Beyond Premiums

It’s a familiar tale for local businesses: Health insurance premium increases in group benefits following the implementation of 2010’s federal Patient Protection and Affordable Care Act.

“To keep the policy the same, our premiums were going to go up 25 percent,” Springfield Paper Co. General Manager Kevin Smith said of the company’s 2014 renewal. “We couldn’t afford that. Nobody could. We had to rearrange a bit.”

Smith said the company doubled deductibles to $5,000 from $2,500, incurring only a 3 percent increase in premiums last year.

“The company covered the first half of the deductible, so essentially it was keeping the policy pretty much the same for our employees,” he said. “However, it was a lot of risk for the company to assume. We can’t do that every year.”

Another chapter in the post-ACA tale, many companies opted for an early renewal in December to lock down rates. However, Smith said that means he’s anticipating the worst this December.

“We’ve heard anywhere from 25 to 50 percent higher,” he said. “That would be a game changer for us and I don’t know what we would do.”

What can companies do as premiums increase?

Benefits shuffle
Baron Financial Group LLC owner Dan Malachowski said it’s a creative monetary shuffle for business owners to provide the benefits employees need and want, but protect the bottom line.

“The Affordable Care Act hasn’t succeeded in making insurance much more affordable, but rather continues to squeeze employers’ bottom line,” he said. “When all of a sudden premiums go up, that money has to come from somewhere.

“If a company doesn’t have room in the budget, it has to come in the form of cuts elsewhere.”

While Malachowski said his clients haven’t had to cut benefits yet, he knows changes are on the horizon. Springfield-based Benefits Unlimited Inc. President Darren Coffman is already seeing those changes in his clients.

“The bottom line is shrinking, and the cost is going up,” he said. “I’m seeing companies raise deductibles to the individual max allowed – $6,350 – because they have no other choice.

“Maybe 401(k) goes away. Maybe a company that used to pay 100 percent of employee premiums can now only pay 75 to 50 percent. The benefits offered are shrinking, but the costs are going up.”

Coffman said it’s the classic guns and butter debate, referring to the macroeconomic model explaining the relationship between two goods that are important for a nation’s economic growth. According to Investopedia, in this model, a nation has to choose between two options when spending its finite resources.

Coffman compared health insurance to life and dental insurance, saying a person needs all three, but tough choices have to be made.

“Health insurance is one of the few products that will see a price increase every year, no matter if you have had a claim or not,” Malachowski added. “That makes people angry. Following the recession, most companies were already as lean as they could get.

“They don’t want to have to choose which benefits are more worthy.”

Coffman said premium increases coupled with new ACA fees mean prices could skyrocket this year.

Working on a client with 164 employees, Coffman said the company would see a net increase of 20.6 percent this year, but only 15.9 percent due to a medical coverage increase.

“With the new system, this company will now pay $3,928 a month in fees,” he said. “That increases costs $16.57 per employee and $48.70 per family plan. And these guys aren’t special. I’m seeing similar across the board.

“Where is that money going to come from?”

Smith said, unfortunately, that could mean cutting benefits elsewhere.

“That could affect things like the company 401(k) match,” he said. “I wish it wasn’t an option because people depend on that, but it you have to choose between cutting back and protecting the bottom line, you have to do what is best for the business as a whole.”

Other consequences
Smith said of Springfield Paper Co.’s 20 employees, only 12 utilize the health care insurance policy, with five covered under a separate union plan and the remainder insured elsewhere.

“It’s tough with a company this size because you want those benefits to attract and retain good people,” he said. “You want to be a good employer.”

Springfield-based Employee Benefit Design LLC partner Dan Ruggeri said being a good employer could have other unintended consequences for employees.

“Employers trying to be benevolent could keep a spouse from getting a subsidy on the exchange,” he said.

“Because reasonable insurance is available to that spouse – no matter if they can afford it or not – the spouse isn’t eligible for a subsidy.”

Ruggeri said as new ACA rules are developed and implemented, the game keeps changing for employers.

“We’ve recently been told it’s OK to renew again under the old rules, but that would be up to the carriers,” he said. “Right now, we don’t know what consequences that could have down the road.”

Ruggeri also is president of EBD Benefitbay LLC, a platform designed to function as a national health insurance exchange exclusively for employers with less than 50 employees. Offered by the 144 members of United Benefit Advisors LLC, the platform was originally slated for launch last November, but Ruggeri said the the online federal exchange delayed plans. The company plans to set the system up this summer and start enrolling companies during renewals in the fall and winter months.

“Employers only have a certain amount budgeted for benefits and the more you spend on health insurance, the more that limits other areas,” he said. “Everybody’s cuts are going to look different, but one thing is certain, I don’t see anybody’s rate going down.”