One of the frustrations of living in Boston is the Boston Globe's reporting, which all too often will provide just enough information to get you interested but not enough to really explain what is going on. Sometimes the real answer is to read the same article in the New York Times which will be just enough longer to reveal the important facts behinf the headline. Then again, we have Google which, with enough diligence will usually cough up the relevant documents.
Case in point is today's headline, Mass. firms mull cuts in health benefits which makes the sensational claim about the effect of the Affordable Care Act:
Among the primary concerns for companies with fewer than 50 employees is that the federal law requires Massachusetts to dismantle its own insurance rating system that allowed insurers to consider about 10 factors in setting the rates for small businesses.
The federal law mandates that insurers use only four rating factors — age, number of family members, geographic area, and tobacco use — and does not take into account the size of the company, a change that small businesses fear will drive costs up by more than 50 percent.
As the CEO of a small business, I found that last number to be quite alarming, but the truth turns out to be the exact opposite. The definitive analysis is in a report from the Wakely COnsulting Group commissioned for the Massachusetts Association of Health Plans and Blue Cross Blue Shiled of Massachusetts, Actuarial Analysis: Impact of the Affordable Care Act (ACA) on Small Group and Individual Market Premiums in Massachusetts.
It turns out that Massachusetts currently allows rates to be set based on the following factors:
- family size
- geographic rating region
- group size
- wellness program
- industry factor (SIC Code)
Under the ACA, Massachusetts will no longer be able to base insurance rates on group size and paticipation in wellness programs. Since there as been "negligible participation" in the wellness option, the primary difference is how insurance rates will take company size into account.
As anyone who has started a business can tell you, it seems that when the health insurance companies look at a new, small business, they see a bunch of sick people who stated the business to get health insurance. Buying health insurance for a company of less than ten employees means very high deductables, high premiums, or both. Under the new law, all companies of less than fifty employees are considered togther. The net change will be premium-neutral for the category as a whole, but there will be winners and losers. As the graph at right shows, most companies will see a change of 10% in either direction, but a small number will be a greater change. The biggest winners will be companies with 2-5 employees, which seems like a net win if you want to encourage formation of new ventures.