Rising insurance costs pinch small firms

Premium increases up to 30 percent hit employers hard

Friday, March 27, 2009

Insurance and health officials and regulators are also concerned that rate increases, caused mostly by soaring health care costs and an aging population could ultimately limit access to care because employers or employees reduce or even drop their coverage.

Second-quarter health insurance premiums are up 20 to 30 percent over last year, said Jon S. Frank of Jon S. Frank & Associates, an employee benefits consulting firm in Prince Frederick. Businesses with two to 50 employees are hardest hit, but bigger companies across all industries with as many as 200 employees are also facing "pretty sizeable increases."

Rates vary based on the demographics of the group and size of the employer. The continuing upward trend is alarming in the current unsettling economic conditions, Frank said.

"Most employers are pretty stretched in what they can afford to pay and employees are pretty stretched as to what they can afford to pay," he said, due to a "hyperinflation" in the health care industry. "They're very nervous about what is happening. Most of our clients are moving toward higher-deductible plans. They're trying to provide education to employees about how to be an effective consumer."

That means an employer may switch from a plan that requires an employee to pay a $20 or $30 co-pay for each doctor visit or prescription to a consumer-directed health plan that requires an upfront $1,200 deductible before insurance kicks in. Employers may help employees pay that upfront cost and provide training workshops on the importance of primary care and what is a valid emergency room visit. Expenses before the deductible are reduced by the contracting agreement between the providers and the insurance company.

Employers may also offer flexible spending and health reimbursement accounts, which shift responsibility to the employee but allow him to use pretax income to pay for expenses, saving as much as 35 percent in some cases.

"The number of people taking advantage of tax-free purchasing is growing. The tax savings can be significant," said tax adviser Martha Rymer of Rymer & Associates in Prince Frederick, in a press release.

In Maryland's small group market, which includes the smallest of businesses, health insurance carriers must maintain a loss ratio of 75 percent. That means for every dollar collected in premiums, 75 cents must go to actual health care costs, said Karen Barrow, spokeswoman for the Maryland Insurance Administration, which regulates insurance companies in the state. The MIA is monitoring carrier's loss ratios for 2008 and will require rate decreases for any carrier that failed to meet this minimum loss ratio.

"The rate filings that the [MIA] has received from carriers over the last year suggests a change in the underwriting cycle, with health insurance premiums increasing more than in previous years," Barrow wrote in an e-mail. "Through the rate approval process, this agency is looking closely at the filings to ensure the proposed increases reflect actual increases in health care costs and administrative costs and that no one type of employer group is asked to bear a higher burden for these increases."

As the agency reviews rates, it will be looking to see if a higher loss ratio target would have resulted in a lower premium for Maryland small employers and, if so, provide this information to the General Assembly for its consideration next year, Barrow said.

"The health insurance challenges for small employers are a concern and the agency will continue to work toward solutions and monitor the loss ratios on an ongoing basis," she said.

"It's definitely increasing at a rate that's very disconcerting to small business owners," said Nicole Stallings, spokeswoman for the Maryland Health Care Commission, which helps develop programs and push initiatives in the General Assembly to create affordable health care.

From 2006 to 2007 there was a 9 percent to 19 percent jump in premium costs for HMO plans and 13 percent to 30 percent jumps for PPO plans. Stallings said. She expects to discover bigger increases in 2008.

Only $1 million of $15 million allotted for a program made effective last July to subsidize health insurance for very small employers has been used as of March 1, Stallings said.

The program was part of the Working Families and Small Business Health Coverage Act created during the Maryland General Assembly's special session last year. Businesses with fewer than 10 employees who meet certain requirements can begin applying in September.

"Unfortunately the economy's clearly taken a toll. Enrollment is slower than anticipated. This is a new expenditure that a small business will have to make," Stallings said, noting the MHCC will increase its outreach efforts and increase subsidies to correlate with high premium costs. So far, 142 businesses and 700 people are covered under the program.

Larry Sanders of Edward L. Sanders Agency in La Plata said offering high-deductible plans with tax-beneficial health savings accounts a couple of years ago has saved him 30 to 35 percent per employee who chooses that option.

"As an employer … there are very few options that I have. The state of Maryland controls the makeup of the plan, the benefits and what is required in the coverage. What I do have options on is the employee and my involvement regarding deductibles, copayments. ... We offer three plans to our employees. One would be considered a more traditional plan with a co-insurance payment when they visit a doctor. We pay a flat amount per employee. Gradually employees are adapting ..."

Sanders' premium costs went up about 18 percent this year.

"It's to keep [healthcare plans] affordable for now, that's the key," Frank said. "I think we're going to see rate increases all year long. I can't imagine anyone riding in on a white horse and stopping this."

Health officials have also started to become accustomed to new types of health plans.

"We were fearful of the switch to patients making payments with a large deductible in the equation but have found that most people are responsible once they know what to expect. I personally find the plan easy to use," said Michael Brooks, a physician at Calvert Family Practice, in a press release.

kkulp@somdnews.com