Attention Small Business Owners! Answers to Your Important Health Insurance Questions

Dear Cheasty,I am the owner of a small business that employs 75 people.  Our company provides access to health, dental, vision, life, LTD, ADD, and optional insurance. The company pays the first $300 of the full premium, which represents up to an 80% contribution rate on the employer side.

During a recent talk I heard you give, you said that insurance companies are barred from increasing rates more than 9.9%.   Yet this year,our particular group rates increased 20%.   In order to keep the premiums low, we opted for “poorer” plans that have higher deductibles, higher co-pays, higher out of pocket minimums, but our employees still have to pay more in premiums. Under the plans that we chose, the lowest cost plan for a family with a $6000 deductible, 70% co-insurance, $10,000 maximum out of pocket, and $45 doctor visit co-pay, is $955 per month.   That is about 35% of our average non-management take-home salary.  That is too much!  As a result, many of our employees do not cover their children or spouses.  So, although they have access to health insurance, it is prohibitively expensive.  “A dream deferred is a dream denied.”

If the maximum rate increase is 9.9%, how can they charge us so much more than that?  Should I contact the Texas Department of Insurance, or the Office of Public Insurance Counsel?

I really support a “government takeover” of healthcare – I wish that making these hard decisions were out of the hands of employers.  I think it would give us a level playing field as we compete for qualified employees with larger businesses. (I lost a computer programmer last month in a bidding war with BP --- I can’t offer the deep discounts on health insurance benefits that they have the luxury of).


Frustrated Business Owner

Dear Frustrated,

I am so sorry to hear that you are having so much trouble finding accessible and affordable health insurance for your employees. Sadly, yours is a story I hear far too frequently. You’ve asked some really good questions, and the answers break down into two categories: good news and bad news. I’m going to give you the bad news first, and then end on a couple of high notes.

OK, first for the 9.9% cap on yearly insurance rate hikes. Insurers are not, as you thought I said, banned from raising them more than 9.9% (I’m sorry if I was unclear). What the Affordable Care Act does is guarantee that if the rate hike is10% or higher, then it triggers an automatic review process. That is, the Texas Department of Insurance (TDI) must conduct a review to figure out whether that rate hike was fair and justified or not. (For Texas, the sad news here is that, unlike in some other states, TDI can’t tell a company not to raise the rate that high, they can only recommend that it not be raised that high. We’ll be fighting to give the TDI enforcement power this coming legislative session, so stay tuned!)

One more important thing to understand is that the 9.9% cap is not a cap on the policy offered to one person or business. Rather, it is a limit on the company’s average increase across a group. So if your policies went up 20%, they have to balance out their average by not raising somebody else’s rates.

What are the reasons an insurance company may “justifiably” raise rates? There are six categories: health, gender, age, geography, type of work, and size of group. Therefore, if somebody on your plan recently battled cancer, the “health” category would raise a red flag for your insurer. If you lost seven male employees and hired seven female employees in their place, your “gender” category would light up, because insurance companies charge more to cover women than men. If a few of your employees aged into a higher age category, your rates would go up because they charge higher rates for older folks. As you can see, there are lots of reasons why RIGHT NOW, insurance companies can raise rates like they just did to you.

So that was the depressing reality. Now for some good news.  When the ACA goes into full effect on January 1, 2014, insurance companies will lose some of those six categories that they use to “adjust” rates for their clients. They won’t be able to charge women more than men. They won’t be able to charge a company more based on the type of work that they do. And most importantly, they won’t be able to raise rates or deny coverage based on health history or condition. So no more rate hikes based on an employee getting sick. Depending on the reasons for which your insurer raised your rates, these provisions may stop your group policy from rising so quickly or so high.

But best of all, Frustrated, if you still can’t afford the health plans for your employees, you can simply stop providing insurance without being a “bad employer.”  Here’s how it could work. As a “large business” owner (i.e. larger than 50 employees) you will have to pay a fee of approximately $2000 a year for every employee that you don’t insure (there are caveats, of course, too much detail for a blog post, but you can click here to read all about the ACA provisions for large businesses). You’ll get the first 30 employees free, so if you have 75 employees, you’ll have to pay the fee for 45 employees. That’s a total of $90,000 a year in fees [$2,000 x 45 = $90,000]. Right now, if my math is correct, you pay $270,000 a year for insurance [12 months x $300/month x 75 employees = $270,000].

In short, Frustrated, you could cancel your insurance, pay the fees and pay your employees several hundred a month toward buying their own insurance, which they’ll be able to do – with government subsidies! – on the Health Insurance Exchange, which will begin operating in 2014.

I know there are so many questions still left unanswered, Frustrated, and I hope this answer goes a long way toward helping you understand what is going on with your insurance rates. If you still have questions for me, feel free to email me at [email protected] and I’ll be happy to answer in more depth!

To a well and healthy Texas,

Cheasty Anderson