TCS Daily

Health Care for the Little Guy

By Sydney Smith - April 1, 2004 12:00 AM

Medicare's chief actuary announced last week that Medicare premiums would increase next year -- from $66.60 a month to $78.10 a month. The press played this as an outrage, an injustice to the elderly, to think that their insurance premiums would increase at all. But try finding a deal like that for an individual or a small business -- you'd be hard pressed to find any that come close.

In fact, for small businesses with one or two employees, finding any healthcare insurance can be a challenge. Sixty-percent of the uninsured belong to families employed by a small business. They're uninsured because the health insurance is too expensive or it just isn't offered. And yet, a recent survey of employers by the Commonwealth Fund found that fifty-four percent of small business owners believe it's "very important" to provide healthcare benefits of some sort to their employees. Their hearts want to give but their purses, or circumstances won't allow it.

Take for example one small business in Ohio -- my medical practice. I'm a solo practitioner with two employees. One of them has health insurance through her husband. The other is losing hers to divorce. There is only one insurance company in my area that offers healthcare insurance for one employee. I could ask her to apply for individual coverage and reimburse her for the cost of the premium, but individual policies can be refused based on risk; employer purchased policies can't -- which makes the latter much more expensive. And there's an added catch. Individual policies require applicants to swear they aren't being reimbursed in any way for the premium. Even if she qualifies for coverage, I can't pay the premium. It puts the small medical practice at a distinct disadvantage compared to, say, a hospital when it comes to attracting and keeping good employees.

The same sort of scenario is played out in other small businesses in other states. The small business, (as well as the individual) insurance market is a tightly regulated one, and it's regulated by fifty different states with fifty different sets of rules and mandates. A large employer or a union -- and the insurance companies that insure them -- can get around the byzantine maze of regulations and mandates by providing self-funded insurance programs to their employees. Self-insured programs are exempt from state regulations and mandates. Because the large, self-insured businesses and unions turn the money for their insurance programs over to traditional insurance companies to administer, the self-funded programs are just like any other insurance policy -- except that the premiums are cheaper and the risk is assumed by the company. It is an option that small businesses just can not afford. As a result, small businesses and their employees have less choice since they are limited only to insurance companies willing to comply with whatever state regulations may apply in their area. And they pay higher premiums to cover state mandates for care.

So, when you hear that a state requires all insurance companies to cover infertility treatments or acupuncture, it isn't the deep pockets of Microsoft or the Ford Motor Company that's paying for it. It's the self-employed small businesses, and their employees who foot the bill. That's why workers in small businesses nationwide pay on average seventeen percent more for health insurance than workers in large companies -- if their employer can afford to offer it.

And the mandates have been booming these past thirty years. As of 2000, there were over 1,500 state mandated benefit laws on the books, a forty-fold increase since 1970. Not only does this increase premiums disproportionately for small businesses and individuals, it also has the unfortunate effect of forcing some insurance companies out of the small insurance market altogether. In one GAO survey of nineteen states, it turned out that just five insurance companies controlled 75% of the small group insurance market. There's very little in the way of choice out there for the little guy.

One potential solution to the problem is legislation which would allow small businesses to purchase insurance across state lines through their professional and trade associations, and which would give them the same protections from state mandates that large companies and unions now enjoy. That's not to say they wouldn't be regulated. They would be, by federal regulations and the Department of Labor, just as insurance plans now offered by large businesses and unions are. The Small Business Health and Fairness Act of 2003 passed the House last summer, but the Senate version is still languishing in committee.

Oddly enough, the only sponsors of the Senate version so far are Republicans. Aren't the Democrats supposed to be the champions of the little guy?

Sydney Smith is a family physician who has been in private practice since 1991. She is board certified by the American Board of Family Practice, and is a Fellow of the American Academy of Family Practice. She is the publisher of MedPundit.


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