Small businesses in Minnesota will see an average increase of nearly 10 percent in health insurance premiums next year as health care cost trends accelerate.

The increase is a departure from the past two years, when the rate of increases across what’s called the “small group” market was less than 5 percent, according to data from the state Commerce Department.

The average increase for 2017 will be 9.75 percent, the Commerce Department said in response to questions this month from the Star Tribune. That figure takes into account the premium increases approved for seven carriers in the market, with adjustments for their market shares. The rising cost of medical services and prescription drugs is a factor.

“The increases largely reflect the general rise in health care costs,” said Mike Rothman, the state commerce commissioner, when he announced carrier-specific rates last month. “Our small group health insurance market is stable.”

Businesses with two to 50 full-time employees purchase coverage in the small group market. The plans cover about 250,000 people. It’s been shrinking for several years as small employers struggle with the increased cost of providing health benefits to workers.

The market shrank during 2014, in particular, when the federal Affordable Care Act changed rules for how insurers priced products for small groups. Before the health law changes, insurers could charge higher prices to small groups with greater health risks, and provide discounts to groups that were healthier.

The flip side was that healthier groups received discounts that went away in 2014. So, some small businesses that year saw big rate increases, which prompted them to drop coverage.

The number of small group plans in the state dropped from 25,153 in 2013 to 17,207 in 2015, said Bentley Graves, director of health care and transportation policy for the Minnesota Chamber of Commerce.

“The number of small employers in the small group market has dropped by one-third over the last two years,” Graves said. “In a very tight labor market, obviously that puts small businesses at a disadvantage.”

The 2017 increases are a far cry from the individual market, where subscribers are looking at premium spikes in excess of 50 percent. Even so, Mike Hickey, state director of the National Federation of Independent Business, said that among small businesses “there’s a lot of this fatigue from these increases.”

Commerce Department spokesman Ross Corson said the two health insurers that received the largest rate increases for next year actually decreased rates in 2016. So their 2017 rate increases “are really corrections,” Corson wrote in an e-mail.

Jim Schowalter, president and chief executive of the Minnesota Council of Health Plans, said: “Medical expenses are back on the rise, and that should be the primary issue for small group insurance rates next year.”

 

Twitter: @chrissnowbeck