85% Insurance Premium Increase Is A Stunner

Oct. 25--SANTA CRUZ -- The owners of the Sockshop and Shoe Co. face a stunning 85 percent increase in the cost of their group health insurance plan for their employees.

"When you're doubling the cost, it's threatening," said Eric Gil, co-owner with his wife Ellen of the longtime downtown business.

Ellen, with 2016 quotes from the insurance agent in hand, said, "One choice is the nuclear option -- don't offer insurance."

This is not what they expected from the Affordable Care Act. They thought rates could go up 10 to 12 percent, hoping as more people got health coverage, costs would come down, but that's not happening.

The Gils, proprietors of the downtown Sockshop since 1988 and other stores in San Francisco and Berkeley, employ 25 people full time and 25 part time.

With fewer than 50 full-time equivalent employees, they are considered a small employer and aren't required to offer health insurance but they have been offering it to full-timers.

They pay 70 percent of the cost and employees pay 30 percent.

Small employers had the option of "grandmothering," keeping their plan rather than switching right away to a new policy conforming with the Affordable Care Act.

"It saved us a fortune for two years," said Ellen.

Some 35 states are allowing renewal of grandmothered plans but the board of Covered California, which runs the state health insurance exchange, declined to do so, saying there would be no consumer benefit.

With Sockshop's plan expiring Dec. 1, the Gils have to switch.

According to the Los Angeles Times, 70 percent of small businesses in California offering employee health insurance will be switching because their plans will no longer be available.

METALLIC CHOICES

Employers in California have four choices:

--Bronze, paying 60 percent of the health plan cost and employees paying 40 percent.

--Silver, employers paying 70 percent.

--Gold, employers paying 80 percent.

--Platinum, employers paying 90 percent.

The Gils said their agent, Peter Neuwald of ANB Insurance Services in Santa Cruz, warned them a rate increase was coming.

"Some are breathtaking increases," said Neuwald.

The law made two big changes in setting rates, banning the practice of charging women more than men as discriminatory and restricting the custom of charging -- some would say overcharging -- higher rates as people age.

Older people can be charged at most three times more than young people whereas before a wider spread was allowed.

"It's kind of a shell game where everybody's trying to throw the cost on somebody else," said Neuwald. "We as agents are bearers of bad news."

HOW COSTS JUMP

The Gils pointed to a rate sheet showing how costs would jump if their new plan were similar to the current one:

A 28-year-old man paying $180 a month would pay $470 a month, from $2,160 to $5,640 a year.

A 29-year-old woman paying $180 a month would pay $483 a month, from $2,160 to $5,796 a year.

A 31-year-old woman paying $219 a month would pay $501 a month, from $2,628 to $6,012 a year.

Hearing those numbers, "we felt a little sick," said Eric. "Do we raise prices? Eliminate insurance? Suck it up?"

Eric, 55, and Ellen, 54, would pay more, too.

Staying with a family plan, their cost would jump from $1,149 a month to $1,976 a month, from $13,788 to $23,712 a year.

Ways to reduce the cost mostly mean cutting back: Paying 50 to 60 percent of the cost, not covering dependents, choosing a plan with larger co-pays, or opting for a high-deductible plan.

In 2014, the average deductible for firms with fewer than 200 employees was $1,800.

Eric said he wishes Kaiser Permanente were an option but the nonprofit health plan, a huge presence in the San Francisco Bay Area, is not serving Santa Cruz County in 2016.

"We have employees in San Francisco and Berkeley," Eric said, noting Sockshop's retail stores outside Santa Cruz. "Do we need to move our headquarters to Santa Clara to get Kaiser? I asked Peter (the insurance agent). He laughed but I'm not kidding."

ECONOMIC SLAM

With California raising the minimum wage from $9 to $10 an hour Jan. 1 along with the health insurance rate increases, Eric said he foresees "a big slam" slowing the economy in 2016.

"It's very unfortunate," said Lauren Graham, 29, Sockshop's general manager. "There's a potential for losing health care. Ellen and Eric don't want that to happen."

Graham, who has worked at Sockshop for 10 years, said she feels conflicted.

"I supported the Affordable Care Act," she said.

At the same time, she sees young people rarely spending beyond the deductible and she worries they can't afford these new rates or a bigger upfront cost to see a doctor.

