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What to Do if Medical Claims are Driving Up the Cost of Health Benefits

Small Business • April 22, 2015 at 12:00 PM • Written by: Christina Merhar

It’s your company’s health insurance renewal time, and your boss just walked into your office with a renewal increase of 20 percent. It’s now your job to research how to get the cost of health benefits under control, again. Here’s something you might not know - employees’ medical costs and Obamacare might be driving up the cost of your small business’s health insurance. The good news? There’s something you can do about it. Small_Business

This article is an excerpt from our free resource, “10 Budget Pitfalls of Small Business Health Benefits.” To download the full resource, click here.

Large Medical Claims May Be Driving Up Your Health Benefits Cost

If you’re a mid-size or larger company, did you know health insurance companies can increase the cost of your group health insurance plan premium based on last year’s medical claims?

That means when an employee has an expensive medical procedure, hospital stay, or chronic illness you will likely see higher premium increases the following year.

Now, if you have fewer than 50 employees, the Affordable Care Act (aka Obamacare) limits how much they can directly increase premium rates based on your medical costs.

This is called “community rating” and as of 2014, health insurance premium rates in the individual and small group markets (< 50 employees) are only allowed to vary by family size, geography, tobacco use, and age. Other rating factors previously used such as gender, industry, group size, health status, and medical history are now prohibited.

This seems like a good thing, but not if you have a healthy workforce. As a result of these changes, a significant number of small businesses are seeing substantial premium increases than under previous regulations.

New Obamacare Rules May Be Driving Up Costs, Too

In addition to how health insurance companies are allowed to charge you for health insurance, there are other Obamacare rules that may be driving up your costs, too.

To fund some of the mandated Obamacare changes and programs, several new taxes and fees are impacting directly impacting premiums and rates. As a result, fully-insured small group health plans are seeing new health reform fees added to their premiums.

The fees impact employers differently based on location and plan design. On average, however, the Centers for Medicare and Medicaid Services (CMS) estimates that 65 percent of small businesses (11 million employees) will see premium increases directly because of Obamacare.

Related: FAQ - How are Small Group Health Plans Impacted by the ACA?

Take Control of Your Health Benefits Budget

Don’t leave your health benefits budget at the hands of unpredictable medical claims and new Obamacare changes. Take control by switching employees to individual health insurance.

With individual health insurance, the cost of health benefits cannot change due to medical claims and it is portable, safe health insurance coverage for employees. Plus, your small business can continue to contribute with a premium reimbursement contribution where the cost is 100 percent up to you.


When you have unpredictable cost increases year after year, budgeting for health benefits is hard - if not impossible.

Your small business can take control of your health benefits budget by switching to individual health insurance and a premium reimbursement plan. With this model of health benefits your business can:

  • Set any contribution amount toward employees’ healthcare (there is no minimum contribution).

  • Change your budget on your terms only.

  • Reliably budget for health benefits in the short-term and in the long-term.

Related: Take Control of Small Business Health Insurance by Knowing Your Options

Do you have questions about how medical costs can drive up health benefits, or how to take control of your health benefits budget? Leave a comment and join the discussion.

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