Small group health insurance premium rates could jump by the double digits in 2015 as carriers factor in new costs related to the Patient Protection and Affordable Care Act. But if such increases do occur, they are likely to be offset in 2016.
That is the tentative conclusion of research by the Urban Institute and the Robert Wood Johnson Foundation. The work was designed to try to get an early fix on what sort of increases small employers could anticipate in the unfolding era of PPACA.
To better gauge how small group carriers might proceed with premium increases, RWJF used the look-back method: Researchers crunched premium adjustment data back to 2000 to see if a helpful trend might be identified.
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What they found was that over the period since 2000, the average annual rate increase had little to do with year-by-year increases. For instance, the average was between 5 percent and 6.5 percent, depending upon the size category for the particular small business. But serious spikes were often following by either much lower increases, or even decreases.
"Thirty-four states saw average annual increases of 10 percent or more in the smallest firm size market in at least one-third of the years since 2000. The same was true for 31 states in the 10 to 24 worker group market and for 32 states in the 25 to 99 worker market," the researchers reported.
That said, the foundation forecast a reduction in the peaks and valleys in the PPACA-infused era.
"Before the ACA, insurers could typically set or increase premiums for small employers and individual purchasers as a function of the enrollees' health status or recent claims experience and other factors," the researchers said. "Bad experiences for even a very small number of enrollees could have a dramatic effect on average premiums for a small pool of workers or individuals.
"Employer- and individual-specific premium variation should be reduced significantly in ACA-compliant plans because of the prohibition of health status and past claims experience as insurer rating factors."
While RWJF predicts that over time, PPACA will have a leveling effect, the immediate future is harder to forecast.
"2014 through at least 2017 should be thought of as transitional years for ACA implementation. Individuals and employers are in the early stages of learning about and understanding the law, its provisions, and the coverage options it provides. Accordingly, individuals' and employers' decisions about purchasing coverage at all and the type of coverage to purchase have yet to reach a steady state. Consequently, until insurance risk pools settle down to an equilibrium, near term experience with premium variation in these markets is likely to be at least somewhat greater than what the future holds."
Beyond 2017, the researchers said, "the ACA's market reforms, which prohibit insurers in the small-group and nongroup insurance markets from varying premiums based upon health status or claims experience of the enrollees, should decrease year-to-year premium variation relative to the pre-reform period. This will become especially evident once past the early implementation years in which the insurers are calculating the contours of the new playing field and consumer decisions reach equilibrium.
"However, increased costs due to changes in utilization (e.g. medical practice patterns and use of medical technologies) will continue to place upward pressure on health care spending and thus on premiums in all insurance markets."
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Dan Cook
Dan Cook is a journalist and communications consultant based in Portland, OR. During his journalism career he has been a reporter and editor for a variety of media companies, including American Lawyer Media, BusinessWeek, Newhouse Newspapers, Knight-Ridder, Time Inc., and Reuters. He specializes in health care and insurance related coverage for BenefitsPRO.
