Small businesses and insurance: “Nobody’s happy.”

By Jeff Keeling

Jim Green strides through the nearly complete athletic fieldhouse at Johnson City, Tenn.’s Science Hill High School, stopping to check with valued employees of his third-generation contracting business. It’s a family atmosphere even on the job site of a J.E. Green Co. project, and Green is clearly comfortable with his men. Like many other small, family-owned businesses around the Tri-Cities do, J.E. Green provides certain of its employees with health insurance and has done so for years. “We had decided years ago the benefit was a nice one to provide for our employees,” Green says.

But since that decision more than two decades ago, insurance costs have risen inexorably, usually faster than inflation, and like many other area small businesses, J.E. Green has faced the challenge of what to do. “In the ‘80s and ‘90s it was affordable,” says Green, whose company pays 100 percent of the premiums for senior employees. “It’s gone up, and your employees are accustomed to those benefits, but their raises for the most part in the last several years have been going to cover increased health care costs.”

That was before the introduction of the Affordable Care Act. When enrollment time came last fall, it was the first year under the new law. “Where things were going up maybe 10 percent a year, I think the last time it was going to go up nearly 25 or something like that,” Green says. (BlueCross BlueShield of Tennessee’s average premium increase for the current coverage year was 19 percent.) Something finally had to give. In Green’s case, it was the level of benefits within the plan.

“We changed this year (last fall) from what our employees termed ‘good insurance’ with a pretty low deductible to a high deductible plan,” Green says. “It’s costing the company less. Of course, as the employees have a need more is coming out of their pocket.”

Is it going to get better?

Green says he doesn’t have any sense about whether the increases are on track to flatten out. A mile or so away from the job site, Jay Larshus has much more knowledge than Green, who says he just sits down with his office administrator every year and deals with whatever the numbers say. But Larshus, who writes individual and small group plans for Cambron Insurance, says he only has answers for the moment, because the constant change he’s seen in 20 years in the market has only accelerated over the past couple of years.

With insurance companies just a few days from releasing their initial premium increase requests, Larshus says, “it’s too early to tell” whether hefty rate increases will continue. “Blue Cross has had only one year so far,” Larshus says. “Their rate increase was roughly 19 percent on average from last year, but the biggest factor there was, they overestimated how many younger people were going to sign up.”

Indeed, a few days after Larshus’s comment, BlueCross BlueShield requested an average increase of more than 36 percent, citing among other things that it had underestimated how many claims new enrollees would file, as well as the cost of those claims. Blue Cross’s “silver” plan offered as part of the ACA exchange was its most popular, and was among the least expensive in the country.

As for younger people, Larshus says it’s likely more of them will eventually sign up for insurance as the numbers game tilts against them. Last year, the IRS penalty for not carrying insurance was the greater of $95 or 1 percent of household income for an individual, up to $285 for a family or 1 percent of income. That is set to rise to $325/$975 and 2 percent of household income in the insurance year that begins late this year, and $695 per individual and 2.5 percent the following year. The percentage of income penalty is based on amount of income above the tax filing threshold, which is currently $10,150 for an individual.

For an individual with a $40,000 annual income, within a couple of years the penalty for remaining uninsured would be somewhere around $750. A family of four with a $75,000 income would pay $2,085. A quick look at healthcare.gov’s explanation of the fee calculations shows just how complex the whole law is.

That uncertainty in the ACA health exchange market is certainly affecting independent contractors and other customers who have paid and continue to pay for their own insurance, Larshus says.

“You’ve just got to deal with whatever comes along,” he says. “I personally don’t see it being overturned, but who knows? It definitely has to be tweaked, in my opinion, because there’s too many bugs. I would just say it should have been much simpler than it has been.”

Many small businesses dropping coverage

Small employers who were already providing coverage before the ACA – the J.E. Greens of the world – certainly aren’t getting a rate savings since the advent of the exchanges, Larshus says. In fact, where they often can get a savings now if they have fewer than 50 full time equivalent employees is by discontinuing coverage and letting their employees turn to the exchanges.

