Insurers split on health insurance legislation

Tuesday, October 11, 2005



By Christopher Snowbeck, Pittsburgh Post-Gazette



Small business owners continue to suffer from rising health insurance premiums, but insurers disagree on the effectiveness of bills before the Pennsylvania legislature that might address the problem by changing the way premiums are set.



The latest measure of discontent came yesterday from the National Association for the Self-Employed, which released a survey showing more than 50 percent of businesses with 10 or fewer employees do not offer health insurance, primarily because of cost. Of those small businesses surveyed that do provide health insurance, 85 percent said their premiums had increased during the past 12 months, with the median premium increase at 17.3 percent.



Four bills have been introduced in the Pennsylvania legislature that would address the situation by changing the rules for how insurers set small business premiums. None of the bills has gone very far in Harrisburg, said Doug Moore, legislative chair for the Pittsburgh chapter of the National Association of Health Underwriters, but the House Insurance Committee has held a series of hearings on the proposals.



Mr. Moore said political pressure for the state legislature to act likely will build before the end of the current two-year legislative term in 2006. Pressure intensified this year when Highmark Inc. blamed the current rating rules for steep premium increases it passed on to small businesses that employ large numbers of women.



"If there is a further hit on small, predominately female businesses that cause the rate disparity to widen further, you can bet the feedback to politicians will be louder than ever before," said Mr. Moore, whose group hosted a forum on the subject last week in Cranberry. He said Highmark is set to issue rates this month for another group of small businesses, those that renew their health insurance effective Jan. 1.



Highmark, the region's dominant health insurer, supports legislation that would create a uniform demographic rating format for how health insurers set small business premiums. That means all health insurers would have to do what Highmark currently does -- set rates for small businesses based on the company's industry and location, as well as the age, gender and family composition of employees, said Michael Warfel, Highmark's vice president of government affairs, during last week's forum.



Currently, most health insurers in the state set small business premiums based on detailed information about the health risks of groups, a practice known as "medical underwriting." Because of their position as insurers of last resort in Pennsylvania, Blue Cross insurers don't collect this detailed information. Competitors that do so "cherry pick" by offering affordable coverage to only low-risk groups, Highmark says. That leaves high-risk groups, which typically have large numbers of women or older men, with Blue Cross plans.



Critics of the Highmark-backed bills, however, counter that eliminating medical underwriting would effectively kill health insurance competition in the state.



Without the ability to consider health status in setting insurance rates, premiums primarily would be a function of the discounts that insurers negotiate with doctors and hospitals -- and Blue Cross plans because of their market share always get the best rates, according to supporters of medical underwriting. Eliminating medical underwriting would have the effect of driving non-Blue Cross insurers from the state, critics say. They add that medical underwriting allows insurance companies to financially reward groups that have fewer risk factors, some of which can be controlled by personal behavior.



The current rating system isn't broken, said N. Timothy Guarneschelli, vice president and general counsel at HealthAmerica, who spoke at last week's forum. Supporters of reform, he said, have created a false premise: That changing the way premiums are set will tame health-care inflation.



"There are many reasons why health-care costs are rising," Mr. Guarneschelli said. "None of them have to do with rating methodologies."