Many Small Employers Face Rising Insurance Costs Under ACA

Fat Head's Brewery & Saloon in North Olmstead faces rising health insurance costs.
Fat Head's Brewery & Saloon in North Olmstead faces rising health insurance costs.
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Paul Siperke is the co-owner of Fat Heads - a popular brew pub in North Olmsted. He has fewer than 50 full-time employees, so he's classified under the Affordable Care Act as a small business.

He doesn't have to provide health insurance to his employees. But that's what he's been doing despite some pretty crazy volatility in rates.

"They just seemed to keep going up every year. One year we got a 38 percent increase, another year we got 11. One year we got 3," Siperke says.

This year, under the Affordable Care Act, he saw another hike - this one for about 20 percent.

"It just seems odd that we get such a drastic price increase when nothing has really changed with us as far as our employees and health issues," he says.

Until now, if employees were healthy and claims were few, premium prices were relatively good. But, for a small business, if even one employee was in a car accident or was diagnosed with cancer, insurance costs could skyrocket the next year.

The industry called this "experience rating." But that is changing, says Steve Millard, president and executive director of the Council of Smaller Enterprises.

"As you go forward, they're moving to this modified community rating, which means that if you're a really healthy company and have a really good rate relative to everybody else today, going forward, you're probably going to pay a lot more for insurance," Millard says. "On the flip side, if you have chronic conditions and difficulties and an older workforce and are paying a lot more, you'll probably see some benefit in healthcare reform.

In this new math world, there are more losers than winners. COSE, the small business group Millard heads, estimates about 20 percent of smaller companies in the region are seeing some sort of price relief this year. The other 80 percent are getting price hikes.

And Northeast Ohio - as it turns out - is a microcosm of what is happening nationally: In February, a federal report commissioned by Congress projected that about two-thirds of small businesses across the country will see their costs rise.

That's a big concern for Kevin Kuhlman,manager for legislative affairs at the National Federation of Independent Business.

"The initial sticker shock that's occurring this year or next year, or the following year when plans finally have to come into ACA compliance, that's what I'm really worried about. I'm worried that small business owners will not be able to continue offering policies because the costs are too high.," Kuhlman says.

Jonathan Gruber, a professor of economics at the Massachusetts Institute of Technology, says this transition may sting at first, but there's a payoff down range.

"But once we're in this system, we're not going to see that year to year variability we've seen traditionally. We're not going to see these huge swings year to year, you know one of your employees get sick and all the sudden your rates double, that goes away now," Gruber says. "The main thing is, we're moving to a system that is going to be much more stable and we're not going to have as many year-to-year swings as we used to."

Once we're through this transition, Gruber says, insurance prices won't rise as dramatically as they have in the past.

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