Starting next year, the small group market will be required to operate under a practice called community rating, which will make insurance more expensive for firms that have relatively healthy workers.
So far, the federal government requires the community rating only for policies sold to individuals or families, and small group policies; large group policies aren’t subject to the new rules.
But the change will upend traditional insurance pricing practices where healthier -- and cheaper -- workforces received a break on premium rates, said David Martin, president of the David Martin Benefits Consulting Group.
“The whole concept of rewarding those groups that have been performing well on claim ratio and charging more to those groups that are incurring more expenses is changing to one rate -- come one, come all,” he said.
The new rule is meant to prevent a common situation where one employee’s costly illness can send the business’ health premiums into orbit. Businesses that have filed a lot of claims will likely get a better deal starting next year.
Among the companies that will see lower insurance payments next year as a result of the community rating system is Indigo Identityware in Minnetonka, Minn.
Don Jacobsen, CFO of Indigo Identityware, said his workers incur a lot of health care expenses, and that showed up in a 150 percent jump in the cost of the company plan last June before the Affordable Care Act took effect.
“Our experience for a small group was not good. Our utilization was high,” Jacobsen said. The rate increase “was just unacceptable, we just couldn’t afford it.”
Jacobsen’s firm found less costly insurance to cover them through 2013, but it was still 60 percent more expensive than what it had been paying.
Under the new community rating rules, Jacobsen can expect to save 5 percent to 11 percent from his current cost next year, depending on the plan he picks.