Small businesses may get sticker shock, little clarity from 1st health insurance rate requests

NEW YORK, N.Y. – Small business owners may be experiencing sticker shock now that insurers are revealing the rates they want to charge under the new health care law.

So far, in Rhode Island, insurers are requesting premium increases of up to 14 per cent for small business coverage when the Affordable Care Act is fully effective Jan. 1. They’re also in double digits in Maryland.

Small businesses, especially those that are required, for the first time, to start providing coverage under the Affordable Care Act have been waiting for some clue about how much it will cost. Many are worried that paying for health care will hurt profits and have held back on hiring, spending or expanding. The information that’s been released to date is providing some insight, but not enough for small businesses to be comfortable about making big financial moves.

That’s because the rates that insurers requested in filings last month in three states — Maryland, Rhode Island and Vermont — are far from final. They’re subject to approval and changes by state regulators. In Vermont, owners’ decisions on coverage are likely to be affected by a bill in the state Legislature that would provide subsidies to coverage their employees might buy. And in some states, insurers may decide to revise their rates when health insurance exchanges — where companies and individuals will shop for rates — are up and running later this year. The insurers also haven’t released details on what kinds of medical coverage the premiums will buy.

“The last insurance company that we talked to told me it’s actually going to be more expensive than it was in the past,” says Peggy Farabaugh, CEO of Vermont Woods Studios, a furniture retailer in Vernon, Vt. Vermont is the first state where premium requests were filed.

Farabaugh says she has wanted to provide insurance for her employees since the company was founded seven years ago. She hasn’t been able to afford it. She has nine employees, most of whom have coverage of their own, but she’s afraid that she still won’t be able to buy insurance for two of her workers under the ACA.

The filings do give employers a sense of what premiums will be like, says Robin Lunge, Vermont’s director of health care reform.

“They’re really a ballpark number,” Lunge says. “But don’t get wedded to the exact figures.”

Many steps remain in the rate-setting process. Even people in the insurance business don’t have answers.

“We’re telling clients we don’t have all the pieces to make a real determination. I have a sense, but it’s tough to run our business on a sense,” says Allen Nassif, president of North Benefits, a Vermont-based insurance brokerage that serves small businesses in New England.

In Vermont, the rate requests are little changed from current rates, according to Gary Claxton, a vice-president at the Henry J. Kaiser Family Foundation who has studied the proposals.

In Maryland and Rhode Island, they’re higher because insurers are being cautious, knowing that state officials are likely to revise their proposed rates downward, Claxton says.

“Most people don’t go into a negotiation with their best, final answer,” Claxton says. He expects some insurers to adjust their rates if it looks like they won’t be competitive.

State officials are expected to scrutinize rate requests, and be aggressive in asking for changes, says Heather Howard, director of the State Health Reform Assistance Network at Princeton University and a former New Jersey state health commissioner.

“The ACA gives the states increased authority for rate reviews and to tell the insurance companies whether they’re appropriate,” Howard says.

Under the law, businesses with 50 or more employees will be required to provide affordable coverage for their workers. But many owners with fewer than 50 employees also want to provide insurance as a benefit.

In Vermont, one source of uncertainty is a bill in the Legislature that would provide for subsidies for individual rates. That could affect employers with fewer than 50 workers who want to provide coverage — it might be cheaper for staffers to buy insurance on their own. Some employers have said they would then pay their workers a higher salary to help them buy the insurance.

Lawyers who advise small businesses on benefits have been getting more phone calls from clients since the rate filings.

“There is an increasing level of angst about what it will cost. The numbers are out there, but they’re not final,” says Eileen Elliott, an attorney with Dunkiel Saunders in Burlington, Vt., who specializes in health care law. Her law firm, which provides insurance for its 14 employees, is also waiting to find out what its options will be.

“We’re looking at this with the same curiosity as every other employer in the state,” Elliott says.

More answers are expected during the summer, after state insurance officials have reviewed the companies’ requests. In Vermont, final premiums are expected to be announced in July, says Lunge, the health care reform director.

But it likely won’t be until the exchanges are up and running that employers will find out what their costs will be, Princeton’s Howard says. The exchanges, which will be online, will allow companies to choose the kind of coverage they want and then compare plans offered by different insurers.

Even then, there may be rate adjustments, according to Claxton, the Kaiser Foundation director. He noted that in some states, exchanges will have the ability to negotiate with insurers.

Many owners are concerned about the quality of coverage they will be able to buy.

“What I can afford is possibly not very good insurance,” says Abbey Duke founder of Sugarsnap, a food retailer and caterer in Burlington, Vt. She’s been checking the rate proposals, but because the numbers aren’t final, she’s in what she calls “wait-and-see” mode.

If she can’t purchase good coverage, she says she’ll try to help her employees buy individual policies.

“My approach is most likely to be to try to pay them as much as I can so they in turn can purchase it through the exchange,” Duke says.

One complication for many companies is whether they have to provide insurance for part-time workers. Under the law, a company must provide coverage for any employee working 30 or more hours a week. But the rules that govern what constitutes part-time and full-time work are complex. The Internal Revenue Service issued a bulletin last October detailing the rules, but they have left many companies confused.

Lon Finkelstein, chief financial officer of Vermont Tent Co., has been trying to figure out how many employees the company would need to provide coverage for. The South Burlington company, which rents tents and party equipment, has a staff that ranges from 30 in the off-season to 70 during the busy spring, summer and fall months.

“You can call five different people and get 56 different answers,” Finkelstein says. He has talked with his insurance broker, the Chamber of Commerce and state officials, and attended informational seminars.

“The criteria seem to be changing on a regular basis,” he says.