San Francisco Chronicle: Insurance premium hikes hit small business hard
California small-business owners expected to be early beneficiaries of health care reform, with billions of dollars in federal tax relief becoming available this month to help them purchase medical coverage for their employees.
But many said the tax credits granted under the legislation have run up against a new hurdle: a spate of rate increases by insurance companies, including 58 to 75 percent hikes levied recently by Blue Shield of California.
"That money is going right back to the insurance companies," said Brad Wing, co-owner of the San Francisco Advertiser, who received notice of his 58.3 percent increase in April.
"Normally, rates go up 10 to 15 percent and you can swallow it," he said. "But at 58 percent, there's just no way."
Such moves are possible in California because no state body is charged with keeping track of proposed rate increases on health plans, let alone preventing them. But that might be changing.
The state Assembly passed a measure this month that would require insurance companies to obtain regulatory approval before raising rates. The proposal will go to a state Senate committee.
"We overcame a legion of insurance industry lobbyists," said Assemblyman Dave Jones, D-Sacramento. He is co-sponsor of the bill and a candidate for insurance commissioner.
Small businesses account for 98 percent of all California workplaces and provide more than half of the state's jobs, according to the U.S. Small Business Administration.
Yet annual rate increases, which outpaced inflation even before Blue Shield's dramatic hikes, have forced many employers to stop offering coverage and caused employees who can't afford it to drop out.
Companies with fewer than 50 employees account for 44 percent of the state's total uninsured working population, according to a study released in March by the UC Berkeley Center for Labor Research and Education.
Businesses as small as Wing's do not participate in the Healthy San Francisco program, which requires employers with 20 workers or more to pay a portion of their employees' health care costs.
The Obama administration released guidelines on May 17 offering small businesses tax credits against their premium costs. The credits are one of a handful of immediate measures in the federal health care bill signed by the president in March, with others slated for 2014.
Qualifying firms must have the equivalent of fewer than 25 full-time workers, pay average salaries below $50,000 and shoulder at least 50 percent of the health plan costs themselves.
The credit is worth up to 35 percent of a small business' premium costs, and by 2014 the savings increases to 50 percent, according to the federal guidelines. The Berkeley study estimated that the tax breaks are worth $4.4 billion in California alone.
Still, small businessmen like Wing said optimism generated by the credits has been replaced by disappointment.
Tom Epstein, vice president of Public Affairs for Blue Shield of California, said competitive business practices prevented him from disclosing the exact number of customers whose rates were raised.
He said the company covers about 500,000 people at small businesses, and only customers in three plans without a co-pay will see the large rate increases.
Epstein said his company had no choice but to raise rates after it failed to accurately predict how the recession would force some healthy workers to drop their coverage to save money, while some others with medical conditions retained theirs out of necessity. Too many patients met the high-out-of-pocket deductibles offered by the plans, and benefited from their lack of a co-pay, said Epstein.
'They are what's needed'
"As unfortunate as these rate increases are, they are what's needed so we can make enough income to pay our bills and make the investments we need to improve service and provide better care for our members," Epstein said.
An examination of Blue Shield's base prices showed that the 58 percent increases were not the highest in the three affected plans - Blue Shield Savings 1800/3600, Savings 3000/6000 and Savings 4800. Rate information from an industry database showed a 75 percent increase for the lowest deductible, Savings 1800/3600.
The company offered other coverage without the high rate increase, but included similar deductibles and added co-pays of about 20 percent. The Blue Shield hikes are in line with increases from all major insurers on small business health savings plans, Epstein said.
"Anthem Blue Cross offered this first," he said. "Health Net followed us. Aetna and United offered products like this. Every one of these insurers had very substantial rate increases."
Aetna spokeswoman Anjie Coplin said her company has instituted a 25 percent increase for small business health savings account, or HSA, plans this year.
Anthem Blue Cross, which has Blue Shield operations nationally but is independent of it in California, said its rate increases for small business plans will be in the 13 percent range this year. It did not provide figures for HSAs, which would probably be higher.
"We understand that one group that has been most hard hit by the economic downturn of the past few years is the state's more than 3 million small businesses," said Anthem spokeswoman Peggy Hinz.
Health Net and UnitedHealthCare did not provide figures.
Advocates with Consumer Watchdog, a Santa Monica group that sued Anthem Blue Cross over its rate hikes in the individual market, said that without regulation, tax credits will continue to be a corporate windfall.
"Tax subsidies that small businesses are receiving will probably be used to fuel insurance company profits," said Jerry Flanagan, Consumer Watchdog's lead advocate on health care reform. "In California, five companies control 96 percent of the health insurance market. It's almost a cartel."