Health insurance premiums in Maine will jump to unprecedented highs in 2017, making it essential for individual policyholders and small businesses to shop around for the best deals as their benefit enrollments begin.

State-approved rate increases for the coming year average in the double digits for all individual health plans and about half of all small group plans in Maine, according to the Maine Bureau of Insurance. Maine’s health insurance rates already rank among the highest in the nation, in part because of the state’s relatively sparse population and high percentage of elderly residents. They are also affected by national trends, including rising prescription prices and treatment costs.

The sharp increases in health insurance rates for 2017, a national trend as insurers adjust their cost projections following the Affordable Care Act’s first year of full implementation, will only exacerbate Maine’s affordability problem.

Small businesses are expected to suffer the biggest impact, because they don’t have the same access to federal tax breaks and other subsidies that residents covered by individual health plans can use to offset their insurance costs.

“That premium increase hits us right where we live,” said Joshua Broder, CEO of Portland-based information technology services firm Tilson Technologies.

Because the premium increases vary significantly depending on the provider, the most cost-effective plans this year may not remain so in 2017.

The biggest increase in 2017 will be for individual plans offered by Community Health Options, the Lewiston-based health insurance cooperative that has about 72 percent of the individual market in Maine. The co-op reported a $31 million loss in 2015, prompting it to set aside $43 million in reserves to cover anticipated losses this year, but has stabilized its finances so far. Community Health will raise individual rates by an average of 25.5 percent in 2017.

The average increase for individual plans offered by Harvard Pilgrim Health Care will be 21.1 percent, followed by 18 percent for Anthem and 11.2 percent for Aetna.

However, tax breaks and other subsidies will cover those added costs for most Mainers, the insurance bureau said. Enrollment for those plans begins Nov. 1.

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About 84 percent of Maine’s nearly 87,800 individual policyholders were eligible for tax credits to offset the cost of their premiums in 2016, said Eric Cioppa, Maine’s superintendent of insurance. Tax breaks are available to policyholders with incomes of up to 400 percent of the federal poverty level, which this year is $97,200 for a family of four. Additional subsidies are available to those with incomes of up to 250 percent ($60,750 for a family of four) of the poverty level, he said.

“For those people who don’t get a subsidy, these are significant increases,” Cioppa said. Roughly 14,500 individual policyholders in Maine will bear the full brunt of the 2017 rate increases.

According to the U.S. Department of Health & Human Services, the average individual policyholder in Maine this year has a monthly premium of $432, offset by a subsidy of $325, leaving an out-of-pocket cost of $107. Cioppa said that unless a policyholder’s income also increases, his or her out-of-pocket cost should not increase dramatically in 2017.

“Your subsidy is likely to go up also,” he said.

NO BREAK FOR SMALL BUSINESSES

Small businesses in Maine, which have very limited access to tax subsidies for health insurance, are more likely to feel the sting of premium increases than individual policyholders, Cioppa said. Among the seven major small group plans offered in Maine, Aetna’s PPO plan leads the pack in cost increases with an average jump of 15.8 percent, according to the bureau. Small group insurance is for companies with up to 100 employees insured through the plan.

Aetna’s HMO plan will have the second-biggest average increase in small group premiums at 12.9 percent, followed by Community Health with an 11 percent increase, and Anthem with an 8.1 percent increase. UnitedHealthCare will have the smallest average increase at 4.1 percent.

Average rate increases for both individual and small group plans were much lower for the current year, topping out at 4.8 percent and 8.2 percent, respectively.

Michael Brigham, president and CEO of Portland-based animal health products maker ImmuCell Corp., said his company always shops around for a better deal when it comes time to renew its small group health insurance policy.

“We look at the market every year,” Brigham said. “We expect it to be ugly every year – this year especially.”

The double-digit increases for 2017 may be largely because insurers are still pricing in the added costs of providing coverage under the Affordable Care Act, said Ed Feibel, senior counsel at Eaton Peabody law firm in Portland and an expert on employee benefits.

The act’s insurance mandates were not fully implemented until January 2016, when employers with 50 to 100 workers were required to insure at least 95 percent of full-time employees and their dependents. Larger employers were required to insure at least 70 percent of full-time workers and their dependents starting in January 2015, and the requirement was increased to 95 percent in 2016. Smaller employers remain exempt.

Feibel said that until the act took full effect and insurers were able to see the financial impact of all their new policyholders, they had to rely on guesswork to set premiums for individual and small group policies.

“They didn’t have sufficient data to make accurate predictions,” he said. “They had a lot more people making a lot more claims than they anticipated.”

The problem is exacerbated by Maine’s aging population and the fact that its health insurance premiums are among the highest in the U.S., Feibel said.

Other factors causing insurance premiums to go up over time include rising prescription drug costs and “medical inflation” resulting from advances in technology and the sophistication of treatments, he said. General drug costs are projected to rise by 11.6 percent in 2017, with specialty drugs increasing by 18.7 percent, according to Segal Consulting, an independent benefits consultancy that has been analyzing health care costs for 20 years.

There is no way to know whether the major rate increases for 2017 will set premiums and claims back into balance, or if there will be similarly large increases for 2018, Feibel said.

“I’m not sure if they are in any way predictive of what increases will look like in future years,” he said.

HEALTHY STAFF, HIGH RATES

Rate increases for individual and small group health insurance plans are based in large part on the cost of all individual and small group claims paid by the insurer during the previous year. If claims go up, premiums are likely to increase by a commensurate amount the next year.

Large group insurance rates, such as those for a company with more than 100 insured employees, differ in that they are based primarily on the previous year’s claims paid only for that specific group.

In other words, large companies are charged rates based on the cost of their own employees’ health care needs, while small companies are charged rates based on the cost of health care for all of the insurer’s small group members, and individuals are charged rates based on the cost of care for all individual policyholders.

“In the small group market, they see rate increases that reflect the health of everybody in the small group pool,” Feibel said. “A small group with a really healthy workforce is still going to see rate increases along with the market.”

Broder, the Tilson CEO, said rate increases for small group policyholders often seem to defy any reasonable explanation. For 2016, the company’s small group insurance provider tried to boost the cost of Tilson’s insurance plan by 25 percent despite its relatively healthy workforce. Broder said the company, which ensures about 80 full-time employees, was able to bargain it down to a 20 percent increase.

Tilson recently boosted its benefits package to cover 100 percent of all employee premiums, along with 50 percent of their dependents’ premiums, he said.

“To have a 25 percent increase every year is a big problem for us,” Broder said.

He said health insurance premiums are Tilson’s largest non-payroll expense by far. The fast-growing company, which has some employees outside of Maine, is moving to a large group plan and has not received insurance quotes yet for 2017, Broder said.

In general, there is not enough competition to keep health insurance costs reasonable for midsize businesses in Maine, Broder said, adding that all but two of the state’s insurers won’t cover workers located outside the state.

“It doesn’t pay to be a medium-size business right now in Maine, in this environment,” he said. “I feel like I’m paying a penalty for a dysfunctional competitive market.”