October is the first month insurance premiums will reflect the initial phases of LD 1333, the health reform law passed by the Maine Legislature and signed into law by the governor this spring. The early returns are positive.
More small businesses than at any time in recent history are actually seeing their rates go down. Considering that the bulk of the law’s cost-saving provisions take effect in the future, the cost savings achieved in the early stages of reform are a very promising sign.
This isn’t to say all companies will see decreases and that premium increases are a thing of the past. As an insurance broker, I can tell you we delivered 30 percent average increases to our small group clients this year prior to the bill’s passing. The range of increases topped out at 94 percent. I expect we will continue to see increases for some companies with similar variances for some time, especially given the fact that underlying health care costs continue to rise.
Keep in mind that insurance premiums are an underwriter’s best estimation of health care utilization in the year ahead. Insurers start with a trend increase that reflects the fact that the services we receive from our health care providers will be more expensive each year. This trend represents the root of our health care cost challenges, since health care provider costs alone average increases of 10-12 percent each year.
The average age of your group is also an important factor. As we get older, we use more health care services.
Another key factor is the size of your group. In this down economy, many businesses have been contracting. Though somewhat counterintuitive, there is actuarial evidence that the per capita health care spending decreases as groups get larger. If a small company fell from 10 to eight employees over the past year, their premiums are likely to rise due to the adjustment in their group size.
The fact that more businesses are seeing decreases or smaller increases than in the past, in spite of the continuing challenges posed by rising health care costs, is a true testament to the reforms implemented by LD 1333. It is clearly not a silver bullet that will solve all of our health care challenges, but the process that LD 1333 put in place to correct our fragile insurance market is showing great promise.
There are many strategies small companies can use to mitigate or even eliminate those increases and that is exactly what our clients have done.
Start by making sure your renewal reflects your employee count accurately. Businesses are not static and the number of employees often fluctuates month to month. Renewals are released at least 60 days in advance so your rates may not reflect the new employee that joined your company last month. Because group size affects rates, it may be worth investigating other strategies to increase your group further by changing your eligibility requirements or contribution structure to encourage more employees to participate in your plan. You also may have two spouses employed in your company that are on one family plan but could potentially enroll independently.
There is also competition in the small group market. Different insurance companies have their own unique rating structures so it may be possible to reduce rates by changing insurers or plans. One client of ours recently changed a 15 percent increase into a 7 percent decrease by making a few minor benefit changes.
Small companies can also utilize other tax vehicles such as Health Reimbursement Arrangements and Health Savings Accounts to reduce benefit costs while maintaining or even improving the benefits for employees. Your insurance broker can help you with all of these strategies to lower costs.
Keep an eye out for new products and innovations created by other provisions in LD 1333. The law allows new HMO plan options, incentive-based network designs and association captives, all of which provide new options for Maine companies. We are at the beginning of a long road to reform Maine’s broken insurance market, but we are already seeing promising signs that the journey is worth taking.
Joel Allumbaugh directs the Center for Health Reform Initiatives at the Maine Heritage Policy Center. He may be reached at email@example.com. He will be a panelist at a Bangor Daily News forum on health care from 5 to 7 p.m. on Aug. 15 at the Bangor Public Library.