whether or not to allow smaller employers to use HRA methods also.
“Since small employers are not mandated to provide insurance, many just increase wages and let their employees fend for themselves in the marketplace. But there are no tax advantages to doing that because when they raise their pay, everyone has to pay higher taxes. If the HRA comes into play, there will be some alternatives and the employer can tell their employees to find a plan on the exchange, but here is some tax deferred money you can use toward your premiums,” Gunderson said.
With the presidential election in November, agents say it’s hard to predict what the future holds for health insurance and the ACA.
“If the democrats win, obviously health care reform will continue, but if Republicans are in, who knows? From this point on, it’s going to be a political football,” Gunderson said.
“With all the hype around election time, my advice to employers is to stick out with the plan they have and see how it goes,” New York Life agent Paul said.