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Health insurance for small businesses

February 9, 1998
By: Brent P. Johnson
State Capital Bureau

JEFFERSON CITY - Small business employees and farmers would be able to seek safety in numbers under legislation before the House Critical Issues Committee.

The measure - sponsored by Rep. Tim Harlan, D-Columbia - would increase health insurance options for farmers and businesses with fewer than 50 employees by making available the insurance plans provided to state government workers.

The state plan currently offers health insurance to state employees and employees of local governmental entities such as water districts that have opted to join it.

Eligible employees may choose which plan they prefer based on services provided, areas of the state served and extra costs.

Harlan suggested an open enrollment period in which businesses would indicate their intent to participate in the plan, although their decision would not be binding.

Eight health maintenance organizations now provide health coverage for approximately 137,000 people in the plan, according to Ron Meyer, executive director of Missouri Consolidated.

With such a large number of covered workers, the state is able to negotiate bulk-rate contracts.

"Big business and government can take advantage of pools because of their size. Small business has seen an increase in costs," Harlan said, noting the shift to managed care in the last 5 years. "Farmers are a particular problem. They're unable to achieve the pooling necessary to achieve efficiency and thus lower premiums," said.

Not unexpectedly, Harlan's proposal is backed by some business organizations.

"Our members are getting killed by health care premium costs," said Brad Jones, state director of the National Federation of Independent Business, which has 12,000 members in Missouri. "Our costs are going up this year and have been for several years."

The Missouri Chamber of Commerce, however, has voiced its opposition to the bill. "We haven't exhausted private-market options, such as the creation of (health insurance cooperatives) and tax incentives," said Dan Mehan, vice president of government affairs at the Chamber of Commerce.

But Rep. Scott Lakin, D-Kansas City, argued that the Chamber led the charge against the cooperatives in 1994. Lakin, who once sold insurance, said he never encountered an employer who provided health insurance because of tax incentives. They provided it, he said, because they wanted to keep their good employees.

Resistance to the bill has also come from at least one of the insurance carriers providing coverage under the state government consolidated plan.

Blue Cross Blue Shield of St. Louis expressed concerns about the uncertainty of the costs. It told a legislative committee that it found that local government employees cost it more than state employees.

"Any bid will be little more than a sophisticated wild guess because there's little actuarial information to make a risk assessment of the small business pool," said Dan Andersen, chief actuary at Blue Cross. "It's likely many carriers won't bid, and those that do bid are likely to go high."

Besides a lack of information, Andersen voiced features that a disproportionate share of high-risk businesses could select those company in the state system. Since the plan is voluntary, low-risk businesses might find better rates elsewhere. "It's a flaming death spiral. The insurance companies can't charge enough. The higher they go, the better risk they drive away."

Harlan contends that the companies are already protected from adverse selection. Missouri Consolidated has a risk-adjustment mechanism to compensate any carrier chosen by a larger number of high-risk groups. Blue Cross, however, declined to participate by not providing information about its customers, Harlan said.

Rep. Mark Elliott, R-Webb City, an insurance agent himself, voiced concern that the state employees currently covered by the plan might be harmed by allowing small business employees under its umbrella. "I'm fearful that it's a ticking time bomb. Consolidated is in enough trouble right now with the public entity problem. If losses mount up and nobody bids, where does that leave our state employees? Mother Missouri will have to come in and provide coverage."