Small Businesses and Health Care Reform – What Now?
May 29, 2013
The Patient Protection and Affordable Care Act (health care reform) seeks to change the way health insurance premiums are established, just as the Act Providing Access to Affordable, Quality, Accountable Health Care did in Massachusetts. As CPAs’ small business clients begin to implement the requirements of health care reform, CPAs need to understand two significant ways in which their small business clients, and their own small practices, may be affected.
The Small Group Insurance Market and Increasing Premiums
The first big change that health care reform brings is the prospect of “merging” (formally or via rating rules) the small group insurance market with the individual insurance market. The individual market typically has the highest costs of all the health insurance markets due to the actuarial risk of a single covered life and the time and expense of selling
single policies. The small group market, historically 50 employees or less, but in the case of health care reform, 100 employees or less (mandated to expand the risk pool base of small businesses who might also absorb the cost of the merged individual market), is significantly less risky and thus has lower premiums. As has been the case in Massachusetts, if the formal merger of the two markets’ risk pools takes place in your state, it may cause small business premiums to increase dramatically. If you or your client presently have more than 50 employees and are covered in your state’s existing large group market risk pool, premiums could rise once the small group level increase to 100 employees becomes effective in 2014.
Individual market premiums will go up, even if the merged small group market is absorbing a lot of the cost, because the policies historically sold in the individual market had lower benefits than those sold through employers; health care reform no longer allows the lower benefit limits. Just as having a lower deductible and higher limits on your auto insurance policy results in a higher premium, health care reform requires more expensive policies. The mandated benefits also drive the cost of small business premiums higher. It is important to note, however, that regulations issued by the Department of Health and Human Services late in 2011 granted the states considerable flexibility in designing their own mandated benefits or benchmark plans. This, in turn, will result in the mandated benefits varying from state to state, something that was not contemplated when the legislation passed. Thus, practitioners need to look closely at what their individual state is doing. The National Conference of State Legislatures maintains a website tracking the state-by-state changes.
Premium Limits for Older Individuals and Smokers
In addition to the permitted merger of the individual and small group health insurance markets, the other two most significant changes to insurance premium rate settings involve the following:
•limiting the amount insurers can charge older individuals to no more than three times what they charge younger individuals; and
•limiting to 1.5 times what insurers can charge smokers versus nonsmokers.
When I wrote my book on the reform legislation in 2011 (with Greg Anderson, CPA/ABV), I developed an example that suggested premiums for those under age 30 would go up 32.5%. As the flood of actuarial analysis on the market in 2013 now indicates, 30% to 40% is the range of likely increase for the 20 to 30 year old crowd–many of whom
are still dealing with the recession and the burden of student loan debt.
This has significant added impact on small businesses that employ a lot of young people.
