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A new study predicts that nearly 70% individuals and families who get their insurance through small group plans will see their premiums increase in 2015, and the rest will see decreases.

The report by the Centers for Medicare and Medicaid Services (CMS) did not estimate just how premiums would change, as the goal was just to give an indication of how many people would see increases in the premiums they pay.

A variety of health insurance analysts and surveys have predicted that premium rates will increase by an average of just 7% in 2015, which is well below the double-digit increases that some observers have anticipated in recent months.

Besides general cost inflation, a recent article in Forbes magazine notes that health care spending skyrocketed in February of this year by $13 billion nationwide, compared to February 2013. That additional spending could also spur insurers to raise rates.

But increases are not likely to be dramatic because insurers have less leeway than before to raise rates, due to the Affordable Care Act.

The ACA requires adjusted community rating for plan years beginning on or after January 1, 2014. Specifically, premium rates in the individual and small group market charged for non-grandfathered health insurance coverage may only be varied on the basis of the following four characteristics:

  • Individual or family enrollment
  • Geographic area  – premium rates can vary by the area of the country
  • Age – premium rates can be higher for an older applicant than for a younger one, but the ratio of premiums cannot exceed 3:1 for adults
  • Tobacco use – premium rates can be higher for smokers, but the ratio cannot exceed 1.5

 

Prior to the enactment of the ACA, health insurers were able to vary premiums based on the health status of a group, group size, and industry code or classification. Smaller firms could charge higher premiums for high-risk work and groups with sick employees, and could increase premiums after a single employee received a new diagnosis.

But, since the ACA took effect, insurers may no longer have the ease of variability with insurance premiums. Consequently, CMS acknowledges the considerable uncertainty that exists in whether small employers will terminate existing health insurance coverage for employees, or send employees to the individual market exchanges.

Although CMS says that while federal subsidies and premium tax credits could make it cheaper for some employees to purchase coverage from the public exchanges, it notes that it could be financially attractive for small employers to continue providing coverage if they have relatively healthy employees.

 

Premium impact estimates

Numerous studies for Wisconsin, Maine and Ohio, as well as the entire U.S., all estimate an increase in group premium rates, with the elimination of health status as an impact rating factor. While an estimated 65% of small employers previously offered health insurance with below-average premium rates, CMS projects that those small firms will increase their premiums to average rates.

In addition, CMS estimates that 35% of small firms will have rate reductions. However, the agency notes that “in reality” there will be many more factors that will alter employers’ decisions to offer coverage. As a result, the true impact on premium costs remains uncertain.