Small Businesses Wrestle with the Affordable Care Act

For small businesses in New Jersey, the Affordable Care Act (ACA) is - by many accounts - bad news. The options are confusing, they are hard to calculate, and in most cases, they are leading to higher premiums. The result is that some businesses may be forced to drop coverage due to rising premiums.

The situation is challenging for small companies - those with fewer than 50 employees. While not technically under the ACA "employer mandate," which will go into effect in 2015, their plans must still become ACA-compliant and meet the standards of the ACA this year.

As companies began locking in 2014 plans in late 2013, for most it meant higher premiums. One broker, Adam Wax, a partner in KRA Insurance Agency, Inc. in Springfield, notes that he has been seeing small group premiums rise an average of 10 to 20 percent. Some of his groups have experienced rate increases as high 26 and 56 percent - all due to the impact of the ACA.

These increases are a long way from the 7 percent increase of most employer-sponsored health plans in 2013, and the hopeful predictions of employers of a slightly higher increase of 8.4 percent in 2014. The cost of healthcare per employee in 2013 was $13,120.

The only ray of light seen by Wax so far relates to a small group of companies offering certain types of plans. "Companies that were already offering a richer package of benefits have seen less of an increase."

Small Group Coverage in New Jersey

The new law is so complex that it has forced insurers to revamp virtually all of their coverages and how they calculate premium costs. Yet, small businesses in New Jersey have one slight advantage over similar-sized businesses in other states that make the conversion somewhat less drastic. New Jersey business owners already had to comply with rules from the New Jersey Department of Banking and Insurance for their group coverage.

"New Jersey went through its own reform years ago;' notes Ryan Petrizzi, director of sales operations and small markets at AmeriHealth. For that reason, small group policies already contain many of the benefits now mandated by the ACA.

The ACA's New Requirements

However, the ACA is still challenging for New Jersey's small business owners because of the way it changes many key aspects of individual and group plans especially in terms of range of benefits, co-payments, actuarial projections, and (to a lesser degree) deductibles. Perhaps the biggest change has been in the way rates are calculated. For instance, the ACA eliminates the rating of policyholders by gender. But at the same time, the age-based band was narrowed somewhat. The young are paying less than the old. Also, older men received a rate cut while older women received rate increases as they were grouped in with men. The law also redefines "family" in such a way that employers have to figure out exactly how many children are in each family to calculate the rates.

Another innovation is the "metallic tier" structure. The tiers are differentiated not just by the range of benefits, but also by the out-of-pocket costs, and the deductible. They range from the least expensive, which is the bronze, to the richer plans labeled silver, gold and platinum.

The ACA comes with other important wrinkles. One additional twist facing small business owners is that some employees with lower paying jobs might qualify for subsidized insurance through the exchanges than the plan being offered by their employer if they have to pay more than 9.5 percent of their income. This is because the individual might be eligible for a federal tax credit. On the other hand, according to some brokers, the government subsidy might end up providing these employees with plans that are around the same cost as those offered by employer.

Another wrinkle occurs if a company has fewer than 25 employees and average wages of no more than $50,000 a year. In that case, the company may qualify for a tax credit, although the employer must pay 50 percent of the cost of coverage and purchase coverage in the exchange.

How Insurers Have Reacted

Given all these variables, it's not surprising that it has been a major challenge for insurers to redesign plans, come up with new rates and inform both business and brokers about the changes.

New Jersey business owners are limited in their range of choices by the fact that only a small number of can-iers offer group coverage on the exchange. The four that do so are Horizon Blue Cross/Blue Shield of New Jersey (Horizon), AmeriHealth, Health Republic and Oxford. Of these only three - Horizon, AmeriHeath and Health Republic - are participating in the Small Business Health Option Program called SHOP, the small business side of the federal ACA Marketplace. (New Jersey opted out of setting up a state-run marketplace.)

Small businesses can continue to obtain coverage through New Jersey's existing small employer health market and are not required to purchase through the exchange. However, employers who want to take advantage of the federal tax credit must purchase through the exchange.

However, these insurance companies have spent many months figuring out how to convert small group plans into ACA-conforming plans. They also had to figure out how to convert them to comply with the government's set of "metallic tiers."

AmeriHealth, which has around 9,000 small group customers, has been working on this over the past year through a combination of letters and publications designed to explain the upcoming changes, according to Petrizzi.

"The biggest challenge has been the education of our customer - to give alternative options close to what they had, but that conform to the ACA," he says. He adds that the majority of AmeriHealth's small group plans fall into the silver or gold tiers. The plans can be more or less expensive, depending upon what the company started out with.

The Broker's Role Becomes More Vital

All this education of both business owners and brokers does not really seem to have made the situation that much clearer.

For instance, Laurene Cholish, accounting manager at Be CU Manufacturing in Scotch Plains, is still puzzled by the new law.

Despite countless conversations with her broker, Cholish admits, "It's just so confusing. If your employees are paying too much as of January 1, they may go somewhere else:' This possibility could be particularly tough on a company such as Be CU manufacturing that has a mixed workforce with both executives and lower paid manufacturing workers. Like any other small business, it needs 75 percent of all employees to sign up for it to get group coverage.

