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North Bay Business Journal

Monday, December 31, 2012, 6:30 am

Trends for 2013: After lull, experts see health premiums rising again

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    2013 trendsWhile the rise in premiums on group market benefits have slowed somewhat over the past year, employers will likely see rate increases to the tune of 9 to 10 percent throughout 2013, according to brokers.

    That’s in line with the past couple years, although plan designs for copays and deductibles could help soften the blow, resulting in overall increases of around 5 to 6 percent, said John Fradelizio, managing director of North Bay employee benefits for Wells Fargo Insurance Services. Smaller groups will likely face steeper rate increases, he added.

    Victor McKnight, a principal with EPIC Insurance Brokers in Petaluma, echoed that notion, saying 2013 would bring rate increase of about 10 percent. But he cautioned that, while the year ahead doesn’t look as bad as it has been, the following year could bring significant rate hikes as the federal Affordable Care Act is implemented.

    The law will add some 32 million new people into the health care system, which in turn will lead to higher utilization and thus higher costs that get passed onto employers and the individual market, Mr. McKnight said.

    “The new enrollees will be significantly higher utilizers than the existing block of business. That one reason,” he said. “Two, many of the individual plans right now do not meet the essential benefits requirements. Most of the plans out there are not meeting the essential benefits, and thus you’ll see an increase in utilization and also due to the costs for plans increasing in benefits.”

    It could be particularly crippling to the individual market, where rates could spike by as much as 116 percent, according to a report by United Healthcare, the country’s largest health insurer. Small groups could see an increase of around 25 to 50 percent, while large groups might see an increase of 20 to 25 percent, according to the study.

    In the near term, the reasons for the increase are varied, Mr. Fradelizio said.

    “Some specific reasons for the increase include the impact of health care reform, new and improved medical technologies, greater demand for medical services, and increase use of expensive prescription drugs,” he said. “A major contributing factor to the increase is an aging population, along with an obesity epidemic.”

    So what can employers do to mitigate the increased rates in 2013, along with the looming, potentially huge increase in 2014?

    “Short term, employers are looking at plan changes, such as increasing deductibles, copayments, etc., as a way to control costs. Many employers are also passing on some of the premium increases to their employees in the form of higher monthly employee contributions,” Mr. Fradelizio said.  

    As the next year takes shape, employers will need to seriously weigh the impact of providing or dropping coverage with health care reform being implemented, Mr. McKnight said, noting that employers with 50 or more workers will face fines for every full-time employee not covered.

    If employers drop coverage, the question then becomes: are the federal subsidies and the health exchanges that are part of the health overhaul enough for those employees to obtain their own coverage?

    Despite the continued uncertainty, Mr. Fradelizio said he didn’t think employers would drop coverage because of health care reform.

    “We do not believe a large number of employers will drop coverage,” he said, adding that benefits will still be used to attract and retain employees, coverage will help maintain employee satisfaction, and providing benefits is an effective way of providing tax-free compensation.

    “In other words, if you give your employees an additional $100 in salary, that salary is taxed,” he said. “However, if you provide your employees with $100 in health care coverage, that amount is non-taxable, making it a very efficient way to provide your employees with additional compensation.”

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