To stick with the current plan, Stone & Johnson Dental Group in Edina faces a premium increase of 28 percent.
“We had no idea it was going to be as dramatic as it is,” said Avery, who is practice manager for the group.
Many small businesses in Minnesota are seeing big changes in their premiums this fall as they renew health insurance policies before the year’s end.
Some face increases of 40 percent or more. But others are enjoying discounts of up to 30 percent, insurers say — thanks to the adoption of new rules under the federal health law.
The rules mean that small businesses will no longer benefit from premium discounts — or suffer from premium surcharges — based on the health of employees. With a move to what’s called “community rating,” groups that used to get discounts are seeing big premium increases, while those that were paying surcharges are seeing big savings.
“The move to community rating absolutely creates winners and losers,” said Scott Reid, a vice president with the Minnetonka-based insurer Medica.
In Minnesota, more than 300,000 people obtained coverage last year in the market for small groups, those with 50 or fewer enrollees. At the time, the market generated about $1.38 billion in premium revenue, according to the Minnesota Department of Health.
Previously, insurers could provide groups with premium discounts of up to 25 percent off the average rate for being healthy. Conversely, insurers could impose surcharges of up to 25 percent above the average for groups with high health care costs.
Starting this year, the federal Affordable Care Act eliminates the discounts and surcharges. In the future, group premiums will vary only by the age of enrollees, the group’s location and whether workers smoke, said Eileen Smith of the Minnesota Council of Health Plans.
The change provides an important consumer protection, said Anne O’Connor, spokeswoman for the state Commerce Department. It fits new rules in the market for individual coverage, O’Connor said, that prohibit insurers from denying policies because of pre-existing conditions.
“No one in Minnesota will ever be impacted for being sick ever again,” she said.
That’s cold comfort to Carla Struble, co-owner of Electrical Production Systems in Chanhassen. Her group renewed its health insurance in late 2013 — rather than on Jan. 1, 2014 — to “delay the inevitable,” Struble said. This fall, she learned that her group’s renewal rate is up by more than 30 percent.
“We try to be healthy. We try to promote good health, and we were a healthy group as a result,” Struble said. “It’s like: Where’s our incentive for being healthy?”
Hefty premium increases could prompt some small employers to drop health insurance, although that hasn’t happened in large numbers thus far, said Greg Dattilo, president of an insurance agency in Chanhassen.
Cutting benefits and increasing what workers pay, Dattilo said, are some of the leading strategies for cutting premium costs. Groups also could save with a plan with a limited network of doctors and hospitals.
At Stone & Johnson Dental Group, Avery said her group is feeling caught between cost increases that strain the budget and a desire to take care of employees by offering health insurance. As a practical matter, she worries the company would struggle to compete for talented workers if it drops health benefits or makes them too skimpy.
“It makes you think about the type of benefits you can offer your employees, and the type of salary increases you can do,” Avery said. “The question comes up: Are they better off if they had individual plans?”
Group health insurance policies typically cover 12 months, but healthy groups late last year had incentives to ask insurers if they could renew policies early. Rather than start new coverage on Jan. 1, 2014 — when healthy groups would see higher rates — many sought to do so in the fourth quarter of 2013.
“They changed their renewal date to prolong the better rates,” said Heidi Michaels, a Minneapolis insurance agent with Dyste Williams and president-elect of the Minnesota Association of Health Underwriters.
Those groups are in the spotlight this fall because they are getting price quotes for renewals in the fourth quarter of 2014. But most groups renewed in the first three quarters of the year, including some that are benefiting from the new rules.
“There are some of these groups out there that were historically high-cost workforces, and some of them will experience a decrease of 30 percent or more,” said Joel Stich, sales director for consumer markets with Eagan-based Blue Cross and Blue Shield of Minnesota.
A 2012 report developed for the state Commerce Department suggested a rough balance between winners and losers. Even groups facing premium increases with the new rules could benefit in the long run, said O’Connor of the Commerce Department.
Lifestyle choices can’t prevent all health issues, she said. “Small businesses won’t have to worry about whether one person in their group has high health costs.”
Supporters of community rating say it levels the playing field for groups’ access to affordable health insurance. But it also raises fundamental questions about the purpose of insurance, said Roger Feldman, a health policy researcher at the University of Minnesota.
For those who think the purpose is to pool high- and low-risk into the same group and charge a premium that reflects the average risk, community rating follows as a natural extension. But community rating goes too far, he added, for those who think insurance should ask people to “pay a commensurate premium for their risk.”
With the switch to community rating, “the biggest loser will be the small employer with high-income and healthy workers,” Feldman said, because such employers likely must keep offering benefits to compete for labor.
“The biggest winners will be very small employers that had a couple of very sick individuals,” he said. “They were likely completely shut out of the market before, and now they’ll be able to get into it at a very favorable rate.”