For budget-conscious small businesses in particular, it’s the $64,000 question: How much will your company’s group health insurance rates increase in 2017? 

As brokers begin visiting employers for their annual benefits update, some companies could see rates that are higher than anticipated, but it’s going to vary widely. According to a couple of major brokers in Greater Des Moines, group rate increases for 2017 are “all over the place.” 

Employers of all sizes in the state were expecting relatively small increases for 2017, according to a recent national survey that included Iowa. Asked about their 2017 costs, Iowa respondents to a new Mercer survey released on Oct. 26 estimated that if they made no changes to their current plan, costs would rise by 5.8 percent on average. However, they said they expect to hold their cost increase to 3.8 percent by making changes to plan design or plan vendors.

Actual rate increases last year, by comparison, averaged 11 percent among Iowa employers surveyed by David P. Lind Benchmark. And from what some brokers are saying, some companies could well see double-digit increases again this year. 

For small groups covered by Wellmark Blue Cross and Blue Shield, the dominant carrier in the Iowa market, rate increases for Affordable Care Act-compliant plans have ranged from zero to 20 percent for 2017, according to Laura Jackson, executive vice president for health care innovation.                  

“The increases for each vary on the group’s plan and region,” Jackson said in an emailed statement. “Additional fluctuations can also occur due to the group’s demographics and health plan experience.”  

For small businesses with fewer than 50 employees, group health premiums since passage of the Affordable Care Act have largely been dependent on the age of their employees, rather than on the claims experience of the group, according to brokers who work with these employers. So adding just a couple of older employees to their plans could tilt rates upward significantly, while more young employees could mean smaller increases. 

Larger groups, which are rated based on the actual health experience of the group, could see rates go up more if they had more serious illnesses and large claims this past year. 

“There is wide variation from one purchaser to the next,” said Jim Green, team leader for Mercer’s Urbandale Health & Benefits practice. 

Green, who primarily works with larger employer groups, said he’s seeing some double-digit increases for 2017 for those employers. “We’re seeing bigger fluctuations than we have in the past, but it’s really dependent on the group’s experience,” he said. 

Small groups, which historically have seen higher rate increases than large groups, will generally find that their increases are higher if they have more older members. And even if nothing else changes about a small group, its rates will be adjusted upward each year just because each member has gotten a year older, said Lori Wiederin, senior vice president at Holmes Murphy & Associates Inc. 

In the first couple of years after enactment of the Affordable Care Act, small groups with younger employees tended to be hit harder by rate increases, as the new rules for rating those groups based on the relative age-based health risk of its members closed the rate gap between younger and older groups. But that’s no longer the case, as that rate difference has now flattened out, Wiederin said. 

For larger groups above 50 employees, each insurance carrier applies group experience a little bit differently, she said. 

“Some put more credibility on experience of their (total) pool versus the smaller group — or vice versa — depending on how they underwrite,” she said. Generally in the large group market, however, the largest companies will tend to be rated based on the claims experience in their own group, Wiederin said, whereas groups on the smaller side of the large-group market will usually be based more on the experience of the entire pool of companies that size covered by the insurer. 

In 2016, Lind’s survey found Iowa employers with between 50 and 100 employees and those with 200 to 1,000 employees had the smallest increases, at 9.1 percent. Companies with between 11 and 25 employees had the biggest average percentage increase in premiums — 13 percent. 

The national Mercer survey, which aggregated dental and other health benefit costs into the total, found a surprisingly low 2.4 percent national rate of increase this year in reported benefit costs. Iowa employers in that survey (who were aggregated with Nebraska employers to be statistically meaningful) averaged a 5.5 percent increase last year. 

Green noted that an advantage that all employers with traditional fully insured plans will see in 2017 is the suspension of the health insurance fee on health insurance companies. That tax, which is imposed on insurers but passed along to policyholders through rate increases, ranges from 3 to 3.5 percent. It was suspended in March by Congress, an election-year move that ostensibly was made to help keep premium increases lower. 

“I do think that fee will come back because that money will subsidize the exchange, and the individual carriers are losing a lot of money,” Green said. “But that’s helping employers this year.”

The Mercer survey noted that nationally, employers have continued to add the option of consumer-driven, high-deductible plans, which combine a high-deductible plan with a health savings account. Just over 50 percent of the aggregated Iowa and Nebraska respondents to the survey said they offered a CDHP,  with 29 percent of employees opting for those plans. 

Many small employers in Iowa have already added high-deductible plans over the past few years and are now adding on health savings account contributions as a way to soften the cost shift that occurs as employees absorb more out-of-pocket deductible costs, Green said. “If an employer has a really (benefit)-rich PPO with a $250 deductible and scraps that and moves to a high-deductible plan and now it’s a $1,500 deductible, that’s quite a difference.” 

Green said that he believes some local insurers tend to undervalue the difference between those types of plans and that there should be a bigger spread between the premiums charged. “The consumer-driven health plan should be a less benefit-rich option. … We think the pricing difference should be greater than what’s being quoted,” he said.

A look back at factors driving higher costs

In an interview I did last year with benefits expert David Lind, Lind predicted more turbulence in the years ahead for health insurance rates, largely because the underlying factors driving higher health care costs — unhealthy lifestyles and a fragmented health care delivery system — have not been solved. 

As Healthiest State Iowa officials noted during a fifth-anniversary event for the initiative on Nov. 1, the growing obesity epidemic has caused the rates of chronic diseases such as Type 2 diabetes to skyrocket. Nearly 1 in 3 Iowa adults — 32.1 percent — are now obese, up from less than 21 percent in 2000. Nationwide, more than 12 percent of Americans have diabetes, and more than one-third of Americans — 37 percent — are considered pre-diabetic and are likely to become diabetic. 

Health officials say prescription drug rates are also continuing to drive big increases in health insurance rates. As Wellmark’s Laura Jackson noted earlier this year during a health care Power Roundtable hosted in April by the Business Record, annual drug costs are expected to increase to nearly $1 billion of the $6 billion that Wellmark will pay to health care providers by 2020. 

As Wellmark Chief Financial Officer David Brown told me in a May 2015 interview, Wellmark’s annual challenge in pricing policies is to hit a narrow profit margin window between zero and 3 percent, and it has to do that pricing for a given plan year more than a year in advance, based on the best available claims data from the previous year. 

“We price to such low margins that we don’t have to be very far off on our benefit expense assumptions in order to lose a little bit of money,” Brown said. 

At the same time, Brown said there is not a direct link between prior-year losses and pricing for the next plan year — in other words, it doesn’t attempt to recoup losses by pricing higher the following year. 

Rather, he said, Wellmark prices policies by first estimating what claims will be in the coming year, to which it adds administrative expense, taxes and fees and then a small margin. “So indirectly, if trend is worse than expected, it can lead to losses this year but higher premiums next year.”