Two Reasons Why Your Company’s Health Insurance Premiums Have Gone Up (And Will Keep Going Up)

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(This post originally appeared on the Huffington Post)

As the health care exchanges prepare for open enrollment later this week, the more recent news is that health care premiums are… going down. Wait, what?

According to this report “…a new analysis by the Kaiser Family Foundation finds that, on average, premiums for Obamacare’s benchmark silver plan are falling by 0.2 percent across 48 major cities. Prices for Obamacare’s skimpier, less popular bronze plans are rising by (only) 2.7 percent. “I expected premium growth to be modest in most of the country,” Larry Levitt, a co-author of the report, said. “But what we saw were some decreases instead.””

Per above, some are crediting Obamacare’s cost controls this phenomena:

Obamacare is doing better at a lot of things than anyone seriously expected. The law’s initial premiums came in cheaper than the Congressional Budget Office projected when the law first passed. In April 2014, the Congressional Budget Office said the unexpectedly low premiums meant Obamacare would cost $104 billion less than they previously thought. If Kaiser’s estimates hold nationally, Obamacare’s cost will have to be revised downward yet again.

So, as a business owner, did your premiums decrease this year? Yeah, I didn’t think so. Me neither.

In fact, anecdotally, just about all the business owners I speak to across the country have experienced significant premium increases this past year and have been told by their benefits consultants to expect more. A Federal report issued earlier this year by the Centers for Medicare and Medicaid Services predicted that two-thirds of small businesses will see their premiums spike under Obamacare. Other small businesses, like these in Minnesota are seeing increases of up to 30 percent.

So what gives? Why are individual premiums on the health care exchanges decreasing, or only moderately increasing, when so many small businesses (like mine) are seeing significant increases? There are at least two significant things going on here.

Community ratings. In the good old days when we could eat fatty foods without guilt and baseball was popular, insurance costs were pooled among regions and industries. That way if your company had a good past history of health claims and was in an industry that is considered more “safe” than others you could receive discounts on your insurance as a reward. Starting this past year, the Affordable Care Act has discontinued this practice. Now companies can only be rewarded based on their location and age of their employees (and if they smoke). So a good health history doesn’t benefit you anymore. You’re now being charged the same as companies that have a bad health history (and those companies are benefitting because they’re no longer being subject to a surcharge). The idea here is to level the playing field and not penalize those companies that may employ people with serious health issues that skew their overall health history.

Risk Corridors. Your company is not getting its insurance on the exchanges so your company is not benefitting from the Risk Corridor Program. When you hear that insurance premiums on the health care exchanges have decreased or only moderately increased be very, very wary. That’s because the companies that are selling their insurance on the exchanges are protected from losses. This is called the Risk Corridor Program and under this provision: “…if insurers’ expenses exceed 103 percent of their projected costs, the federal government would be required to reimburse half of those payments. If their actual claims increased 8 percent above the projected claims, the government would cover 80 percent of the excess.” The Risk Corridor Program, according to some, allows the insurance companies to keep their premiums as low as possible on the exchanges so that they can attract as many new customers as possible, gaining market share and therefore helping the exchanges to succeed and ultimately bringing more affordable premiums to all. Critics (particularly Republicans who now control Congress, so watch out for that) call this a “bailout” of the insurance industries but supporters say it’s the only way to get the insurance companies to participate in the health care exchanges. The Risk Corridor Programs essentially expire at the end of 2016 and no one really knows what kind of premium increases could be coming after that.

So yes, prices for individual premiums on the health care exchanges are not increasing by much. But this may not be the case after 2016. And yes, your company’s premiums are. This is happening right now. And now you know why.

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