Small business health plans in Minnesota could be facing double-digit premium increases next year, with some insurers saying that enrollees are consuming more care just as medical costs are rising.
The number of those potentially affected by proposed increases is about 160,000.
Preliminary figures released this month are rekindling fears that some small businesses might drop group coverage altogether, but such moves could be tough in a tight labor market where employers use health benefits to compete for talent.
The state’s four largest health insurers for small businesses are proposing average increases that range from 8 to 17 percent, a slightly higher range than 2017 rate proposals that resulted in an overall average increase of nearly 10 percent after reviews by regulators. The state Commerce Department is scheduled to release final rates by Oct. 2.
“The mountain is harder to climb every year,” said Kevin Otto, chief financial officer at Otto Transfer, a trucking business in Delano that has maintained its employee health plan despite the cost pressures.
In Minnesota, employers with two to 50 workers are covered through the “small group” market, which this year includes more than 275,000 enrollees, according to data released this month by the federal government.
The largest health insurer in the small group market is Bloomington-based HealthPartners, with about 130,000 members. The insurer is seeking an average increase of 17 percent for most of those enrollees.
In a regulatory filing, HealthPartners said it lost money on the small group business in 2016 due in part to higher than expected medical claims. In 2018, the insurer projects increased use of medical services, plus higher payment rates to health care providers and for prescription drugs.
“We expect to see continuing small losses in 2017,” the company said in the filing. “The requested rate increase is projected to result in revenue that is adequate to cover claims and expenses in 2018.”
Golden Valley-based PreferredOne is seeking an average rate increase of nearly 12 percent for about 30,000 enrollees. In its filing, PreferredOne said: “The biggest driver of the rate change is the increasing illness level of policyholders.”
Eagan-based Blue Cross and Blue Shield of Minnesota, which is the second-largest carrier in the market, is seeking an average increase of 9 percent for most of the 89,000 enrollees it currently covers in the small group market. Blue Cross also cited medical cost and utilization trends, adding that reinstatement of a federal tax on health insurers next year also justifies the rate increase.
Not all carriers, however, stressed the same factors in their filings. Minnetonka-based Medica, for example, did not call out higher cost and utilization trends when explaining its proposed average increase of about 8 percent for most of its 29,000 small group customers.
“The rate increases look to be for different reasons based on which insurer you’re looking at,” said Jim Schowalter, chief executive of the Minnesota Council of Health Plans, a trade group for insurers. “A lot of work still needs to be done.”
Overall, the requested premium increases are “very alarming,” said Mike Hickey, Minnesota state director for the National Federation of Independent Business.
“They’re serving up pretty large increases — way beyond nominal, way higher than health insurance inflation and very concerning,” Hickey said.
When the federal Affordable Care Act (ACA) in 2014 changed rules for how insurance companies set premiums in the small group market, some employers saw premium spikes of up to 40 percent, Hickey said. The rule change meant that health plans could no longer give premium breaks to healthier groups, or impose financial penalties on groups that used more health care.
While premiums aren’t poised to rise by such a large margin, the numbers are big enough that employers likely would shop around for new options, said Bentley Graves of the Minnesota Chamber of Commerce. Some might drop coverage altogether.
In January, the Legislature made it easier for small groups to “self-insure,” meaning the employer takes the risk for medical claims in conjunction with a stop-loss insurer, Graves said. In exchange, employers can save money on health plan costs. Changes in state and federal law will make it possible in 2018 for small employers to help pay individual market premiums on a pretax basis.
Both changes are meant to give small employers options for providing coverage. The number of groups in the small group market has been inching up in the past year, Graves said, but the tally dropped significantly from 2013 to 2015.
“There was plenty of reason to leave the small group market in the first couple of years [after the ACA] as small group rates increased for some … and, at the same time, we had some of the lowest individual market rates in the country,” Graves said. “Now, although small group rates have certainly continued to increase, they’ve increased much more slowly than individual market rates.”
Going forward, if regulators approve the proposed premium increases, small businesses will consider a variety of benefit changes to save money, said Greg Dattilo, a benefits consultant and owner of Dattilo Consulting in Chanhassen. Options include tighter limits on the health plan’s network of doctors and hospitals, and higher premium splits and deductibles.
But Dattilo said he didn’t expect employers would drop their health plans, saying he’s hearing from small firms that are thinking of starting a health plan for the first time in order to better compete for workers.
“Employers are not going to drop their health insurance because they will lose their employees, especially with the millennials,” he said. “If you don’t offer medical insurance, you’re not a player.”
Otto Transfer in Delano just switched health insurers in order to moderate premium increases for 2017.
Kevin Otto said the company was one of the small employers hit with big rate increases in 2014 with the switch to new rate-setting rules under the ACA. The company added large deductibles to the health plan as a result.
Otto Transfer is a family business that dates to the 1940s and specializes in hauling power line poles on flatbed trucks. With 24 employees, most of whom participate in the company health plan, the company believes providing good benefits is part of its responsibility to workers, Otto said, but premium increases put the firm in a tough spot.
“At what point is the price break,” Otto said, “where you just throw yourself out?”