🔒Rising health insurance costs, tight labor market put employers in bind this open enrollment season

As open enrollment season nears, small employers will face tough choices as they decide on their healthcare benefits for the year ahead.

Many small companies with 50 or fewer workers will continue to see their health plan costs increase, while still facing economic uncertainty from an ongoing pandemic.

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.

Teresa Bucello, senior principal and Connecticut health practice leader at HR consulting firm Mercer, said all those converging factors have put small employers in a bind.

“A lot of employers are looking at holding the line and having to figure out a way to absorb the increase or make changes,” Bucello said. “And I think they’re in a catch-22. If they make changes to their benefit program to save dollars, that’s on the backs of employees because they are going to have a higher out-of-pocket cost share when they access services, and you want them to access care. It’s critically important. And if you don’t make changes and you pass on the increase, then they’re seeing a net reduction in their take home pay.”

Saving significant money on healthcare costs, without scaling back benefits, is a challenge for small groups because plans with similar benefits tend to be priced the same, said Jason Gutcheon, a partner at brokerage firm Professional Business Insurers in West Hartford.

That makes it less attractive to switch carriers, he said.

“I have clients that I go out and renew and most times they’re staying with the carrier that they’re currently insured with as a result of just all the carriers being very similarly priced,” Gutcheon said.

Cost increases coming

The Connecticut Insurance Department recently approved individual and small group rates for 2022. As the agency has done consistently in recent years, it scaled back insurers’ initial rate requests.

The state Department of Insurance has approved an average rate hike of 5.6% for individual health plans in 2022. The carriers had requested an average increase of 8.6%.

For small group policies, the insurance department authorized an average rate hike of 6.7%. The insurers had asked for 12.9%.

State Insurance Commissioner Andrew Mais said his department saved consumers a collective $76 million next year by approving smaller rate hikes. Even still, most individuals and small businesses will pay more for health insurance in 2022.

Anthem and ConnectiCare are the only insurers offering small group health plans on the state’s Affordable Care Act health insurance exchange, Access Health CT. They received average rate increases of 2.9% and 10.3%, respectively.

ConnectiCare, Aetna, Harvard Pilgrim Health Care, Oxford Health Plans and UnitedHealthcare offer small group plans off the exchange. And Bloomfield insurer Cigna has re-entered the small group market this year with a new technology-driven plan that experts say has been priced competitively in order to win market share.

In 2020 — a year dominated by the pandemic — the total health benefit cost for active employees in Connecticut increased 5.6%, to an average of $16,034 per employee, according to Mercer.

Responding to needs

Bucello said employers will need to be creative and careful as they decide on their 2022 benefit plans. And the most important step is to understand employee needs.

“When you’re a small employer, you don’t necessarily have to meet the needs of 150 to 200 employees,” Bucello said. “You have the ability to really think about your specific needs and what’s most valuable.”

Bucello said the right benefits can lead to greater employee satisfaction, which is crucial in a tight labor market. For example, one of her tech company clients adopted a free gym membership benefit because it was desired by workers.

Technology has become a near universal need as a result of the pandemic. Last year, the popularity of telehealth exploded as many Americans avoided trips to their doctor or hospital, leading most health plans to ramp up virtual-care coverage.

For example, Cigna recently re-entered the small group marketplace in Connecticut via a partnership with New York healthcare technology company Oscar.

The Cigna + Oscar plan will include behavioral health benefits, access to local and nationwide networks of doctors, hospitals and specialists, and 24/7 virtual urgent care at no cost.

Jeff Hogan, president of Upside Health Advisors, a Farmington-based industry consultancy, said the plan’s tech focus is responding to market demand.

“The small group marketplace has transformed fairly aggressively over the course of the last 10 years,” Hogan said.

Hogan said the Oscar plan is a natural evolution to balance telehealth and in-person needs.

Gutcheon, of Professional Business Insurers, said Cigna is offering a lower rate on the plan, perhaps to win market share.

“I think they’re buying business,” he said. “In other words, their rates are very low to get market share.”

As overall rates climb, Hogan said health insurance continues to become more unaffordable forcing some employers out of the market.

Cost drivers vary, he said, but consolidation in the healthcare industry is a factor.

Hogan is a member of the Connecticut Moving to Value Alliance, which advocates for higher-quality, lower-cost health care, and he said one way prices can be brought under better control is with more public oversight. The group routinely points to transparency measures in Massachusetts, Rhode Island and Delaware that are helping control costs in those states.

For now, brokers say they don’t expect too many swings in the marketplace in 2022. They said many employers don’t see the value in going through all the headaches of switching carriers or benefits, especially when they are trying to recruit and retain talent.

“Even if I’m in a tight situation given COVID and given the tight labor market, I’m not going to look for a cheaper plan,” Gutcheon said. “I’m probably just going to stick with what I know.”