Steep Health Plan Premium Will Increase For Small Businesses

Ruzanna Harutyunyan's picture

Many small businesses could face "markedly higher" health insurance premium increases in 2009 compared with 2008, the Wall Street Journal reports. According to the Journal, although increases in premiums paid by businesses have increased at a slower rate in recent years, small businesses in the South, Midwest and California that are receiving their annual renewal notices have begun reporting "noticeably steeper rises." The Journal reports that some businesses are receiving quotes that are "double those quoted just a few months ago."

A survey by Citigroup of 30 U.S. insurance brokers found that more insurers are raising premiums at a faster rate than those who said they are slowing increases. In addition, third-quarter earnings reports from WellPoint, UnitedHealth and Humana all indicated that there is less aggressive pricing competition by other insurers in a number of markets, which makes it easier to "charge premiums that would assure a solid profit," according to the Journal.

A few years ago, health insurers lowered premiums in an attempt to gain business with new health savings accounts. However, because many of the more popular plans pay all costs after a $1,500 to $3,000 deductible, insurers' costs have been higher than expected. "Now the insurers are catching up," John Sinibaldi, an employee benefits consultant, said. In addition, many not-for-profit Blue Cross and Blue Shield plans in recent years provided premium breaks as a way of reducing "big surpluses from flush years" to avoid political pressure from states, according to the Journal.

However, with the recent economic downturn, analysts say such not-for-profits might have more reason not to provide those price breaks. "Now that investment income is significantly less, we could see less concern about an embarrassment of riches and more about battening down the hatches," Matthew Borsch, an analyst at Goldman Sachs, said. Smaller employers often are affected most by increases in premiums, according to the Journal.

According to Edward Kaplan, national practice leader at employee benefits consultant Segal, companies with more than 500 employees might have leverage to negotiate with health insurers. Kaplan said insurers are "being much more rigid" with smaller firms (Fuhrmans, Wall Street Journal, 11/17).


High-Deductible Plans

More than 100 large companies and hundreds of smaller businesses have begun offering high-deductible plans as their only health care option this year during open enrollment season, the New York Times reports. According to the Times, the annual deductible for these plans is at least $1,100 for an individual and is even higher for families. Such plans often have a low monthly premium and sometimes an HSA to which both employees and employers can make contributions.

The number of employees and family members covered by high-deductible plans has increased by 20% to 30% annually. About 7.5% of the 158 million people with employer-sponsored coverage are enrolled in high-deductible plans, according to Steve Davis, managing editor of trade newsletter Inside Consumer-Directed Care. Fewer than 25% of people with high-deductible plans have HSAs with funds in them to offset the deductible costs, Davis said. In addition, a 2008 survey by the Kaiser Family Foundation and the Health Research and Educational Trust found that among companies that offer an HSA-qualified high-deductible plan, about one-quarter of workers do not receive an employer contribution to their savings accounts.

Jeffrey Munn, a benefits design expert at Hewitt Associates, said there is a "longer-term concern" associated with these plans because no one is sure "whether the savings are coming from wiser consumers, or they are just not going to the doctor because they would have to spend more out of pocket."

The Times reports that experts predict high-deductible plans could become more popular with employers during next year's open enrollment season because of the economic downturn (Freudenheim, New York Times, 11/15).

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