After several years of double-digit health premium increases, small businesses have done a bit better this year in their policy renewals, local brokers say, helped in some cases by lower-than-usual rates from Blue Cross & Blue Shield of Rhode Island.
But the differences from company to company are often huge, they say, and with most hikes still well above inflation, the majority will cut back their health plans for 2005.
State law requires that small-group premiums be based on a community rate – meaning that Blue Cross and UnitedHealthcare of New England must base their rates on the claims history of all their small-group customers combined, not each individually.
But the law does allow carriers to vary rates based on the age and gender of the people in each group, reflecting actual variations between what, say, the average 25-year-old woman costs versus the average 25-year-old man, or the average 50-year-old man.
In addition, a provision that was supposed to expire by Oct. 1, but has now been made permanent, allows carriers to charge up to 10 percent extra in connection with the group members’ “health status” – if some have cancer, diabetes, high blood pressure, etc.
Altogether, those variations can’t result in a rate that’s more than four times what the lowest-paying group with that family composition can charge, the law says.
Still, that’s a huge window: Imagine paying more than $1,200 for, say, a BlueCHiP policy that most companies get for about $325. And the gap also shows up in rate hike differences.
At Cranston-based Benefits Unlimited, for example, president James K. Claffey said, the average hike one small-group representative was quoted for 10 recent accounts was 8.9 percent, but the rate changes ranged from a 7-percent drop to a 17.7-percent hike.
Both Blue Cross and United quotes have varied widely, Claffey said, and it’s hard to predict who’ll do better for each customer. United’s base-rate hike this year is lower than in 2004, down from about 15 percent to about 12 percent. Blue Cross’ base-rate hike is “much lower,” Claffey said – 5 percent to 8 percent – because it’s not asking small groups to contribute to reserves.
United wouldn’t discuss its small-group rate trends. At Blue Cross, spokesman Scott A. Fraser said the average overall hike for small groups in early 2005 is about 12 percent, down from 13 percent this year and 22 percent in 2003.
So how come some rates have risen by up to 40 percent? For the most part, Claffey said, it’s because of shifts in the age and gender makeup of their staff, which affect small firms dramatically: Just replacing a 24-year-old man with a 33-year-old woman can push rates up.
Of course firing all but the young males isn’t an option. So some companies save by switching carriers, Claffey said – taking advantage of subtle differences in their age and gender rating systems, and of new customer discounts.
The most common strategy, however, brokers agreed, is cutting back on benefits. Claffey said about 60 percent of small groups are doing it this year, up from about 35 percent last year. Among large groups, about 90 percent are cutting back.
Broker Robert Leach, in Rumford, said his small-business customers “generally work their way down the spectrum of plans, from the best to the least, attempting to keep premiums as close to what they were the previous year.” Often they boost deductibles or workers’ premium share, or change to a lesser plan. “And it never goes in the other direction.”
At Butler & Messier, in Pawtucket, David A. White, head of commercial insurance, offered an example of the savings cutbacks can yield. In one recent renewal, he said, an employer with 27 people covered by Blue Cross’ Healthmate Coast to Coast was quoted a 5.5-percent rate hike, to $353.57 per month for individuals.
By a PBN calculation, the hike would cost the company an extra $7,850 for the year, for a total of $150,600. But the agent pointed out some alternatives: Healthmate with a $200 deductible, for about $337 per month – just a dollar above the company’s 2004 rate – or with a $500 deductible, for about $326 per month. The employer chose the latter, saving the equivalent of a 13th month of premiums, or 23 deductibles, by PBN’s estimate. “When you do the math, it’s little or no risk and a ton of savings,” White said.
Still, small-business owners, who often employ their own relatives, are particularly aware of the impact of those cutbacks on workers, Claffey said. So he suggests ways to ease the burden: Offer a cheaper “base” plan, for example, and allow workers to “trade up,” at their own expense. Or get gap insurance; a plan called Smart$ense can cover the cost of deductibles with premiums that are half or less of avoiding a deductible would cost, Claffey said.
Increasingly, companies are taking another option, Claffey said: health reimbursement arrangements (HRAs), in which they agree to pay all or part of the deductible, and keep the money if it’s not used. That usually works well, Claffey said, because the price break is bigger than the likely expenditure for the employer.
Asked where health insurance is headed, brokers all agreed the premiums will continue to rise faster than inflation, and companies will be forced to take higher-deductible plans with more modest benefits – unless there’s a substantial turnabout.
That’s what Emily B. Harding, principal of Health Plan Specialists, in Newport, and founder of Rhode Island Association of Health Underwriters, is pushing for.
The state desperately needs more competition, she said, and that requires major changes to state laws that make it too expensive and burdensome to do business here.
“I think finally people are understanding what the real cause of the crisis is,” she said. Rhode Island needs to reduce its mandated coverages – which this year made it impossible to offer health savings accounts, for example, and which raise premiums. It should also create a high-risk pool, and not make carriers responsible for quality of care, she said.
“Things will absolutely have to change if Rhode Island businesses and residents want to see carriers return and get some real, measurable relief as far as health care costs go,” she said. “We’re hopeful that that’s going to happen this year.”
