The Big Squeeze: Health Insurance Rates
In February, the state Division of Insurance issued a cheerful press release celebrating the fact that base rate increases for small business health insurance ranged from only 2.8 percent to 9.9. percent.
That was in stark contrast to the proposed rate hikes in 2010, when insurers sought increases as high as 34 percent. The skyrocketing rates prompted Gov. Deval Patrick to step in and freeze rates for more than five months, sparking a contentious fight with insurers.
While the Patrick administration seems pleased with the lower base rate increases, many small business owners are confused. They’re still seeing double-digit rate increases taking affect on April 1 and wondering if there will ever be an end to skyrocketing health care costs.
Up And Up
Take Bill Fredericks, president and CEO of AllCARE Medical Supply of Millbury, which has 12 employees, five of which are covered by insurance offered by the company.
Fredericks said that AllCARE’s health insurance costs have increased by “15 percent at minimum” every year for the past decade.
And news from the state celebrating the lower base rate increases gives him little comfort.
“It’s been my experience that it’s always been a shell game,” Fredericks said. “You’re being told one thing to make yourself feel good about a certain piece of legislation. Ultimately it doesn’t help in the end.”
In the early years, Fredericks said he paid 100 percent of his employees’ health insurance costs. That is no longer possible.
“The absolute frustrating part is not so much what’s coming out of my pocket,” he said. “It’s my employees who are the face of the business. They’re the ones who make this thing work.”
The latest round of insurance rate increases was an even tougher pill for Peter Bartolik to swallow. He is a self-employed resident of Hopkinton and had planned to buy his insurance from Tufts Health Insurance through the Small Business Service Bureau. He received notice that as of April 1 his monthly bill will climb from $1,191 to $1,699, an increase of nearly 43 percent. He had heard that rate increases were supposed to be lower this year and was shocked that his premium would jump so substantially.
Bartolik decided to shop around for plans, eventually signing up for a new plan from Blue Cross Blue Shield that charges higher co-pays and deductibles.
Bartolik will now only pay an approximately 8-percent increase as a result. He said he is not thrilled with the idea of limiting care through co-pay increases, but he said it is a price he and his wife are willing to pay.
While base rate increases for small businesses may be in the range of 2.8 percent to 9.9 percent, the final rate increase that a business owner like Bartolik sees can be much larger because of additional factors that are included in the final calculation.
For example, Mike McMullin, a broker with Whitinsville-based Valley Insurance Partners, said that rates often take into account the average age of the employee group being insured.
“More often than not, it’s purely demographic-driven,” he said.
McMullin said the highest increase he has delivered to a client business this year was 23 percent. The average has been around 11 percent, he said, an improvement over last year for small businesses.
What frustrated business owners often ask McMullin is what he thinks would happen to their business if the prices they charged customers increased by double digits each year.
The answer, he says, is simple: “They’d go out of business.”
Plan Design
But it’s not just small businesses that are worried. Insurers are feeling the pressure, too. Worcester-based Fallon Community Health Plan reported an $8.8-million loss last year.
In response to a call from the government to keep increases down and a need to stop the bleeding, many insurers are responding by making changes to how health insurance plans are structured, according to Thomas Connors Jr., senior vice president of employee benefits at the Worcester-based Protector Group.
For example, Blue Cross Blue Shield announced a plan feature in February called “hospital choice cost-share” that charges anywhere from three to 10 times more in co-pays for certain services at hospitals the insurer has deemed to be expensive.
Of course, plan design changes aren’t new, Connors said, but changes in the past have generally been less significant.
“These changes are very unusual,” Connors said. “These are multiple percentage shifts.”
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