Second wave of health-insurance disruption affects small businesses

When millions of health-insurance plans were canceled last fall, the Obama administration tried to be reassuring, saying the terminations affected only the small minority of Americans who bought individual policies.

But according to industry analysts, insurers and state regulators, the disruption will be far greater, potentially affecting millions of people who receive insurance through small employers by the end of 2014.

While some cancellation notices already have gone out, insurers say the bulk of the letters will be sent in October, shortly before the next open-enrollment period begins. The timing — right before the midterm elections — could be difficult for Democrats who are already fending off Republican attacks about the Affordable Care Act and its troubled rollout.

Some of the small-business cancellations are occurring because the policies don’t meet the law’s basic coverage requirements. But many are related only indirectly to the law; insurers are trying to move customers to new plans designed to offset the financial and administrative risks associated with the health-care overhaul. As part of that, they are consolidating their plan offerings to maximize profits and streamline how they manage them.

“If they do it one way, the word canceled gets attached to it. If they do it another way, they say they are amending the policy. It sounds more gentle but it’s the same thing,” said Gary Claxton, an expert in private insurance at the Kaiser Family Foundation. “The basic point is, for many people in the small-group market at some point soon their coverage is going to change.”

The transformation of the small-group market is just one of the many ripple effects of the Affordable Care Act that will reshape the insurance industry in coming years. With millions of previously uninsured people getting coverage, the insurance industry’s business model is being upended, and that’s leading to changes involving all sorts of products, not just those sold through the online marketplaces to individuals.

The impact of cancellations in the small-group market is expected to be less dramatic than in the individual market, partly because a higher percentage of small-business policies provide more generous benefits. Still, the changes being made by the insurance industry are leaving some small-business owners confused and disillusioned about the law — whether it is directly to blame for the changes or not.

Stephen Lohman, owner of Allegheny Plant Services, a trucking company in Pittsburgh, said the Aetna PPO plan he offers his 38 employees will be discontinued at the end of this year. He said he has been offered a new Aetna policy with premiums that are 40 percent higher, and that other insurers’ rates are similar.

“We were very surprised,” he said, adding that it is “important to me personally” to offer insurance to his employees, but he is not sure he can afford the premium increase.

Now that insurers aren’t able to charge more to people with preexisting conditions, companies with sicker workers may see lower premiums, while those with a healthier workforce may see higher premiums. Many small businesses are also discovering that the new plans have more restrictions on access to specific doctors, hospitals and prescription drugs.

The reason, said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, the industry’s main trade group, is that the law requires small businesses to purchase coverage that is more comprehensive than what some buy today, and that drives up costs.

Some small businesses are eligible for new tax credits to partially offset the cost of insurance. Also, firms no longer have to worry about the possibility of large premium increases if too many of their workers fall ill.

‘Ending discrimination’

An estimated 18 million to 24 million people in the United States have insurance through employers with fewer than 50 workers, and about 40 million have coverage through firms with fewer than 100 workers. The Department of Health and Human Services estimated in 2010 that up to 80 percent of small-group plans, defined as having fewer than 100 workers, could be discontinued by the end of 2013. But many small employers bought themselves extra time by renewing policies early through the end of 2014.

Jonathan Gruber, a key architect of the health law and a professor of economics at the Massachusetts Institute of Technology, said the number of people covered by small-group policies that will be discontinued is “not trivial.”

“We’re ending discrimination [against people who are sick, and as a result] the people who were previously benefiting may now suffer,” Gruber said. “That’s sad for them, but it does not mean we should continue discrimination.”

He said the change for most small businesses will simply be a “labeling issue,” with companies able to switch to similar plans at similar prices with the same carriers, although the plans themselves may have different names. A smaller group will have to pay more for a more generous plan. Gruber said the number of genuine “losers” under the health-care law — those who will have to pay more for the same or inferior coverage — is “very, very small.”

In November, President Obama, responding to criticism about widespread cancellation of individual policies, said insurers could extend policies that do not meet the law’s requirements for an additional year, if state regulators agreed. His announcement applied to small-group plans as well.

There is substantial turnover in individual and small-group policies every year, even without the health law. But insurers say the change that’s starting to occur is significantly larger than before.

In New Jersey, the state’s association of health plans says 650,000 people with small-group coverage have had their plans disrupted. In Colorado, regulators said small-group plans covering 143,000 people are being discontinued in 2014.

In New Hampshire, the state’s largest insurer, Anthem Blue Cross Blue Shield, is moving all of those in its small-group plan — 60,000 to 70, 000 people — to plans that are similar to those sold on the marketplace created by the health-care law. These plans have drawn fire from consumers because they include only 16 of the state’s 26 acute-care hospitals.

In Pennsylvania, Delaware and West Virginia, Highmark Blue Cross Blue Shield is discontinuing all its small-group plans for those who did not renew early, and offering new policies with different coverage and premiums. The company says 99.5 percent of the 5.3 million people it covers through its individual and small-group plans will be affected, but it declined to break out the number under small-group plans for competitive reasons.

Business for marketplaces

In Vermont and the District, regulators are making other changes in the small-group market. They are requiring small businesses and associations with fewer than 50 employees to purchase new policies through the government-run online marketplaces. The rules go into effect in 2014 in Vermont and 2015 in the District. About 39,300 people in Vermont are being affected, according to state regulators. The District requirement will be extended to employers with up to 100 employees in 2016; it could affect as many as 125,000 people.

Regulators took the step to try to ensure that the exchanges — the smallest in the country, by population served — would have enough young, healthy enrollees to offset the cost of older, sicker participants.

Judith Kennedy, president of the National Association of Affordable Housing Lenders, based in the District, recently received a notice informing her that the group’s small-group plan was being discontinued. She said she worries about the consequences as both an employer and as a parent.

“The notion that the plans on the exchanges may or may not limit providers scares a mom who has lived through chronic illness with her child,” she said.

Also facing disruption are people who purchase insurance through professional or trade associations and don’t have any employees. This includes some doctors, lawyers and accountants in solo practice. Under the health law, that type of association plan is not allowed; sole proprietors must purchase coverage on the individual market.

Cynthia Rutzick, 49, who has her own law practice in Oak Hill, Va., said that the policy she had been buying for years through the state bar association was already offering the benefits mandated by the health law.

But the policy, which cost $1,500 a month for herself, her husband and their two children and included 94 percent of the physicians in her area, was canceled. The new one, which costs $1,600 a month for her and her two children (her husband is going on Medicare next year) includes 82 percent of area physicians. Her broker said plans like her old one don’t exist anymore.

“So I had a blue car, but could not go out and buy another blue car,” she said. “I have to buy a red car, and it’s not as good and way more expensive.”

Ariana Eunjung Cha is a national reporter for the Post. She has previously served as the newspaper’s bureau chief in Beijing, Shanghai and San Francisco, a correspondent in Baghdad and as a tech reporter based in Washington.
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