Rule changes stemming from the national health care law are likely to drive up average insurance premiums for small businesses and individuals next year, according to a study funded by the insurance industry.
The analysis, by Wakely Consulting Group, projects President Obama’s health care law —
That would be on top of typical base rate increases, driven by hospital and doctor’ fees and demand for medical care, which have ranged from 2 to 4 percent in recent years.
Combined, the cost of insurance would almost certainly exceed the state’s benchmark for increases. The goal of a cost-containment law enacted last year was to cap overall increases at 3.6 percent — the rate of economic growth projected in 2014. The limit applies to out-of-pocket expenses and costs for larger businesses and government-insured residents, in addition to small employers and individuals.
The study also predicts the impact of the national law on individuals, families, and businesses in Massachusetts will vary widely. Changes affecting insurers next year could result in some premium base rates ranging from between 20 percent less and 26 percent more than the average.
In addition, new federal rating factors could mean increases of as much as 57 percent for some families and businesses or decreases of as much as 57 percent for others. “You’ll see winners and losers,” said Lora Pellegrini, president of the Massachusetts Association of Health Plans. “Overall, there will be additional costs.”
The study was commissioned by Pellegrini’s insurance trade group, along with Blue Cross Blue Shield of Massachusetts, the state’s largest health insurer, which does not belong to the association.
‘It’s probably a good year to check your renewal rates against other quotes.’
Most businesses and individuals won’t learn their new premium rates for January until late August or early September, after insurers’ filings have been reviewed by the state Division of Insurance. They could then shop for better deals from other insurance companies during the fall.
“It’s probably a good year to check your renewal rates against other quotes,” said Wakely Consulting’s managing director, Jon Kingsdale, one of the report’s authors. Kingsdale is also a former executive director of the Massachusetts Health Connector, which was created to help implement the state’s 2006 health care overhaul.
The report could increase pressure on the Patrick administration, which has made controlling health costs a top priority, to seek relief from a national law modeled on the 2006 Massachusetts law.
Last month, state lawmakers sent a bill to Governor Deval Patrick’s desk that orders him to ask for a waiver from provisions of the national law that would override state discounts to certain small businesses. Business groups warn that most small companies will face higher premiums when US rules replace state regulations.
“There’s a potential for wild rate changes,” said Christopher P. Geehern, executive vice president of Associated Industries of Massachusetts, a trade group.
“You’re introducing a considerable amount of unpredictability into a stable market. If you’re a small employer at the bad end of these ranges, you could be running up a 75 percent increase [in premiums].”
Of particular concern are the rating factors that let insurers add or deduct costs for individual customers.
Massachusetts currently allows them to weigh nine factors, ranging from age and group size to industry sector, geographic area, and wellness. But over the next three years, those will be phased out and replaced by just four federal factors: age, geographic area, tobacco use, and individual versus family enrollment.
Prodded by business groups, Patrick sought permission for Massachusetts to keep its broader set of rating factors. But the governor said he was told a waiver of the national health care law would not be legal. Instead, state officials negotiated with their federal counterparts to phase in the federal rating factors over three years.
Glen Shor, Massachusetts’ secretary of administration and finance, said Patrick will comply with the recent legislative directive and again seek to have Massachusetts exempted from the new rating factors.
But he said the three-year phase-in already is “protecting many small employers and their employees from rate shock.”
Shor said the Wakely study follows assessments made prior to the phase-in agreement that also warned of additional costs — including one from the state Division of Insurance.
But the more recent research does not address the entire cost picture, he said, including benefits to Massachusetts from more federal funding of subsidized insurance and required national benefit mandates that align employers in the state with business rivals elsewhere.
Higher base rates stemming from the national law will affect about 700,000 individuals and employees of small firms, not the entire Massachusetts market, Shor said.
Even within that segment, he said, the average increase that is projected may not reflect the typical experience.
“The key word here is average,” Shor said, referring to the report. “We think it’s very possible that the bulk of the market will experience lower increases than that average level. Ultimately, premiums will vary from individual to individual, from group to group.”
For example, many high-tech companies — coveted by insurers because of their younger workforces — may be hit with higher premium increases because the federal rating factors won’t permit industry sector discounts, according to health insurance broker Jeff Rich, chief executive of HSA Insurance, a private health exchange in Braintree.
In addition, he said, older employees will pay more — and younger workers less — as blended rates are phased out in the small group market.
Also, smaller families will have lower rates, and larger families higher ones, due to federal “member rating” changes.
“There’s going to be a little bit of unrest, of confusion out of the gate,” Rich said.
“These wild rate swings are going to create a lot of phone calls to insurance companies and brokers.”