Since 2010, much of the conversation for small business owners regarding Obamacare has been about how healthcare reform will or will not apply to their business. During this time, great efforts have been put forth to assist business owners, both small and large, to understand the applicability, and if necessary, prepare for the complexities introduced by Obamacare, also known as the Affordable Care Act.
According to the ObamacareFacts.com, “5.8 million firms in the United States have under 50 employees and will not be penalized for choosing not to provide health coverage to their employees”. Likewise, this source states that “96% of those firms already cover full time workers.” Yet now these business owners are entering the renewal season for their group health insurance plans for 2015 and are being blindsided with large renewal rate increases. If I do the math, that’s nearly 5.6 million small business owners in the United States who are experiencing an increase in costs. That certainly feels like a penalty to me.
According to Jerry Bonenberger of Babb Insurance in Pittsburgh Pennsylvania, “small employer groups with less than 50 full-time employees are experiencing an extraordinary increase in their insurance premiums for 2015. In one case, a professional services firm with 42 full-time employees received an 87% increase in their premiums for next year.”
If Obamacare Doesn’t Apply, What’s Driving the Rate Increase?
As I said, for the employer with less than 50 full-time employees the mandate requiring a business to provide health insurance to employees or face penalties does not apply. It was good news for the 5.8 million businesses in the United States with fewer than 50 employees. Unfortunately for them, three other rules imposed through Obamacare have a direct, negative financial impact on how insurance will be priced in the future. And the future is now.
Medical Underwriting is Prohibited
Until the implementation of Obamacare, insurance carriers would conduct medical underwriting to determine the risk associated with an applicant or a pool of applicants when it priced its insurance premiums. One or a few unhealthy members of a small group would benefit from the good health enjoyed by the remaining members and costs remained relatively low for all. Stated another way, the risks to insure a few unhealthy members of a small group were spread across the entire group. Under Obamacare, regardless of the employer’s size, the insurance carrier may not use a risk rating process to compute premiums in the small business market.
Health Insurance Premium Pricing is Limited to Three Factors
Under Obamacare, the health insurance carriers must use an adjusted community rating process limited to three factors for all new policies in the small group market. Those three factors are:
1. Place of Residence
2. Age of the Insured
3. Tobacco Usage
Consequences of Obamacare for Small Businesses
For the small group market, the number and the health of its employees will have little to do with the health insurance premiums paid under Obamacare. Instead, the state or region in which your employees reside, their age, and their tobacco usage will dictate health insurance premiums. The Affordable Care Act requires insurers to use this adjusted community rating system for all new policies.
If a business employs a ‘seasoned, experienced employee’, relative to a Millennial, its health insurance costs will be much higher because the cost to provide health insurance for an employee in their 50s, 60s or 70s is nearly three times the cost to provide health insurance for an employee in their 20s. Likewise, if an employer is seeking to hire a new employee, its total cost to insure a younger job applicant will be significantly less than an older applicant. One must question how this new reality may impact future employment and hiring practices.
Before Obamacare, the insurance rating structure for coverage in most states was offered to small business groups in rate bands, typically in four categories: Employee; Employee and Spouse or Domestic Partner; Employee plus Child/children; and Family. Under Obamacare, the rating structure is offered by Age and Tobacco usage only. And each member of the household is separately quoted and insured. These two differences in the way health insurance is priced have an enormous effect on the total cost for small business groups when insuring the individual employee as well as the other members of their household.
For example, for a family of four, which includes an employee, their spouse, and two children, the cost to provide health insurance will comprise a premium for the two spouses, based on their respective age and tobacco use, plus the cost of insuring the two children, also based on their respective ages and tobacco use. In total, the premium will have four components, one for each member of the employee’s family.
To illustrate the example noted above with real figures under Obamacare, the monthly health insurance premium for and my spouse and I (both of us ‘seasoned’ and in our fifties) plus our twenty-something and our teenager will be $1,856.51, which represents a premium increase of 97.3%. Blindsided, and we haven’t calculated the premiums for the other employees in our small business group plan yet.
I don’t know who decided to name H.R.3590 the “Patient Protection and Affordable Care Act”. As for my small business clients, me and my family, we don’t feel protected nor do we find anything affordable about Obamacare. And I’m wondering where any of us got the notion that Obamacare doesn’t apply to small businesses.
5.6 Small Businesses Blindsided By Obamacare!
Follow Holly Magister on Exit Promise where she Helps the Entrepreneur Grow and Sell a Valuable Business.
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