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Washington's missing piece on health care could cost small firms money

Washington has been a national leader in building its state health exchange — in every respect but one.

As the Affordable Care Act takes hold across the nation, Washington will enter the new year as the only state that lacks a health exchange for small businesses. That means Washington’s small employers will miss out on tax credits available to their counterparts in other states.

At the same time, insurance costs could rise for many Washington business owners because the new law bars some types of employer associations that small companies in the state have long used to band together for buying coverage.

Taken together, the loss of many employer associations and lack of tax credits could prove to be unpleasant surprises for small-business owners struggling to cover their workers.

At Blankenship Equipment Repair Inc., of Auburn, the impending demise of its employer association could raise the company’s health premiums by at least 40 percent next year. “Our rates are going to go way up,” said Loretta Thompson, vice president and office manager of the industrial equipment repair company. “Our insurance broker said our rates will probably go up 40 to 60 percent.”

Why are Washington small businesses missing out on tax credits available to employers elsewhere? Because Washington — except for two counties along the Oregon border — lacks what is known as the Small Business Health Options Program (SHOP), an exchange set up for companies with fewer than 50 employees. And a SHOP is the only vehicle for receiving the tax credits through the Affordable Care Act.

Those tax breaks, which amount to up to 50 percent of an employer’s health contribution, will save participating small businesses in other states thousands of dollars per year.

If the credit were available in Washington, Blankenship Equipment Repair would probably have been eligible, Thompson said. Lacking either the tax credit or an employer association, Thompson faces tough decisions as she ponders how to cover the company’s nine full-time workers. It’s waiting for more details from its broker before making a decision, but Thompson said the business is leaning toward dropping group coverage altogether and paying its employees to sign up on their own in the state health exchange for individuals.

While most of the attention to the Affordable Care Act has focused on those individual exchanges, which have gotten off to a famously rocky start in many places, the small-business exchanges, or SHOPs, were foreseen as another tool to make coverage more widely available. Why doesn’t Washington have one? The state couldn’t entice any insurance companies to participate in a SHOP. A number of factors contributed to the lack of interest.

The most significant is that the state’s small-business owners have long had a particular affinity for buying their health plans through associations, also known as trusts. In fact, about 490,000 people in Washington state are insured through these plans, which are often built around an industry — think aerospace or technology.

Association plans were attractive to small employers because they allowed them to come together and buy insurance from a bigger pool, saving them money. Buying insurance through larger pools resulted in savings as long as employees stayed healthy, but employers — not the larger pool — were ultimately responsible for the risk if a single worker had expensive health issues, according to the Office of the Insurance Commissioner.

For example, if you operated a business with five to 10 employees, and one of them got cancer or a chronic disease, the insurance company could decide that the business was too much of a risk and double or triple the price of insurance; this is known as medical underwriting. Often, this would force companies to drop insurance altogether.

That risk structure ran afoul of the Affordable Care Act, which eliminates medical underwriting and requires insurers to take on anyone regardless of pre-existing conditions. As a result, half of the state’s association plans will go away throughout 2014 under Affordable Care Act rules, according to the Office of the Insurance Commissioner.

Commissioner Mike Kreidler, however, said he has worked with a number of association plans in Washington to help them survive by adapting to comply with the Affordable Care Act. He’s also been in communication with insurance companies about what’s driving their decision not to participate in the SHOPs. What he found was that the changes to association plans created too much uncertainty for insurers about how healthy — and affordable — the pool would be. “It made it very difficult to predict if you would end up with a lot of the sick people,” Kreidler said.

So it just made more sense for insurance companies to focus their energy and finances on the individual market exchange.

Mountlake Terrace-based Premera Blue Cross of Washington estimates it would have cost the insurer at least an extra $1 million to build the infrastructure necessary to participate in a SHOP exchange. And that’s just the financial commitment, which is accompanied by the complexity and bureaucracy involved in creating a new government-regulated exchange. And the market provides no guarantee that such an investment would pay off.

“The Affordable Care Act has set up a system that is generally more expensive than what small employers experience today when shopping for and buying insurance,” said Eric Earling, a Premera spokesman. “That is what it is. Participating in a SHOP is going to require more infrastructure because of its complexity.”

Earling argues that the demand for the SHOP and the tax credits it offers has been overblown, and that small employers will have plenty of insurance options outside of the exchange. “There is going to be a very active and competitive market for employers outside of the exchange,” Earling said.

Not all association plans will be dissolved. Those allowed to continue to offer pooled insurance must consist of members who share an industry type and must be formed for a purpose other than to buy health coverage, according to Labor Department rules. For example, the Washington Alliance for Healthcare Insurance Trust (WAHIT) is not industry-specific and will no longer have the benefit of being a formal association, but will continue on with a more limited existence, said Richard Ekman, an attorney who worked for WAHIT.

“In the future,” he said, “it’s simply going to be more of a marketing organization for the insurance carriers that it represents.”

By contrast, the association plan of the Seattle Metropolitan Chamber of Commerce, which also didn’t meet the Affordable Care Act criteria, worked with the insurance commissioner’s office to adapt its offerings to the new law. The chamber is breaking its association into multiple associations sorted by industry, said Maud Daudon, president and CEO of the chamber. The original chamber association will continue to exist as an umbrella for those different plans, but will cease to be the large employer plan that it once was. It’s still unclear whether the new plans available through the trust will cost more or less than what the chamber association was offering in 2013.

With so many unanswered questions about association plans and tax credits, small businesses across the state are having a hard time planning their health care budgets for 2014.

“One of my major frustrations is lack of information, lack of solid numbers,” said Thompson, of Blankenship Equipment Repair. “We don’t know what individual policies on the exchange will cost or what our group rate would cost. With those trusts going away, that’s a huge deal for small businesses like ours that aren’t part of trade unions.”

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