As January 1 and the Affordable Care Act (Obamacare) approaches, we’re hearing the same question from small business owners: What’s happening to our health insurance rates? Here’s what to expect:

Employees Under 40 Face At 20%+ Increases in Health Insurance Costs

Prices from the Covered California exchange provide confirmation that health insurance premiums for younger employees will increase significantly in 2014. SimplyInsured analysis shows small businesses will pay on average an extra $750 annually to insure younger workers, while employees over 40 will see smaller rate increases.

Covered California Health Insurance Plans

Small business health insurance premiums are determined by the employee’s age. The analysis of current pricing vs the pricing on the Covered California exchange from top insurance carriers illustrate the differences in rate increases by age.

Current Rates Vary Widely by Age

Current Pricing by Age

SimplyInsured examined the average premium for each of the major insurance carriers in California. The pricing data showed that younger employees pay significantly lower rates than the overall average, while older employers pay much higher rates than the overall average. Insurance carriers were found to have similar pricing levels for younger employees, while employees over 40 saw higher rates and more variance across carriers.

  • The premium of an employee between age 20-29 was 60% lower than the average employee rate

  • The premium of an employee between age 30-39 was 50% lower than the average employee rate

  • Insurance carriers charge a lot more for older employees – employees age 60-64 pay 30-50% more than the average employee rate

Analysis of Exchange Pricing against 2013 Rates Shows Increase for Employees under 40

The Covered California pricing represents how insurance carriers will be pricing small business health insurance in 2014. Instead of charging the same rate for each employee in an age group (20s, 30s, etc.), insurance companies must now charge different rates for each year in age. This results in a smooth rate curve compared to the step function seen in 2013.

CoveredCA vs Private Exchange

Comparing the Covered California pricing with current private market prices provides a clear indication on where rates are going. Rates for employees in their 20s and 30s will increase significantly, while rates for older employees will stay the same relative to overall prices.

Average Rate Increase for Employees under 40

OUR ADVICE:

This analysis confirms the expectation that premiums for younger, healthier employees will increase due to the Affordable Care Act. Since health insurers can no longer deny coverage for pre-existing conditions, insurers expect to enroll more of older, sicker employees. Consequently, insurers are increasing rates on young, healthy employees to offset the higher anticipated costs.

Small businesses and startups with employees under 40s should carefully analyze their 2014 renewal pricing, as they likely face higher monthly premiums. Our recommendations for small businesses are to:

  1. Check SimplyInsured to find the best value health insurance plans available today
  2. If you are planning to offer health insurance benefits for the first time, apply for coverage before December 1. Waiting until December means coverage beginning January 1st, 2014 – and higher premiums!
  3. If you have an existing company plan, try to renew your plan on December 1, or lock in lower rates by switching to a new plan. Insurance companies are allowing many companies to renew their existing plans and lock in lower until December 2014