🔒Here’s how CT small employers can handle threat of major health insurance rate increases

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Connecticut’s small employers once again face the prospect of significant health insurance price increases in the year ahead, leaving them in a bind as they fight for talent amid a tight labor market.

The six health insurers serving Connecticut’s small group market last month asked state regulators for an average 14.8% rate increase on plans serving employers with 50 or fewer workers. While the Connecticut Insurance Department may reduce some or all of those rate requests, many employers are still likely to see price increases.

But any efforts to shift those higher costs to employees — a trend that’s gone on for years especially as more employers have embraced high-deductible health plans — or reduce benefits could upset workers at a time when companies in myriad industries are facing labor shortages.

Jeffrey Hogan — a longtime employee benefits broker who last year founded his own Farmington-based consultancy, Upside Health Advisors — said the rate of inflation for health plans consistently outpaces the general economy, even at a time when the costs for many U.S. goods have soared over the past year. Hogan said many employers in Connecticut are now regularly facing annual family premiums that cost upwards of $40,000.

“These unabated cost increases pose an existential threat to employers who are having difficulty competing in the open marketplace both for new employees and for the retention of existing employees,” said Hogan, who noted that companies faced with higher healthcare costs will have less money to invest in their businesses and pay competitive wages.

Companies will need to respond to the latest rate increases, experts said, in a number of potential ways, including by shopping around for new plans, or finding ways to trim costs, like offering wellness initiatives that often lead to premium discounts.

Breaking down the numbers

The newly-requested increases for small group policies taking effect Jan. 1, 2023, range from 3.6% to 29.3%. The overall average small group plan increase was 14.8%. Farmington insurer ConnectiCare asked for the largest average increase of 29.3% for an off-exchange plan that covers over 16,000 policyholders.

The other insurers requesting double-digit price increases on small employers include Aetna, Cigna, Oxford Health Plans and UnitedHealthcare. Anthem proposed the lowest average price increase of 3.6% for a plan on the state’s health insurance exchange (Access Health CT) that covers more than 19,000 policyholders.

All together, the small group insurers cover 92,610 lives in the state, and they blamed the higher rates on rising healthcare costs, driven by the cost of prescription drugs and increased demand for medical services; the impact of new laws mandating coverage for various conditions like diabetes treatments; and the impact of COVID-19, specifically increased health problems experienced by some individuals who delayed care during the pandemic.

One insurer that didn’t submit new rate requests for 2023 was Harvard Pilgrim Health Care, which announced in April that it was exiting the state’s commercial health insurance market. The company had about 12,000 commercial members in the state.

The Connecticut Insurance Department is currently reviewing the rate increase requests and will likely lower some of them, a move it has consistently made in recent years. Final approved rates will be announced in September.

Cost drivers

While health insurers often get criticized for the cost of coverage, they aren’t entirely to blame for the major increases, experts agreed.

Jason Gutcheon, a partner at brokerage firm Professional Business Insurers in West Hartford, said hospital groups and Big Pharma are major drivers of the cost increases.

A lot of focus in Connecticut in recent years has been on the impact of hospital consolidation, which has led two systems — Yale New Haven Health and Hartford HealthCare — to control a sizable portion of the healthcare marketplace, raising questions about the impact on care costs.

“It’s not the insurance companies that are profiteering; they are stuck and have little choice in the matter,” said Gutcheon, who has been a broker for 24 years. “The blame should go to the hospital systems and pharma. They are monopolistic.”

Hogan said Connecticut must do a better job incentivizing payment reforms to address the escalating costs of health care. He’s a major proponent of value-based care, and moving the healthcare system away from a fee-for-service model.

What can employers do?

Employers will need to be proactive to defray some of the potential price increases, experts say.

Gutcheon said employers will be more prone to switch carriers during this year’s open enrollment season, hunting for the best possible deals. They will also likely be more willing to offer greater plan choices “so that employees can purchase lower- or higher-cost plans depending on their personal needs,” he said.

One option could be joining a professional employer organization, or PEO, which essentially offers outsourced human resources, including access to a potentially more affordable health plan, said Tim Klimpl, an employee benefits lawyer at law firm Carmody, Torrance, Sandak & Hennessey.

“PEOs have been around a little while and they offer small employers the opportunity to participate in large group health plans and to enjoy the benefit of lower premiums in a large group market,” Klimpl said.

PEOs do have administrative fees that need to be taken into account, Klimpl noted.

Other options, experts said, include bundling coverage such as dental and medical for cost savings, and offering self-funded or level-funded plans.

With self-funded plans, an employer takes on most or all of the benefit claims costs. The insurance company manages the payments, but the employer pays the claims. Self-funding has traditionally been reserved for larger employers, but small companies have increasingly adopted the model in recent years.

A level-funded plan is a type of self-funded plan in which the employer contributes a monthly payment to cover costs for administration, claim payments and stop-loss insurance.

In addition, Shipman & Goodwin lawyer and partner Richard Cohen said small businesses can also join the state’s Municipal Employee Health Insurance program. The program is run by the Comptroller’s office and was set up by the state legislature in the 1990s. It waives the usual 1.75% state insurance premium tax for select plans.

It’s also incumbent on insurers and employers to explain the plans to their workers in detail, something many do not currently do, according to Teresa Bucello, partner and Connecticut health practice leader at HR consulting firm Mercer.

Many plans, for example, have wellness benefits that offer employees premium discounts or other perks that could defray overall costs, Bucello said.

“There might be a gym membership, for example, and rewards toward your deductible if you achieve [a certain number of walking] steps in a day,” she said.

Bucello said employers will also increasingly embrace plans that offer, or even encourage, lower cost care options like telehealth and mobile units that come to a person’s home.

“We will see that the delivery models will continue to evolve over the next five years,” Bucello said. “There are, and will continue to be, new innovations in the way that health care is delivered and how people are accessing care. Those telehealth and mobile unit [options] are keeping people out of the hospital where today it might look like the hospital is the best place to be.”