Health insurance premium increases appear to be accelerating for small employers in Massachusetts after several years of relative price stability.
The Massachusetts Division of Insurance has approved premium increases averaging 6.3 percent for the first quarter of 2016 for companies with 1 to 50 employees. That’s more than double the 3.1 percent average increase that small business saw in the first quarter of this year.
The increases will affect an estimated 300,000 people who buy insurance in the so-called merged market that includes both individuals and small companies.
Insurers blame the accelerating costs on a rise in the number of people using expensive drugs and expensive medical services, along with new costs imposed by federal health care reform. That same reform act is threatening to throw even more volatility at small employers in the coming months as the Affordable Care Act forces employers with 51-100 employees into the merged market and reduces the factors used to price insurance from 11 to four.
“The rate increases are a matter of concern for employers to the degree that they are harbingers of broader health-insurance cost increases,” said John Regan, Executive Vice President of Government Affairs at Associated Industries of Massachusetts.
“They are also a concern because of the unwarranted changes that federal health may impose soon upon the small employers that form the backbone of the Massachusetts economy.”
One strategy for employers, Regan said, is to explore the new generation of moderately priced tiered insurance products that provide employees a financial incentive for obtaining care from high-quality community doctors rather than at academic medical centers. Tiered products are avilable in some, but not all areas of the commonwealth.
Many employers are also turning to high-deductable plans coupled with Health Savings Accounts in an effort to encourage workers to shop for health care, Regan said.
Insurance-premium increases for small employers rose 1.9 percent during 2014 as the Patrick administration continued a policy of artificially restricting the market by directing the Division of Insurance to reject all rates above a certain threshold increase. This non-market decision making may be a contributing factor to the current rate increase.
Health spending nationally is projected to grow from about 17 percent of US economic output in 2013 to nearly 20 percent in 2024, according to federal government estimates.
The good news for small businesses with 51-100 employees is that the Baker administration announced several weeks ago a 10-month transition period before federal health reform reclassifies those companies into the merged market. The U.S. Department of Health and Human Services granted Massachusetts relief on another issue as well by giving an additional year to use existing health-insurance rating factors that are otherwise prohibited under the Affordable Care Act (ACA).
Separately, state officials are due to issue on Wednesday their annual an annual calculation of the year’s increase in Total Health Care Expenditures (THCE). If the growth in expenditures exceeds the current benchmark of 3.6 percent, the state Health Policy Commission (HPC) will develop performance-improvement plans for doctors, hospitals and insurers that threaten the Commonwealth’s ability to meet the cost growth benchmark.