The Affordable Care Act: The Effect on Small Business

OK, my previous post was dashed off in a moment of anger after getting our health insurance renewals.  I was able to calm down and clean it up a bit, OK a lot.  This was first published January 5, 2014 on the NACTT Academy Newsletter website in a more professional, less sassy manner.

The Affordable Care Act: The Effect on Small Business

Is it really affordable?

In my experience, not so much. We recently received our medical insurance renewal information for our small group for 2014. We have (scratch that, HAD) a pretty rich plan. Not quite Cadillac, but the boss cares about his staff and wants to provide us with a good plan. Well, that plan design is no longer offered by the insurance company, so we don’t even have the opportunity to keep the status quo. As a result, our renewal percentage increase is kind of abstract because the plans don’t match up, but we can still compare the costs to last year. Yeah, those costs went up . . . A LOT!!!! The two plans that are somewhat comparable are both about 13% higher than the plan we had in 2013. There is a worse option for only a 3% increase. All of our options have a really bad change to the prescription plan. We can completely change insurance companies for less money, but that option offers fewer doctors in the network. The result is that as a small business, we now have pretty crappy choices. Taking the lesser of all the evils is not how one should decide on a health plan.


Where do these rates come from?
We are a small group, so we are 100% community rated. A mid-sized group is usually half community rated, half experience rated. Over approximately 200 employees, the group is usually experience rated. There has always been some age banding in determining the rates for insurance. Assuming a staff with 20 employees and they are all over age 50, the coverage would have always been more costly than a staff of 20 people in their 20s. However, the Affordable Care Act (ACA) has taken the age factor to an extreme. There is a different cost for every year over age 20, up to age 65. Our oldest staff member is going to cost about $850 a month for single coverage. The youngest staff member will be about $290 a month. To add insult to injury, the price can change with a new hire. Up until 2014, the insurance companies took a snapshot at the time of renewal and that was the rate for the entire year. With ACA mandating different prices for different ages, if we replace a 30 year old data entry clerk with a 60 year old data entry clerk, the combined rate for everyone will go up mid-year.


So we should only hire young people in order to keep our rates down?
While I am sure that the administration of one Federal program did not have the intention of violating Federal age discrimination law, this seems to be the outcome. A side effect of Obamacare on small businesses is that it encourages discrimination against older workers. As said above, the difference in the single premium for the oldest and youngest employees is almost $500 a month. As a small business person, how can we not take this enormous difference into consideration when hiring? Of course, one is supposed to hire based on skills and ability to perform the essential functions of the job. I get it. But a premium difference of $500 a month is a lot for one employee. However, I strongly urge caution in making the mistake of a potentially discriminatory hiring decision.


Why so much change in cost?
There is uncertainty in the insurance industry as to how much the ACA changes are going to cost. No lifetime maximums, no pre-existing conditions clauses, and adding pediatric dental and vision evaluations will all add up to dollars that the insurance companies were not spending before and will have to spend now. That being said, the insurance companies will definitely be profiting . . . they always do. Those profits will come from businesses, like us, not individuals.


But doesn’t everyone have to pay into Obamacare?
Sure, on paper, everyone has to buy insurance. But in real life, it isn’t working out that way. The insurance companies, as well as the economic analysts who tried to build the ACA, hinge the financial success of the Act on healthy, young Americans buying health insurance. However, according to a poll just released by the Harvard University Institute of Politics, less than one-third of Millennials (ages 18-29) say they are likely to enroll in the Obamacare exchanges.


What else do you need to know?
Be sure to read your plan document thoroughly, especially the subrogation and indemnification clauses. At one time there was thought that insurance companies would want employers to indemnify them for not fulfilling ACA requirements. Our plan doesn’t have any of that language in it. Make sure yours doesn’t either.


If you are a solo practitioner, you can buy coverage on the exchange. You may see some insurance companies you have never heard of. Google them. It is likely that the unfamiliar company name is actually one of the big companies. They are simply using a d/b/a for the book of business that comes out of the exchanges. Provider networks for the various companies should also be on line, and will allow you to see if your doctor is in the new plan’s network.


Is this all going to work and be good for business and the employees?
I have discussed this question at length with colleagues and brokers. Unfortunately, we all agree that we have no idea. For all our combined experience and expertise, we can’t tell what is going to happen. What is certain is that more change will come. Tweaks will be made, whether under Obamacare or some other name. Also certain is that the insurance companies will make lots of money. The increase in premium and decrease in plan design benefits is allowing the insurance companies to pad their coffers for the unknown that looms for the next few years over the industry. Who knows, maybe it will all be affordable and next year we will get a premium decrease. HA HA HA!!! I crack myself up sometimes!