The federal government today rejected a request by Massachusetts to waive provisions of the Affordable Care Act (ACA) that could raise premiums for some small Bay State employers by more than 50 percent.

Associated Industries of Massachusetts is gravely disappointed with the decision and will now consider other remedies to help employers, including legal action or supporting legislation to de-merge the insurance market for individuals and small companies.

Secretary of Health and Human Services Kathleen Sebelius issued the denial in a letter to Governor Deval Patrick, who sought a waiver on September 3 from rating-factor limitations imposed by federal health reform for insurance offered to employers with 50 or fewer workers. AIM similarly urged Sebelius in a letter in July to allow Massachusetts to maintain its current nine rating factors for small employers, and to maintain its practice of filing rates quarterly, rather than annually.

Rejection of the waiver came despite last-minute letters of support to Sebelius from U.S. Representatives John Tierney, Michael Capuano, Stephen Lynch and William Keating.

Sebelius argued in her letter that the federal government has already granted Massachusetts a three-year transition to the new rating factor system.

“As a result of your leadership and dedication to this issue, we continue to explore any possible option regarding your request; however, we are unable to grant a permanent waiver from these rating rules. For policy years beginning on or after January 1, 2016, issuers must be in full compliance with the rating rules under section 2701 of the Public Health Service Act,” Sebelius wrote to Patrick.

A study by Massachusetts health insurance companies predicts that the rating changes could raise or lower rates for small companies by up to 57 percent, on top of average increases of 3.7 percent in their base insurance premiums.

“Denial of the waiver will cause health insurance costs to rise significantly for many small employers and their employees in the merged market ” for no good reason.  Why disrupt a system that works here in Massachusetts where 97 percent of people have health insurance?” said John Regan, Executive Vice President of Government Affairs at AIM.

Patrick noted similar concerns in the waiver request.

“Of particular concern is the adverse impact that the rating factor changes will have on small employers and their employees. A waiver of rating factor requirements will avoid increases in health insurance premiums for a large segment of our small-employer population and their employees,” Patrick wrote.

The governor requested regulatory relief under terms of a bill passed by the Legislature last month.

The ACA will limit to four the rating factors used to calculate small group health insurance premiums ” age, family size, geographic area and tobacco use. Massachusetts law currently allows for additional consideration of industry, participation rate, group size, intermediary discount and group purchasing cooperatives.

AIM and Patrick maintain that there is no language in federal health reform that expressly prohibits the government from granting waivers for rating factors. The association maintains that the Treasury Department’s decision to postpone until 2015 the requirement that larger employers provide health insurance to workers or pay penalties suggests that the administration enjoys broad administrative authority to take actions that advance the overall goal of expanding coverage.

“AIM is grateful to the governor and the Legislature for their actions to moderate the cost of health insurance for employers and workers alike,” Regan said.

The waiver denial may ultimately force Massachusetts to separate the health insurance markets for individuals and small companies that were merged as part of the 2006 state Health Care Reform law. AIM will support de-merging in an effort to protect our members from outrageous and unnecessary price spikes that could lead business owners to drop coverage – an outcome that would be unfortunate given our members’ longstanding commitment to offering health insurance.