Small businesses fear rise in health costs under new US rules

Small businesses, which bore the brunt of health insurance increases over the past decade, were heartened when a state law passed in 2010 allowed­ them to band together to buy coverage at a discount through newly established health insurance cooperatives.

But trade groups that set up such group-purchasing co-ops now say they are threatened by new federal rules stemming from the national health care overhaul that would override Massachusetts insurance rating factors, boosting the premiums small employers pay.

“It would take away some of the very tools we have to get a seat at the table and get some concessions from the insurers and providers,” said Jon B. Hurst, president of the Retailers Association of Massachusetts, which in April launched the state’s first insurance co-op. It represents about 1,000 retailers with 10,000 employees.


Hurst and Peter Forman, chairman of the Massachusetts Association of Chamber of Commerce Executives, which started its own co-op in August, are scheduled to meet in Washington Friday with officials of the US Office of Management and Budget’s Office of Information and Regulatory Affairs. Their goal is to press the White House to overturn the insurance purchasing rules laid down by the US Centers for Medicare & Medicaid Services in November.

Get Talking Points in your inbox:
An afternoon recap of the day’s most important business news, delivered weekdays.
Thank you for signing up! Sign up for more newsletters here

Under the Massachusetts law, co-ops can use as many as eight rating factors in bargaining for health insurance rates, including an “adjustment factor” designed to level the playing field between small businesses and large organizations, which have more negotiating clout with health insurance companies.

The co-ops can also lower premiums by offering plans with wellness incentives aimed at preventing illness, promoting fitness, and keeping hospital stays to a minimum.

The federal rules, however, restrict employers to four rating factors applied nationally. This “would result in significant market disruption and increased costs to many individuals and small businesses,” Hurst wrote last week to Boris Bershteyn, acting administrator at the OMB’s Office of Information and Regulatory Affairs.

An OMB spokeswoman said the office’s policy is not to comment on rules under review.


Hurst said the federal rules seem intended to narrow the premium gap between small businesses themselves rather than creating a level playing field with big businesses and other large employers, such as nonprofits and government agencies.

He said small companies, which employ about 850,000 Massachusetts residents, have been paying higher insurance rates — and enduring years of double-digit annual increases — to subsidize self-employed individuals since the state merged those markets in 2006.

While it is not clear whether the health insurance purchasing cooperatives would have to shut down, Forman, whose co-op has nearly 200 employers, said it was doubtful that they would reap cost savings under the federal rules.

“The big loser in this will be small businesses,” he said.

“Not only will small-group premiums rise, but small businesses will look at less generous benefits for their employees to make up for that. We feel like the feds are cutting the legs of Massachusetts out from under us.”

Robert Weisman can be reached at