Accessing Information Through SHOP

An added frustration was that business owners and brokers had difficulties accessing comparative plans and rates through SHOP. These troubles coincide with the technical glitches individuals experienced with the federal exchange website at www.healthcare.gov. While the government was busy tweaking the website for individuals, the Obama administration, at the end of November, announced it would delay online SHOP enrollment until November 2014. Small businesses can still purchase insurance through SHOP right now, but they must do so through a broker or agent who will assist with the filing of paper applications.

One of the few who succeeded navigating the online SHOP, Wax says he found that exchange insurers were offering only 3 to 4 plans through SHOP, while the same companies were offering 16 or more for small businesses outside the exchange.

In another attempt to make things easier on individuals and small business who couldn't get through the federal exchanges, President Obama called on insurers to allow these two constituencies to retain their 2013 plans.

As for insurance companies answering the president's call, Horizon, for one, announced on December 10 that it will not renew any 2013 small group or individual health plans after December 31, 2013.

Thomas Rubino, Horizon director of public affairs, issued the following statement on the decision: "Horizon has been working to implement the ACA for the past three and a half years, and undoing our work and essentially creating new plans in three weeks has proven to be impossible.

"[We have] conducted an in-depth analysis of the feasibility and impact of renewing 2013 policies. Since the federal government is requiring all 2013 policies to be modified upon renewal, our members' current plans would be significantly different and far more expensive, especially for the most popular basic and essential plans."

Aetna also announced it will not renew or extend cancelled plans. Meanwhile, Oxford said it would allow small group customers to renew their 2013 healthcare coverage, but Mary McElrath Jones, spokeswoman for UnitedHealthcare, Oxford's parent company, did not have information for customers in the individual market. At press-time AmeriHealth has not reached a decision on the issue.

The Broker Turns Hero

In the end, most New Jersey small business owners seem to be accepting the new rates they are offered in order to be ACA compliant, if they have a January I renewal date. Their only chance of mitigating costs appears to be through the ingenuity of their brokers who unexpectedly took on the role of "hero" for most clients during this time of upheaval by trying to get the best deals possible for clients under the new law.

A few success stories occurred as a result. Wax, for instance, was able to help the VHZ Design Group of South Orange come up with a ACA-compliant plan, comparable to the company's prior plan, at a reasonable rate for 2014. Wax did that by having owner Virginia H. Zonfrilli renew her old plan for one more month (in December), and then switch to a new APA-compliant plan in 2014. For Zonfrilli, Wax became "a hero."

That situation was certainly the exception to the rule. Brokers have seen most companies going along with the new rates. There has not been a big rush to drop group plans - yet. "They may threaten to, at first," Wax says. "But then it all comes down to a vital benefit they need to attract and keep employees."

The Continued Challenges

"This year, the companies are just getting used to the challenges," says Christine Stearns, government affairs health lobbyist for the New Jersey Business & Industry Association, But she adds, "The real story is what will companies do down the road?"

In her recent comments before the State Senate Commerce Committee on the effect the ACA has had on health insurance purchasing decisions, Stearns said that among the key challenges small businesses face are: confusion, with "many employers forced to make coverage decisions with less than perfect information about their options"; SHOP delays and instability, "making it difficult for businesses to make economic choices and budgets for 2014 with a certain amount of confidence"; and the fact that the small business tax credit fall short. "The maximum credit is worth 50 percent of the premium, but a business has to have 10 or fewer employers with average wages under $25,000 a year to qualify. In a high wage state like New Jersey, it's unlikely that many businesses will benefit from the tax credit."

Already, many small business owners are looking at different kinds of plans. One widely discussed option is a defined contribution plan similar to that offered for a retirement benefit. David Mordo, a broker with Walsh Benefits of Fair Haven, sees some movement toward these types of plans. Rather than have the employer contribute a certain percentage of the premium, the employer would provide a certain set dollar figure for employees and then provide a range of options from which the employee could select. "This idea is very popular," Mondo comments. These plans might also allow employers to manage their costs better going forward.

Discussions like this suggest that insurers, brokers and employers are all looking for new approaches for the future in which small group plans would be ACA compliant, but at the same time keep costs under control for owners and still offer a range of appealing options for employees.

It is ironic that none of the present ACA plans - or evolving ones for the future - actually aim at controlling the overall rise in healthcare costs.

This irony is captured in observations of healthcare policy expert Dr. Joel Cantor, director of the Center for State Health Policy at Rutgers University. He praises the law for allowing people to get insurance who were otherwise unable to get it, frequently due to prior medical conditions.

"In certain states, you could only get healthcare if you were healthy," he observes (though this was not the case in New Jersey). In that sense, he believes the law is worthwhile and an improvement. But at the same time he notes that, "This isn't to say that the small businesses don't still have an affordability problem. The trends are horrible. When something goes up by 10 to 11 percent each year, it hurts."