Employer's Guide to Health Reform: How to Shop for Insurance in a Changing Landscape
Like many small-business owners, Steve Banke has struggled for years to buy affordable health insurance for his employees. Yet he's not certain that the controversial federal insurance revamp will make matters much better.
"Our premiums have gone up double-digits every year for the past several years. In some cases, we saw 20 percent and 30 percent increases even in years when we were a healthy company, and no carrier has ever told us why," says Banke, CEO of 3Points LLC, a Countryside, Illinois-based computer network consulting firm.
Banke, 44, is not exactly a neutral observer. He is chairman of the Chicago-based Small Business Advocacy Council's health care committee and has been involved in hearings in Springfield on health care plans. He's generally in favor of parts of the new federal health insurance reforms, including the provision calling for states to set up insurance exchanges to pool individuals and small businesses for more competitive prices. He's just not sure Illinois lawmakers will get it right.
"Advocates want small businesses and individuals to band together and negotiate prices with carriers, but carriers don't want that," Banke notes. "My personal belief is that it will be more of the same, and more of the same is not what we need."
The Affordable Care Act, passed in 2010 and being rolled out in stages, is designed to ease health care cost pressures. Still, skeptics abound, and a pending ruling from the U.S. Supreme Court over a key provision of the law—whether the government can require Americans to buy insurance—only adds to the confusion for small-business owners shopping for coverage.
"I just feel that there's a tremendous amount of unknowns," says Scott Voris, 41, president of Kelmscott Communications Inc., an Aurora, Illinois-based marketing firm. "While the effect (of the legislation) was to lower rates, certainly the opposite has happened so far."
Indeed, many reforms won't go into effect until 2014. But some small-business owners are experiencing sticker shock already. They blame the new law for the rising rates they've seen over the past two years.
Annual premiums for employer -sponsored family health coverage rose 9 percent to $15,073 in 2011 from the year before, according to a 2011 survey by the Kaiser Family Foundation and the Health Research and Educational Trust. Increases for companies with fewer than 200 workers were slightly less than those for of larger firms. On average, workers pick up $4,129 of the tab for annual premiums on family plans; employers pay $10,944.
Kaiser estimates only about 1 to 2 percentage points of this year's 9 percent average rate increase stem from health reform provisions.
"The real bulk of health care reform doesn't come into play until 2014, so it's real hard to say the price increases are just because of health care reform," says John Gaglione, 58, owner of an independent insurance agency in Aurora who works with at least 50 small businesses.
Gaglione says the total cost of health care, from advanced medical procedures to pharmaceuticals, is a big part of the problem, and one that federal reforms don't really tackle.
Yet the cause-and-effect perception persists: Small-business owners still suspect insurance companies are raising rates now before the new law restricts their ability to pass costs onto customers, says Laura Minzer, executive director of the Illinois Chamber of Commerce's Health Care Council.
"Clearly, there was a reaction on the part of insurers," Minzer says. "They're looking down the line for two, three and four years from now, and the risk they'll be asked to assume is much greater than now."
Voris, whose marketing firm has 90 full-time employees, saw a 25 percent increase in his company's health insurance rates in 2011 on top of a 20 percent increase in 2010. "Then, in 2012, we saw an increase of 14 percent, but that's still a significant driver of our overall business costs," he says.
The rate hikes have taken a toll at Kelmscott. Voris has passed on the costs to employees via higher deductibles, higher employee contributions and lower merit-based pay raises.
For each employee, Kelmscott spends about $6,000 per year on health care, double the cost of five years ago. PPO-plan deductibles are now $3,500, well above the old $1,000 plans.
"More than five years ago, we would just look at merit to determine cost-of-living raises. The cost of insurance was never taken into consideration," Voris says. "Now, for the past five years, we look at health insurance rates to determine that. The pools of money for merit and cost-of-living increases have gone down, so it has directly affected the overall pay."
Despite the rising costs, insurance brokers say their clients are holding on to coverage because they want to keep their plans competitive to attract the highest-quality workforce.
"Very few of my clients have dropped their coverage altogether. The only ones who've done that have gone out of business," says Jeff Kolker, vice-president of employee benefits at GCG Financial, a Bannockburn, Illinois-based financial services firm that provides employee health benefits plans. "They're staying fully insured, but they're buying higher deductibles."
Kolker says the average deductible for his clients is $1,500, up from $500 five years ago.
Nationally, workers in small firms contribute 15 percent on average for single coverage, less than the 19 percent that workers in larger companies typically pay, according to Kaiser's 2011 survey. Kaiser also found that small employers pay a higher share of premiums for family coverage: 36 percent, compared with 25 percent for companies with more than 200 employees.
Regardless of the cause of rising health care costs, small-business owners want to see quick changes to ease the burden.
Steve Caballero launched U.S. Alliance Partners Ltd., a Naperville, Illinois-based business consulting firm, last year. His biggest regret so far is that he can't afford health insurance for his four employees, and he worries that he won't be able to keep the business running without an acceptable insurance plan.
As for the notion of an insurance exchange, Caballero, 58, isn't sold.
"I just don't buy it, and I don't have that much time" to devote to shopping around, Caballero says. "Right now, it just seems like (insurance rates) are just going to keep going up a lot."