One of the dominant topics right now for most businesses, but particularly for the staffing industry and users of our staffing software is that of healthcare and the Patient Protection and Affordable Care Act (PPACA). Many insurance companies are sounding the alarm that the individual and small business market will see significantly higher premiums. At BWSI we have seen and heard numbers from 32% to even as high as 75% increases expected come 2014 in these markets. We also have read articles and seen news stories that say this is the case of insurers crying wolf and the sky is not falling. What should you expect? For the well over 100 million people whose insurance is covered through their employer, they should probably see increases in the 8-10% range at renewal time based on data BWSI has reviewed. However, it is the people who buy individual or small business coverage that should be concerned in our opinion, and if you are planning to purchase insurance via the state exchanges then you are buying an individual policy.

By 2020 it is estimated by PricewaterhouseCoopers that 26 million people will purchase insurance from the exchanges in addition to 12 million others who purchase policies outside of the exchange. This amounts to a rather huge increase in premiums being paid assuming everyone plays by the rules. Given that insurer’s costs are rising by $8 billion alone in 2014 in new taxes, which increase every year and the fact they have to stop denying coverage for pre-existing conditions at the same time it is critical to their interests to get as much new blood into the system as possible to offset these costs. Also hitting in 2014 is a “banding limitation” where the highest cost to older enrollees cannot exceed 3 times the costs for younger and presumably healthier enrollees. This means that the floor for the least expensive coverage will be moving higher to compensate which would make sense. However, in 2014 it will cost all of $95 for an individual as a tax penalty for not having coverage (called the individual mandate). What do you think all those young and healthy people are going to do considering they probably also have student loans, car payments, and just getting on their feet and can’t afford the insurance premiums anyway? Not to mention that getting a policy that is even remotely affordable probably will come with a sizable deductible on top of it—you probably guessed right that they will forgo coverage according to many studies. The financial math on this gets even worse if you make too much to qualify for subsidies which would offer reduced pricing.

Note that in all of the above information we haven’t even touched on healthcare costs in particular! If the cost curbs in PPACA fail to control medical inflation then the premium picture gets even worse. If we get a double whammy of more uninsured (in the form of the young and healthy forgoing coverage) and higher medical inflation then things start to crumble under their own weight. Currently I don’t think anyone knows exactly what to expect and are hoping for the best. The only absolute I have personally seen is that insurance rates for the young and healthy are going to go up in the individual and small business market. The lowest I have seen for renewal rates going into next year is a 33% increase which coincides with many actuarial studies I have read. BWSI feels it is important that companies that are considering not offering coverage or not offering affordable coverage understand what their employees could be facing as they get pushed out to the exchanges. Employees are most company’s best asset and understanding how all the PPACA regulations intertwine and affect all parties is critical in the decision making process.

Even though many clients of BWSI’s staffing software, TempWizard, won’t be affected by this delay, we feel it is important to write about it for various reasons.  Part of the Patient Protection and Affordable Care Act (PPACA) that was to help small business provide health insurance via special exchanges to their employees will be delayed until 2015.  Many, if not all small businesses fight to provide insurance for their employees and the special exchanges were supposed to help them do so.  These small businesses are not required to offer health insurance under PPACA, but many opt to try to do so as a benefit to their employees and as a recruiting and retention tool.  These special exchanges were supposed to give small business employees more insurance options to choose from supported with a stipend from their employer.  Analysts fear that many small businesses will simply opt to not offer any type of health insurance or premium stipend and simply push their employees to the state-based exchanges.

Why does all this matter to you?  If these small business employees suddenly leave employer-provided insurance and jump to the exchanges, costs would increase for everyone.  The more people that come into the individual insurance market instead of employment-based insurance could also mean more people decide to go without insurance even with the individual mandate taken into consideration.  Part of the reason insurance companies agreed to the no pre-existing conditions part of PPACA was the promise of many more people purchasing insurance and those premiums helping to offset the increase in expenses for insuring pre-existing conditions.  If a portion of those people elect to forgo insurance altogether, then premiums could increase for all participants in the healthcare insurance market to cover the shortfall.  Although I am not an actuary in any way, it doesn’t take a math expert to figure this out.  The big unknown question is how many of these employees, now pushed to the state exchanges, will simply go without and pay the small individual mandate tax for 2014?  The small business exchange being delaying isn’t just bad for small business but could be bad and expensive for all of us.