Published May 30, 2005

Insurance smackdown

Lynchburg businessman Bruce Pearson: 'The insurance rates should be the same for everyone'
A huge and bloody lobbying battle is going on in the U.S. Congress right now, being waged by two fuming-mad behemoths. On the pro side: the 600,000 member-strong National Federation of Independent Businesses (NFIB); on the con side: Blue Cross Blue Shield (BCBS).

The issue? Legislation-the Small Business Health Fairness Act-aimed at offering small businesses new health insurance options, with significantly lowered premiums, through plans offered by large national trade associations and others.

Each combatant is a leading player with an heroic-titled coalition. NFIB is involved with the Coalition Supporting Access & Choice Through Association Health Plans, which says its members represent "over 12 million employers and 80 million workers."

BCBS is aligned with the Coalition to Protect Your Healthcare, which boasts "over 1,300 national organizations," mostly non-business-related, representing health issue advocates, government officials, unions and others.

The proposed insurance plans are being referred to as "Association Health Plans" (AHPs). They are also being marketed as "Small Business Health Plans." According to the NFIB, AHPs "will level the playing field and give participating small employers the same advantages as Fortune 500 companies and unions." Potential reductions in premium cost range from 13 to 25 percent.

AHPs, according to a Congressional Research Service summary, are "group health plans whose sponsors are trade, industry, professional, chamber of commerce, or similar business associations, and which meet certain ERISA certification requirements." The summary continues, ". . . through ERISA preemption of State laws, certified AHPs are exempted from State regulation of health insurance providers, including State consumer protection laws and State requirements for health care benefits to be offered by such entities, with certain exceptions."

Can't small business already get health insurance through these associations? Surprisingly not, because they are exceedingly cumbersome. Says Marcia Salkin, policy representative with the National Association of Realtors, "We can offer insurance programs, but we would have to offer 50 individual programs-one for each state-to comply with each state's laws. We can't offer a single, unified program."

Real estate agents are especially prone to being uninsured. "One in four agents (about 360,000) are without health insurance coverage because they can't afford it or because of pre-existing conditions," she says. "Because they're self-employed, they're forced into the 'individual' market." Consequently, many agents' dependents are uninsured as well.

Large employers are regulated on the national level, by ERISA, explains Jim Brown, regional media manager for NFIB, "and they can get great rates."

But small business health insurance plans are regulated by the states, he says. "Their coverages are mandated, and they're priced out of the market. They only have a choice between a 'Cadillac' [plan] or nothing."

Furthermore, according to the NFIB, "Small businesses have little buying power and few affordable options-five or fewer insurers (primarily Blue Cross Blue Shield) control at least three quarters of the small- group market in most states."

Ron Adkins knows this first-hand. The Roanoke businessman owns Salem Mall Property Investments. He says, "The product is out there, but can you pay for it?" He adds, "I know of other [small businesses] who are paying $300 to $400 per person per month, and more."

Indeed, according to a 2002 Virginia Association of Health Plans report, "Mandated benefits in Virginia account for more than 20 percent of the average health care premium." Brown says that if the legislation passes, annual savings would range from $450 to $1,250 per employee.

Adds Adkins, "I haven't seen a viable instrument yet."

Why not?

"Apathy on the part of the consumer," he replies. "Also, a lack of organization-someone is going to have to pick up the banner [for small business relief]."


"They have a 15-second sound bite; we have a 15-minute explanation," says Brooke Taylor, in frustration. She is a vice-president of corporate communication for Anthem Blue Cross and Blue Shield. "[AHP] proponents say 'It's all about letting small business band together for volume buying," she says. "But that's not what it's for-it's for exempting AHPs from state regulation.

"The way they'll be cheaper is by focusing on the 20 percent of the market that is younger and healthier. [AHPs] can do that because they're not regulated and coverage is not mandated." For example, AHPs can offer cheaper, stripped-down plans that would be attractive to younger and healthier individuals.

"The fear is it would create two markets," says Taylor. According to the National Association of Insurance Commissioners, "The proposed legislation would allow employers with younger, healthier workforces to withdraw their employees from a state's small- group market, thus leaving behind small businesses with older and sicker employees." This in turn would result in higher premiums for those remaining in the older market.

Eating cake

Some say state insurance commissioners oppose AHPs because they would result in loss of revenue to the states. Says Katha Treanor, spokesperson for the Virginia Bureau of Insurance, "The Bureau has not calculated revenue projections. Our first concern is with the potential lack of consumer protections resulting from the fact that the AHP would not be subject to state regulation, along with the potential destabilization of the health´┐Żcare insurance market."

"Buying health care in bulk is not the same as buying dog food in bulk," says Molly Brogan, director of government affairs for the National Small Business Association (NSBA). "It matters how old you are and how healthy you are."

And because AHPs are not bound by state pricing guidelines, "they are going to charge very healthy people minimum rates," while others can be charged much more. Others fear that when businesses switch to less-comprehensive plans, many employees would lose important benefits, such as pre-natal care or access to emergency rooms. Most contacts in the Blue Ridge Region for this story were unfamiliar with AHP legislation. Carter Garrett, president of Employee Benefits Management in Salem, was a rare exception. "I don't see that it's good for business," says the 47-year insurance veteran.

"You can't have your cake and eat it, too." But won't lower premiums be a benefit for small businesses? "They might start out that way to entice people to sign up," he says. "[For example,] today we have people paying more for HMOs than PPOs. Until you get control over medical [costs], it's going to be the same routine."


AHPs have also been touted as one way to address the nation's staggering numbers of uninsured Americans (45 million in 2003). However, estimates of how many currently uninsured individuals will access health insurance through AHPs varies widely.

The NFIB cites studies that put the number at eight million, while a Congressional Budget Office study projects that in five years, 620,000 more people will be insured. Says NSBA's Brogan, "The number of people who will be newly insured will be minimal. But the bill will affect everybody because of [resulting] premium increases due to market instability."

She adds, "It doesn't get to the root of the problem. It's just cost-shifting."

"There's only one way to affect the uninsured," says Garrett. "We need the federal government to pay its fair share. They're not reimbursing the providers [enough] and we're picking up [the rest of the cost] through taxes and increased premiums."

Adkins, who has an insurance background, has some other suggestions, including instituting uniform underwriting rules across the United States, "reining in the ambulance-chasing attorneys" with an award ceiling, and making premiums uniform across a multi-state region.


Improving health insurance options for small businesses is indeed a complex endeavor, but Bruce Pearson, owner of Pearson Equipment Company in Lynchburg, presents an insight that cuts through the clutter. "The [insurance] rates should be the same for everyone," he says. "Our risk should be absorbed into the entire national pool. After all, you have more people working for small businesses than large ones."

He sees current rates as artificial. "If you're 45 and healthy, you shouldn't have to pay more because you work for a small company."

"This may not be perfect," says Salkin of the National Association of Realtors, "but it's the only alternative out there that has offered some hope that there could be some increased competition that could lower premiums.

If it's not good, people won't use it."

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