"If a co-pay for a doctor is $60 to $70, that's hard," she said. "It makes me want to never go to the doctor."

GROUP EXODUS?

The premium increase Sockshop faces is not unusual in Santa Cruz County.

"I am already delivering 75 percent to over 100 percent rate increases to small business group plans that now have to move to the new Affordable Care Act 'metal' plans," said Pamela Fugitt-Hetrick of DCD Financial and Insurance Services in Santa Cruz. "They are still determining if they can keep group insurance going."

In an effort to keep groups in place, insurance carriers have eased up on requirements that 75 percent of employees sign up for a group plan, she said, noting Blue Shield is down to 25 percent participation and Health Net is offering something similar.

She predicts many of her clients will give employees a "cost of living" increase and stop offering health insurance.

"Most employees can actually fare better this way, especially if it makes them eligible for a subsidy," she said.

In 2016, a single person earning up to $47,080 and a family of four with income of up to $97,000 are eligible for subsidies.

78 PERCENT INCREASE

Zachary Davis, co-founder with Kendra Baker of The Penny Ice Creamery, The Picnic Basket and Assembly, is another Santa Cruz employer looking for a new plan.

"To keep our current plan, something most like our current plan, we're looking at a 78 percent cost increase," said Davis, who with human resources manager Candace Elliott has spent 100 hours studying the options.

He and Baker began offering health insurance in 2013 when their three-year-old food venture had 35 employees. They started with a $1,500 deductible, meaning employees paid that amount out of pocket before the insurer paid a claim.

This year, they are covering 60 percent of the premium, employees pay 40 percent.

Since their staff has grown to more than 50 full-time equivalent employees, health insurance is a requirement.

$6,000 DEDUCTIBLE

Davis found the least expensive choice -- costing 24 percent more -- was a plan with a $6,000 deductible, meaning employees would pay $6,000 out of pocket plus premiums.

He called the network of doctors "terrible," with few primary care physicians and none from the Palo Alto Medical Foundation, a big group in the county popular with local residents.

At $6,000, it would cost employees less to go without health insurance and pay a penalty, he observed.

Next he looked at signing with a "co-employer" such as payroll giants ADP or TriNet to give his small operation access to plans and rates for large employers.

The law treats businesses with large employers with 100 full-time employees differently, not requiring them to offer the 10 health benefits that smaller businesses with 50 to 99 full-time employees are required to offer.

"If you're over 100 employees, the rates are much lower for equivalent coverage," Davis said. "If you look at the exchange plans, they have better rates and coverage. They're both better than the 50 to 99 employee market. I don't have all the answers as to why."

The co-employer option did not pencil out because lower premiums are only available if small employers sign up for payroll and human resources services.

Davis said he would save $20,000 to $30,000 on health insurance premiums but spend $70,000 to $80,000 on administrative services, wiping out the savings.

PENALTY FOR NO INSURANCE

Davis said he wishes he could give employees money, say, $400 a month, that they could use to buy health insurance on the Covered California state exchange.

"There's a way for them to get better coverage for the same amount of money," he said.

But that would result in a penalty of $100 per day per employee, adding up to $36,500 per year per employee, according to the IRS.

Another approach would be to stop offering health insurance and carefully manage staffing, which expands to 150 employees mostly part-time at peak times.

The penalty for not offering adequate insurance is $2,000 for each full-time employee; the fine does not kick in until after 30 full-time employees.

"We don't want to do that," Davis said. "We want our employees to have health care ... We're committed to offering it, figuring out what plans we can get without putting us out of business."

Small business impact

The Affordable Care Act mandate for small businesses to offer new insurance plans with essential benefits was postponed from 2014 until 2016. Santa Cruz County has predominately small businesses with 96 percent of establishments reporting fewer than 50 full-time equivalent employees and 152 businesses with 50 to 99 employees.

--50 or more full-time equivalent employees: 243

Must offer health insurance.

--Fewer than 50 full-time equivalent employees: 6,536.

May be eligible to buy health insurance via SHOP.

--Fewer than 25 full-time equivalent employees: 6,081*.

May be eligible for tax credit for providing coverage.

*Employers with 19 or fewer employees; census does not track 25 or fewer.

Total establishments: 6,779.

Source: 2013 census county business patterns, IRS

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(c)2015 the Santa Cruz Sentinel (Scotts Valley, Calif.)

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