Obamacare causing headaches for NWI small businesses

Jan. 11--Main Sporting Goods in East Chicago, which has been in business nearly 70 years, long provided health insurance to its employees. But after their rates roughly doubled in about a five-year period, the company could no longer afford to do so.

So now the business's 14 employees buy insurance on the individual market. And they're paying about a third what they would if they were still in the company's small-group plan.

"The rates are affordable," says Diane Hudacin, a co-owner of Main Sporting Goods. "With the group plans, they were just out of the ballpark. It's just ridiculous. It's very expensive and very hard for a small business to continue to provide insurance."

The Affordable Care Act, the 2010 health reform law often known as Obamacare, sought to make insurance options for small businesses (those with 50 or fewer employees) more affordable and robust. But that has yet to materialize, as companies are being priced out of the small-group market and more of their employees are purchasing their insurance individually, often on the Obamacare marketplace at HealthCare.gov, which offers tax credits to low-income individuals.

Small groups stuck with big premiums

Small group plans have traditionally been priced based on such factors as health status, claims history and gender. But the Affordable Care Act changed it so that insurers can only take age, family size, geography and tobacco use into account when determining premiums, a process known as "community rating." This was supposed to make the rating system more fair, but so far has had the effect of raising the cost of insurance for many businesses with young, healthy workforces. Groups with poor health status, on the other hand, often now pay less than they did previously.

However, some small employers have been able to avoid the new rating system, by "grandmothering" in their old plans through 2017. Another option is to go to self-funded plans, which are about 25 percent cheaper than community-rated plans, says Jeff Sopko, a broker with Sopko Insurance Agency in Steger. "If you've got a healthy group, why would you want to go to a community rating?" he says. "A lot of my healthy groups are going self-funded."

Theoretically, once all small employers are required to use community rating, the risk pool might be so evenly spread that the rates stabilize. But that might not happen if too many healthy groups exit the small-group market.

Forecast: higher prices ahead

Will Glaros, an employee benefits specialist at the Meyers Glaros Group in Schererville, predicts: "At some point, when everybody is forced into community rating, the increases in cost will be pretty dramatic. We'll see anywhere from a 15 to 50 percent increase in cost."

On top of that, smaller businesses already face higher rate increases than large employers, in part because the latter are better equipped to negotiate lower premiums and provider reimbursement rates and generally have more stable risk profiles, according to a recent study by Washington, D.C.-based think tank the Urban Institute. That report estimated businesses with less than 50 employees pay 18 percent more for health insurance than their larger counterparts.

And when employees at businesses like Main Sporting Goods are forced to buy coverage individually, that presents its own challenges. Most of the plans available on the individual market in Indiana have limited provider networks, with the exception of one, a PPO sold by United HealthCare. The remaining plans are managed care plans (POS, HMO and EPO) that limit which physicians and hospitals a patient can visit. Hudacin, the East Chicago store's co-owner, said there was always a wider selection of policies on the small-group market.

Many small employers stay the course

Even with all the regulatory headaches caused by Obamacare, many small businesses continue to provide their employees with health insurance. A total of 65 percent of small employers offered health benefits in 2015, according to a survey by the National Small Business Association, down 5 percent from the year prior. That number has been on the decline since the early 2000s. A total of 94 percent of owners believe offering health coverage is a vital tool to recruit and retain workers, and fewer owners are asking their staffers to pay more toward their health insurance than in 2014.

Terpstra's Sales and Service, a Griffith company specializing in power equipment with a staff of 14, is one of those small businesses that still provides its employees with health insurance. But owner Don Terpstra isn't sure how much longer he'll be able to.

"Every year, we compare it. If I did go to those (community rated) plans ... it would be 30 or 40 percent higher," he says. Terpstra was able to take advantage of the temporary "grandmothering" regulation to avoid the new rating system.

Nevertheless, he notes that his employee health insurance rates have been going up by double digits every year for the last five years, or "since that whole mess became law."

The Affordable Care Act provides a tax credit for small businesses that offer health benefits. But Terpstra says the filing requirements are so onerous he has given up on pursuing the subsidy. He also says his administrative staff now spends a lot more time on insurance-related paperwork, and the number of insurers bidding to cover his workers has dropped dramatically in recent years.

"It's making the cost of health care go up," Terpstra says. "I could very well see the day when I tell my employees, 'I'm going to give you a raise for X amount and you're on your own.'"

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