“That was happening before the law, too, because of the rising expenses,” Larshus says. Now, though, those employers who stuck with it, “maybe because some longstanding employee of theirs couldn’t get health coverage on their own,” aren’t leaving their employees completely in the lurch. In fact, the employers and their employees can sometimes come out ahead, Larshus explains.

“If you have a group of five and they have an average rate of $600 (monthly) because it’s a higher age demographic, the small employer could probably only afford to pay half, so the employer and the employee were each having to pay $300. Now with the subsidy, the employee may be only paying $100 for a policy.”

Theoretically, that leaves the moderately paid employee with what is in effect a raise in take home pay, and the employer with additional margin as well. Of course, what that really amounts to is a taxpayer-subsidized break for the businesses that have chosen to drop coverage. The small businesses who have maintained coverage, on the other hand, “aren’t really getting a rate savings,” since the ACA, Larshus says.

Likewise, individuals who were already buying insurance before the ACA, are fairly healthy, and are in grandfathered plans that are set to expire, “are generally in for a rate shock when they find out they have to switch to one of the new plans,” Larshus says. One reason is that the ACA plans spread risk more evenly, so younger and/or healthier individuals pay higher premiums than they would have before the law.

There have been winners

Prior to the ACA’s passage, few people, or politicians, on either side of the fence would have argued that health insurance didn’t need changes. Larshus says the biggest issues were denial of coverage for people with pre-existing conditions, and insurers’ option to “rate up” people with negative health factors. Low and moderate-income workers, if they didn’t qualify for Medicaid (TennCare) also were unlikely to be able to afford insurance.

Larshus remembers conferring with people in their late 50s and early 60s who may not have been in the best of health and were considering early retirement – until they learned how expensive their health insurance would be until they qualified for Medicare.

“Financially, they were probably in good enough shape to retire, but they didn’t factor in having to pay $1,500 a month for health insurance,” he says. Under the ACA, the average premium for those people is significantly lower.

Then there is the case of a 62-year-old woman who came to Larshus when the law first came into effect. She hadn’t had coverage in around a decade and was only making around $13,000 a year.

“She qualified for a zero deductible, $550 maximum out of pocket health plan,” Larshus says. “Her premium was $3.96 a month. The subsidy picked up the rest of that, which is our tax dollars, from that standpoint. But she literally was in tears because she finally had health coverage after a decade or so without it.”

The low deductible and out of pocket costs for that customer were down to another bit of subsidy – “cost sharing” that triggers at a certain income level and becomes more robust the lower the income.

Change the one certainty

Larshus reckons he’s lost two-thirds to three-quarters of his small groups over the past five to eight years. “Some of it was leading up to this (the ACA) because they just couldn’t afford it anymore, or they went out of business with the economy the way it was in 2008.” Plenty more have dropped out since the ACA came into effect.

Larshus also has seen colleagues in the business drop out, with uncertainty in the market and increased training requirements both playing a role. “It’s pretty early in the process to know what it’s going to be like five years from now.” He’s not comfortable taking a guess at whether rate increases will level off, either, but Larshus does point to two factors unrelated to the new law that have had a great effect on health care costs.

“There are a lot of factors involved, but one thing that’s not talked about in my opinion is technologies,” he says. “We expect the newest technologies all the time in medical treatment. Well, that’s a big driver of cost. So whether everybody’s insured or not, or whatever law you want to pass, it doesn’t really take that into consideration.”

Larshus says despite a lot of “carrots” now on offer for people who couldn’t previously afford insurance, incentivizing change on the consumer side still has a way to go.

“The law still doesn’t take into consideration lifestyle. We’re becoming more and more unhealthy as a nation.”

Back at the field house job site, Jim Green says that in the case of J.E. Green, the health insurance element of employee pay and benefits has been a roller coaster ride of stress for a number of years now.

“It was tough last year when we had to make that call to either ask employees to start paying (part of their premium) or switch plans,” Jim Green says. “I know most employers do have their employees pay a certain percentage, but we’d started a long time ago paying it all, and it’s just hard to get off that track. But again, we’ve continued to have health insurance instead of pay raises from time to time. Nobody’s happy about it, but I think they understand.”