Colorado small businesses likely to see premium spike: changes to state law rate restrictions meant increases in insurance premiums for some Colorado small-business owners in 2009. Many of these small groups are about to experience another spike when federal health care legislation goes into effect.

• Author: Siebrase, Jamie
• Position: HEALTH INSURANCE

If you're a small-business owner or you purchase insurance on the individual market, there's a good chance you'll see substantially higher premiums come October, when your provider releases 2014 annual renewal rates. That's because under the Affordable Care Act (ACA), rating will be limited for small groups--those with fewer than 50 employees and individuals as of next Jan. 1. Here's what you need to know about rating under the new federal law.

Brian Berglund, a partner at Bryan Cave-HRO, a multinational law firm with more than 1,000 lawyers worldwide, has been analyzing nuanced employee-benefits issues such as rating laws for the past 32 years. "Not surprisingly." says Berglund, "if there were no laws, an insurance company would charge premiums based on the risk they're insuring." A car insurance company, for example, charges a 16-year-old boy more than a middle-aged father of two and a DUI of more than a non-offender. That's rating.

Insurance companies consider certain individuals as "high risk," including tobacco users, women of child-bearing age, the elderly, people living in high-cost urban environments and those with chronic illnesses. "If permitted, carriers would gather information on every employee at a business and charge employers for health insurance based on this information," Berglund says. "Then, each year, carriers would look at an employer's experience and raise or lower rates, which is cal ltd experience rating."

Currently state law regulates rating. New York has the strictest rating laws, only allowing rating on geography. Virginia and by contrast, impose no restrictions. In between are a host of modified rating laws.

But the rules change on Jan. 1 when ACA's rating limits for individuals and small businesses those employing fewer than 50) go into effect. In 2016, a second phase of the provision will apply stricter ratings to small businesses with 50-100 employees. "These rating restrictions not apply to larger employers," Berglund says, citing the theory that risks within bigger groups are more likely spread out.

Under impending federal legislation, rating is allowed in only three circumstances: geography and, to an extent, tobacco use and age. "Under the new law, smokers can be charged 1.5 times the rate charged to non-smokers," Berglund says. When it comes to age, the maximum differential between an older and younger person will be 3: 1, which means a 64-vear-old can be charged at most three times that of a...