This is the first of a two-part series about the impact of health care reform on a Texas-based small business, Software Advice, and how the CEO, Don Fornes, plans to keep providing quality benefits while controlling costs.
When the Affordable Care Act (ACA) was passed, I thought it was just a watered-down version of health care reform. However, our health insurance broker recently briefed me on how it will impact our business when we renew our coverage. The majority of the ACA's provisions go into effect in 2014 -- and they are much more onerous than I expected.
The bottom line: We are expecting price increases of anywhere from six percent to 40 percent per employee next year. That's a big variation, right? I'll explain why we're facing such uncertainty.
Dramatic changes to health insurance pricing
The ACA's first major impact is a shift toward "community rating." Starting in 2014, insurance carriers will no longer be able to price small group coverage based on employees' health status and claims history. They will use only four factors: age, gender, tobacco use and ZIP code. That means other employee populations in your area will affect your insurance rates.
Community rating is a dramatic change, and it will result in substantial inflation for small groups that had previously enjoyed low rates based on younger, exceptionally healthy employee populations -- like ours.
Expanded coverage requirements
The ACA introduces broader requirements on what an employer's health care plan must cover. For example, small groups' coverage must now provide for essential health benefits, such as pediatric services, maternity care and substance abuse treatment, and is subject to maximum deductible and out-of-pocket limits. Large groups' plans must provide "affordable coverage" -- that is, the employer must cover at least 60 percent of the actuarial value of health care costs, and employee contributions must not exceed 9.5 percent of their income, whereas previously there was no such coverage quota.
Because our business has always been relatively healthy, we've been able to provide coverage that meets or exceeds these requirements, but I empathize with employers whose profit margins don't easily afford the provision of high-quality coverage. They will be the most significantly impacted by the new requirements.
As I examined all this information, I came to a conundrum: Are we a small group, or not? Under current Texas law, a small group is one with two to 50 employees. However, pending legislation -- Texas State Senate Bill 85 -- could expand that to companies of up to 100, if passed. We just hired our fifty-fifth employee.
Large group pros and cons
Many companies have been fearful of the "large group" label when it comes to health care reform, carefully keeping their staff numbers under 50. But we found that being a large group is actually beneficial to us. As a large group, we are exempt from community ratings and maximum deductible limits. We also don't have to provide essential health benefits -- though we already do. And the expected increase in health care costs for large groups in 2014 is relatively low -- six to eight percent.
Potential drawbacks of being a large group: We are subject to the "pay or play" rule -- provide coverage that meets the requirements, or pay a penalty-- as well as automatic employee enrollment upon hire and at renewal. For companies with a tighter bottom line, these rules may prove challenging. For our business, they are less relevant; we are already providing quality coverage, and we want everyone to have it.
Small group pros and cons
Small groups are exempt from pay or play. They don't have to provide coverage to their employees. If we were, say, a small pizza shop, this would be a relief. But we're not. We want to remain competitive in hiring -- and can afford to keep doing so.
The requirement to provide for essential health benefits could be problematic for cash-strapped companies and might raise carrier costs.
The biggest downsides if we're a small group: we'd be subject to detrimental community ratings, and maximum deductible and out-of-pocket limits would drive up costs across the board. As a small group, we would face a whopping 30 to 40 percent increase in health care costs for 2014.
One thing we will do is push our renewal date out to December 2013, so that our new plan won't take effect until January 2014. That's because the government may actually change or delay implementation of some ACA provisions. Pushing out our renewal delays the new requirements as long as possible and allows us to keep a plan we like, while giving us a chance to see if the government backpedals.
We are also considering switching to a self-funded insurance plan. In our next piece in the series, I will discuss this option in greater detail.