The Small Business Health Insurance Bill:
What Lies Beneath
Critics—including some Republicans—say the bill would actually raise costs
Monday, May 1 kicks off "Cover the Uninsured Week" and to prove that it is doing something for the 46 million Americans who lack health insurance, the Senate is expected to take up a bill aimed at making it easier for small businesses to get coverage. The measure, which passed the Senate Health, Education Labor and Pensions (HELP) Committee in March, is intended to create pools of small businesses buyers, giving them the buying clout that large corporations have (see Everyone Into the (Health Insurance) Pool, March 24). It certainly sounds like a good idea: Polls of small business owners consistently identify pooling as the most popular solution to the small-business health insurance crisis.
If you’re really interested in getting affordable coverage for yourself and your employees, you may want to pay attention to how the battle over the Health Insurance Marketplace Modernization and Affordability Act (S.1955, also known as HIMMA) plays out. The fight will be over preemption of state insurance regulations, a feature of HIMMA that is ostensibly intended to make pooling easier.
However, according to a coalition of some 150 groups opposing HIMMA—ranging from AARP to the United Steel Workers to the Consumer Union to the American Cancer Society—removing state regulations would actually have the perverse effect of limiting care and, in some cases, raising premiums and making it more difficult for some small companies to get coverage.
To understand why this might be so, it helps to know a little about the rules, which states use to set rates. Some states use price bands, which specify how much premiums can vary for the same level of coverage—typically, the costliest premium must be no more than a set percentage more than the cheapest. Other states use rating rules, which (with some exceptions) prevent insurers from discriminating against classes of individuals, based on factors such as age, geography, type of employment, etc. The rules vary—some states forbid discriminating against pregnant women; some protect diabetics—but the common goal is to make sure that coverage is available to a wide range of workers and their dependents and that the rates reflect risks associated with a wide population. State rules also mandate minimum levels of coverage; many states require coverage for immunization, mammograms and mental illness, for example.
Under S.1955, associations and insurers could create a two-tier system of small business health plans. In the absence of state rules mandating minimum coverage, they could offer bare-bones plans that might appeal to younger, healthier workers, presumably at a lower price. “An insurer can write a policy that does not comply with any state law,” says Jane Loewenson, director of health policy for The National Parnership for Women and Families, a member of the anti-HIMMA coalition. That means a plan would not have to cover such commonplace basics as maternity care. HIMMA requires insurers to offer an “enhanced” option, too, but these plans would only have to match the minimum of any one of the five most populous states.
If S.1955 passes, “you will exacerbate the gaps between the haves and the have-nots,” warns John Arensmeyer, founder and CEO of Small Business Majority, a nonprofit advocacy group, which has joined the anti-HIMMA coalition. “You will be able to create plans only for the young and healthy and separate plans for the old and ill.”
Another opponent of S.1955 is New Hampshire Governor John Lynch. In a letter urging New Hampshire Senator Judd Gregg to oppose the bill, he reminds Judd that state had tried a law like S.1955 in 2003. It, too, preempted state rating rules and “...allowing insurance companies to discriminate against businesses with sick workers or based on geography, this law sent small business health insurance costs skyrocketing across New Hampshire. Small businesses could not grow, could not hire new workers, and some considered ending their health insurance plans altogether,” Lynch wrote. Last year, New Hampshire replaced the law with one that reinstates the rating rules and rate bands.
While S.1955 includes a rate band, Len Nichols, director of Health Policy Program, the New America Foundation, says there are ways around the limits, which would allow insurers to set hugely diverging rates for groups, using so-called “case characteristics,” which use actuarial data to calculate risk premiums based on age, profession, geography and other factors. As a result, he said in testimony before the Senate Finance Committee on April 6, the range of premium prices could vary by a factor of 25.4—one group plan might pay $2,540 for the same coverage for which another would pay just $100.
Leading the charge for the pro-HIMMA forces is the National Federation of Independent Businesses, which had lobbied for an earlier association health plan bill that would have allowed groups like NFIB to offer group coverage through their own health insurance companies. NFIB favors superseding state rules, which Manager of Legislative Affairs Amanda Austin says are inflexible and force some workers to subsidize others: “Why should a 50-year-old pay the same as a 20-year-old?” The result, she says, is that small businesses are stuck with group rates that owners and employees can’t afford. While S.1955 passed committee on a straight party-line vote (all nine Democrats voted against, after 17 of their proposed amendments failed), there is bipartisan opposition to preemption. Fourteen state insurance commissioners, including Republicans, have come out against the bill and 39 attorneys generals have expressed “strong” opposition. South Dakota’s GOP governor, M.Michael Rounds has praised the overall thrust of the bill, but says he can’t support it because it would “…remove some important state regulations that protect consumers.”
The National Association of Insurance Commissioners has not opposed S.1955, but has withheld support. In a letter to the bill’s sponsor, Michael B. Enzi, (R-Wyo.), NAIC President Alessandro Iuppa praised the HELP committee for deleting language that would have allowed associations like NFIB to self-insure, which NAIC says would have given them an unfair advantage. However, the group is against pre-empting the state rules: “The primary concern is that the bill supersedes state small group rating rules,” he wrote. “This is an untenable preemption that will do unintended harm.”
Democrats, meanwhile, have an alternative, S.637 sponsored by Blanche Lincoln of Arkansas and Richard Durbin of Illinois. It would create a national plan for small businesses modeled on the Federal Employee's Health Benefits Program, which is available to members of Congress and federal workers. The bill includes tax incentives for companies that provide healthcare coverage and subsidies for low-wage workers—a program that, Republicans point out, would cost $73 billion over 10 years.
By next week, when Majority Leader Bill Frist is expected to bring the measure to the floor, the battle could be over. According to a source familiar with the situation, Enzi is negotiating with the foes of pre-emption. Stay tuned.
