Small Businesses Cope With Health Insurance Premium Hikes

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When President Barack Obama’s administration delayed part of his controversial health care law, many small business owners were relieved.

Last year, the administration decided to give businesses more time to stay on their current “grandfathered” coverage before moving to plans that comply with the Affordable Care Act.

But the relief of being able to keep the same plan was short-lived for some small business owners.

Kurt Barks, the CEO of Complete Auto Body, found that the premiums for his company plan that covers about 40 workers would rise about 38 percent, even though it’s the same coverage he has had for the last few years.

“My poor employees,” he says. “It is killing them; it is killing me.”

When Barks first learned of the double-digit rate increase, he scrambled to find alternatives. He looked at reducing benefits, switching health plans and even dropping coverage altogether.

Several senior employees — key to his business — said they would have to leave if he dropped coverage or cut benefits. That left him with looking at maybe switching policies.

But as many other small business owners found out, the option of leaving their grandfathered coverage and moving to an Affordable Care Act-compliant plan wasn’t much of a choice at all. They found that getting comparable coverage would often be more than double the cost of staying with their existing coverage.

That pricing projection is the conclusion of a study conducted by the health insurance brokerage firm Caravus that was provided to the Post-Dispatch.

Caravus looked at insurance rate information for more than 200 clients that have from two to 50 full-time workers with plans from three different insurers — Anthem Blue Cross Blue Shield in Missouri, Coventry Healthcare and UnitedHealthcare.

The firm found that companies that wanted to stick with their same grandfathered plan would face a 14 percent premium hike, on average. On the other hand, those who wanted to switch to comparable coverage with the same insurer would face a 36 percent price increase.

J.J. Flotken, a partner at Caravus, said those numbers showed employers were “handcuffed,” even after the administration granted the temporary reprieve. They either have to absorb a higher rate to keep their grandfathered plan or face even steeper prices to switch to plans that adhere to the Affordable Care Act.

“Our clients are really getting hurt,” he said.

Businesses won’t even have a choice for much longer. The administration’s reprieve will expire in 2016. As a result, firms’ existing plans will be canceled, and they will have to select insurance that, in most cases, will be significantly more expensive, according to the study data.

Before the health overhaul, firms were charged partly on the health status and claims history of their group. But the Affordable Care Act did away with those standards.

Now, insurers can use only age, tobacco use, family size and geography when setting plan prices. The law also bars consideration of medical factors and groups consumers into geographic rating regions.

Given the new rating scheme, it’s possible some businesses are seeing massive price hikes because they had a relatively healthy group before. Another explanation could be that certain benefits mandated by the Affordable Care Act weren’t included in older policies. Now, the inclusion of those benefits is driving up the price.

And not all businesses are facing the high rates. Some companies, in fact, are seeing double-digit drops in premiums, the Caravus study shows.

A St. Louis University law professor sees the high rates as part of the growing pains that come with switching to the new system.

Tim Greaney, who reviewed the study, said the price increases weren’t surprising, but that they weren’t a “terrible indictment” against the Affordable Care Act.

He said the grandfathered plans maintain requirements from “the old era that I think most observers think are good thing to get rid of.”

He added that the Affordable Care Act plans had more benefits, such as strict out-of-pocket maximums and requirements that insurers cover a baseline of services.

Kurt Barks knows the clock is ticking on his grandfathered plan and that he will have to come to terms with even higher insurance rates sooner rather than later.

But he said it’s hard to prepare for the hike because he’s still uncertain if or when he will have to leave his plan. He points out that the administration has already given one reprieve and that the new Republican-led Congress may push for changes to the health law.

Right now he is focused on finding a way to afford his current rate hike.

He says he might have to lay off 10 to 15 percent of his workforce or do about $40,000 more in business between his four locations in the St. Louis area.

And that comes on top of having to pay for $30,000 worth in damage to his Dellwood shop as a result of the riots that followed the grand jury’s decision not to indict Darren Wilson in the shooting death of Michael Brown.

Under his benefit package, Barks’ company pays 50 percent of his workers’ health insurance premium. That means the higher rates will force them to devote more of their wage to health costs.

“All of these people now are going to have to pay more money that they didn’t know,” he said.

This report was prepared in collaboration with Kaiser Health News, an editorially independent program of the Kaiser Family Foundation.

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