Everyone into The (Health Insurance) Pool

Bill to allow small businesses to buy in larger pools passes Senate committee

For a decade, there have been attempts to pass a federal law that would allow small business owners to join buying pools to reduce the cost of health insurance. Last week, that effort got a big boost. The Senate version of the Health Insurance Marketplace Modernization and Affordability Act (S.1955) passed the Senate Health, Education, Labor and Pensions (HELP) Committee on Mar. 14. It includes a key provision that would allow trade and professional associations to offer group health coverage to members across state lines.

This act is a “landmark,” according to Senators Mike Enzi (R-WY), Ben Nelson (D-NE) and Conrad Burns (R-MT), the bipartisan sponsors of S.1955, who claim it will bring down premium costs and cause more uninsured workers to be covered. Unlike other versions of the proposed law, S.1955 does not allow small business groups to self-insure. Rather, these groups would be required to buy health insurance from regular health insurance carriers, but permits associations to jump state lines to shop for the best deals for their members.

According to polls (including one of SBR readers), small business owners strongly believe that banding together and buying insurance that is based on larger pools of workers will let them get coverage at the lower rates that large corporations pay.

How much would pooling save? In a report for the National Small Business Association, risk management consulting firm Mercer Oliver Wyman projected that S.1955 would reduce health insurance plan costs for small businesses by a whopping 12 percent, and could reduce the ranks of uninsured workers by one million people.

One key group is not convinced. State insurance commissioners say they have two main reservations: preservation of state insurance-rating regulations and state coverage restrictions. At this point, the National Association of Insurance Commissioners (NAIC) is withholding endorsement of the act.

“We don’t think it will have a major impact [on premiums] because the fact is that, in every state, there is already a right to pool risks within the small business market,” says Joel Ario, Chair of the NAIC and Insurance Administrator for the State of Oregon. “Small businesses already have access to state rating pools where they are able to combine with other small business owners to get the same advantages as large businesses.”

Ario also points out that each state has its own rating regulations designed to mirror the large-group market. In other words, insureds are already rated within a common pool, preventing health plans from discriminating between younger, healthier workers and older workers who are likely to use more services. “Older, sicker workers do not pay as much [in a group-rated plan] as they would if they were out on their own,” Ario says. “The converse of that, of course, is that younger, healthier workers pay a little bit more than they would if they were out on their own. It works the way most large-business health plans work-the younger workers subsidize the older workers.”

Although S.1955 sponsors say that the act would cause more people to become insured, Ario says that assumption is rooted in the notion that open-ended rating across state lines will result in more flexibility. But, he says, that flexibility would only work for younger workers, who now may go without insurance due to the high premium costs they bear for older and less healthy workers in the pool. These younger workers may decide to join the company health insurance plan if their group premiums decrease. However, older workers may find that their premiums will go up, turning the present rating system on its head. “It’s a zero-sum game,” he says.

Todd McCracken, President of the NSBA, the organization that commissioned the Mercer report, believes that an open market would stimulate competition and allow people who currently can’t afford health insurance into the marketplace. He admits that he expects most of those newly-insured to be younger, healthier workers.

“I think it will reduce premiums but I’m careful not to oversell it, because I don’t want small business owners to expect some dramatic reduction in premiums because of this legislation; I don’t think that’s going to happen,” he says. “Healthcare costs a lot and that’s not going away as a result of this.”

McCracken, however, says that the bill can help small business owners get a pricey commodity at the best rates. “This legislation is going to change the way the health care costs get spread among different people,” he says. In other words, adding more young, healthy people into the rating mix will push down overall costs.

NAIC members have another concern about S.1955: This act would lift present state mandates on what must be covered under a health insurance plan. “Some state insurance regulators say that preempting state mandates on what has to be covered is a bad deal for consumers,” Ario reports. “Others say that it’s not an insurance regulation issue, it’s a policy judgment for state legislatures. I would say there is a consensus position in the NAIC that opening up all state rating laws is a problem. But there are mixed views on whether we should lift state mandates in favor of one uniform [coverage] policy.”

Do the Act’s perceived drawbacks outweigh the fact that this bill has suddenly broken out of a 10-year Congressional stalemate? “I think the bill is going to be changed another time or two before it finally passes,” says McCracken. “But I think if you look at it system-wide and from a global perspective, it makes very positive changes in the marketplace for small business insurance.”