Small businesses shun health exchange

Thousands of Colorado small businesses – ineligible for federal subsidies and unable to afford high prices – are shunning the new health-insurance exchange, opting instead to renew existing “grandfathered” plans to avoid what are often double-digit rate increases.

Jim Sampson, employee benefits executive at Flood and Peterson in Fort Collins, said that roughly 70 percent of the companies with which he works opted to renew their plans late last year, worried about projected cost increases that have ranged from 20 percent to 63 percent.
As of Jan. 2, of the thousands of small businesses in Colorado, only about 100 had purchased plans through the exchange. The Small Business Marketplace opened along with the individual exchange on Oct. 1.

“I think it’s a pretty good number, all things considered,´ said Jim Sugden, Small Business Marketplace manager, of the enrollment numbers. Colorado’s exchange saw higher “enrollment per case,” or covered lives per business enrolled, than did other exchanges, including the one in Massachusetts, which first launched in 2006 under state law and was considered a model for many state-run exchanges.

On average in its first months, the Massachusetts small-business exchange saw about three enrollments per case, while Colorado’s exchange had about nine, Sugden said. He admitted that the exchange didn’t get off to the best start, but said he is positive about the rest of the year and the next few years. He hopes to increase the market share of plans purchased on the exchange to 30 percent in the next three years.

“Many small businesses took early renewal as a move to gain more time to get a handle on the situation,” Sugden said. “Now we have the balance of the year to communicate with them about what’s on the exchange.”

By taking early renewal, companies were able to put off many of the changes imposed by the Affordable Care Act for another year.

Those companies that were not eligible or did not take the early-renewal option now are faced with new decisions about their money and their employees’ health care.

Those experiencing the biggest changes or facing the biggest potential rate hikes are those with younger employees or whose existing plans do not adhere to the requirements of the legislation.

Younger people are one of the groups who will see increased costs as a result of the law.
For example, Sampson said, one company that employs many young people was confronted with a potential 63 percent increase because its existing prescription drug coverage was not compliant with the Affordable Care Act.

When plans are not compliant with the Affordable Care Act, a company’s carrier will attempt to “map” to a comparable plan, but often those plans end up being much more expensive than the original one, leading to large increases, Sampson said.

An increase of 60 percent is extreme, Sampson said, but the minimum increases Flood and Peterson has seen for small businesses that did not renew early have been around 20 percent. Most businesses are accustomed to increases in health-care costs – just not increases that large. The trend for the past few years has been an increase of about 10 percent to 12 percent annually, he said.

Scott Rankin of Leading Edge Financial Group, an insurance brokerage firm in Greeley, reported similar increases in premiums for his clients – around 20 percent. The majority of his clients took early renewal as well, he said.

“I don’t think the small business exchange is going to work,” Rankin said. The primary reason? Most of his small business clients do not qualify for the tax credit offered by the exchange, which Rankin calls “the only reason for a small business to use the exchange.”
Businesses with 50 or fewer full-time equivalent employees can use the exchange, but companies must meet a different set of requirements to be eligible for tax credits. To qualify, businesses must have 25 or fewer full-time equivalent employees who make an average of $50,000 each.

In addition, the employer must pay at least 50 percent of the employees’ premium cost. The tax credit is then worth up to 50 percent of the employer’s contribution.

Connect for Health Colorado does not yet have statistics on how many businesses have qualified for the tax credit.

Before the launch of the exchange, many consumer and business advocates touted the Small Business Marketplace as a way to increase competition between insurance companies and keep premium costs down. Because so many businesses chose to renew early, however, the shopping that was anticipated did not occur, keeping competition from impacting pricing.
Even businesses that renewed early can still shop around for next year’s policy, Sugden said, adding that more than 90 plans by six carriers are available to choose from. Also, each business can choose more plans to offer to its employees, increasing competition on a micro level.

Vicky Simmons, enrollment specialist at Flood and Peterson, said the small-business exchange enrollment numbers were “pretty pitiful.”

Problems with the website perhaps have been the biggest obstacle to getting businesses signed up for coverage there, Simmons said.

Although the site has been tweaked and improved since its launch, she said, problems remain.

“Things you would think would have been thought through,” such as computing an employer’s contribution, are still not functioning well enough, she said.

Simmons has tried to use the Small Business Marketplace to find plans for companies, but none has chosen to enroll in plans there, usually because of a lack of interest in the exchange or because the site was difficult to use.

“I wish there was more we could look at to figure out why that (enrollment) number is so low,” she said.

But Simmons expects that as time goes on, enrollment will go up. The Small Business Marketplace has continuous open enrollment, so companies can sign up at any point during the year, unlike the individual market, where open enrollment closes March 31.

Also, the option for early renewal made it so many businesses did not need to even consider the exchange because they were able to keep their old plans.

Next year, when that option is not available and as more grandfathered plans fall out of compliance with the law, there will be more need for the Small Business Marketplace.
Business advocacy groups have been working to raise awareness of the exchange and to educate small-business owners, but there was always an expectation that rolling out the Small Business Marketplace would not be easy, said Tim Gaudette, outreach manager for the Denver bureau of the Small Business Majority.

“We always knew implementation would be a problem,” Gaudette said.

As to the rate increases that were downplayed before the exchange and renewal period opened, Gaudette said this year’s plans can’t truly be compared with pre-Affordable Care Act plans because the legislation requires that policies carry many new benefits.

Companies that have seen huge increases – like the one that faced a 63 percent jump – are not the norm, Gaudette said.

“Each quote is unique to that company,” he said. Some businesses may see increases, depending on their plan and carrier, while others have seen improvement in their rates when shifts occurred in their plan, Gaudette said. While the Small Business Majority serves as an educational outlet, he said, some companies have seen rate decreases by moving to exchange plans.

Molly Armbrister covers real estate, banking and health care for the Northern Colorado Business Report. She can be reached at 970-232-3139, or

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