In a report full of cautions and caveats, the Centers for Medicare and Medicaid Services estimated the federal Affordable Care Act could raise insurance premiums for 11 million small-business employees and lower them for 6 million others.
The reason, according to the CMS Office of the Actuary, is that before the ACA took effect Jan. 1, health insurance companies could set rates based on the health status of the group being insured, the gender of employees in the group, and the industry in which the business operated. Underwriters typically would charge five times more or even higher rates to insure older workers, according to the report, which was required by Congress.
The result was that “firms with employees who had better than average health risks would typically pay lower premiums, and therefore, they were more likely to be the firms that offer health insurance,” the report said. “As a result most people with coverage in the small group market have premium rates that are below average.”
The ACA allows underwriters to charge different premiums only to smokers versus nonsmokers and on the basis of the customers’ location, and it limits premiums for older people to three times the rate charged younger people.
New rating rules are likely to raise rates to average levels in general and reduce rates to firms that employ women and older or less healthy workers, the actuary said.
“There is a rather large degree of uncertainty associated with this estimate,” CMS warned. The actuary did not consider changes in product design, provider networks, competition, newly available coverage options and whether small businesses will continue to offer coverage.
The report said CMS provided a better estimate last year when a computer simulation by the RAND Corp. found the effect of the ACA on small business premiums would be “minimal.”