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More small businesses allowed to jump in pools: Law lets employers join together for cheaper rates

October 13, 2008

Small businesses in Indiana stung by rising health care costs now can band together to broker better deals from insurance providers.

The rule from the Indiana Department of Insurance took effect in late August and is the final piece of a 2007 health care expansion state lawmakers financed with a 44-cent increase in the cigarette tax.

The pooling program is open to businesses with two to 50 employees and is meant to give them strength in numbers so, in essence, they can be treated like a larger employer when it comes to setting insurance rates.

"We want to give small employers an additional tool in their toolbox," Indiana Insurance Commissioner Jim Atterholt said. "It may not work for some, but for others it may be a nice option."

Indiana companies already can enroll in an association to purchase health benefits, but only if they are self-insured. While nearly 70 percent of health premiums written in Indiana are for companies that selfinsure, only a small percentage of employers are large enough to pursue self-insurance.

Instead, a large majority of private employers in Indiana that offer health benefits are fully-insured, meaning they pay premiums to an insurer that accepts the financial risk for their claims.

Under the new law, fully insured companies that join a pool will have their rates determined by the size of the pool rather than by the size of the company, a situation that should equate to cheaper policies.

The change is particularly important at a time when insurance costs continue to escalate, although at a smaller clip than they did earlier in the decade.

Recent results of an annual study conducted by New York-based Mercer, a national benefits consulting firm, show health insurance premiums will rise 5.7 percent next year-the lowest increase in 10 years. That's largely due to employers shifting more costs and risk to their workers.

Top concern

Still, any initiative that reduces the cost of coverage and makes it more available is a step in the right direction, said Barbara Quandt, state director for the National Federation of Independent Business. The cost of health insurance has been the top concern of the Nashville, Tenn.-based NFIB's membership since 1986.

"It's a huge issue for small business and will continue to be," she said. "In so many cases, it's just too expensive."

State guidelines dictate that a trade association or business group must be in existence at least two years before it can start an insurance purchasing pool.

The practice mirrors what has been attempted several times at the federal level to no avail. The Bush administration has long touted associated health plans as a way to lower costs for the nation's small businesses. The measures, though, traditionally clear the House but stall in the Senate.

NFIB leaders, including Quandt, support such an expansion that would allow companies to band together with others outside their states. So does Michael Hutson, owner of Westfield Lighting Co. and a small-business advocate. He thinks the change at the state level has potential, but he doubts he will benefit. His industry is represented by the Dallas-based American Lighting Association. But no such trade group exists in Indiana to take advantage of the new state program.

On top of that, small businesses in Indiana are contending with the sour economy and rising property taxes. Hutson's bill for several acres and a 22,500-square-foot building ballooned from $42,000 in 2006 to $85,000 last year.

"Health care hasn't diminished," he said. "It's just been overshadowed by things that have grown [in concern]."

Insurance companies can refuse to provide quotes or rating information to any pool. But if they do, no company member can be denied coverage.

Insurance department leaders met with insurers and brokers who embraced the program after some initial reluctance to change state statute, said Carol Cutter, chief deputy commissioner for health and legislative affairs.

"If we don't have them at the table from the beginning," she said, "who knows how much time we have wasted, or how long it will take to educate them?"

Multiple inquiries

Since the pooling program became available, the department has had multiple inquiries from small employers, brokers and trade associations that realize its potential, Atterholt said.

Even so, concerns exist. Chief among them at Anthem Blue Cross and Blue Shield of Indiana, a division of Indianapolis-based WellPoint Inc., is that purchasing pools rarely achieve the desired outcome of reducing premiums. The company position is that they attract companies with the least healthy employees and drive out employers with healthy workers that realize they can find insurance on their own and don't need the pool.

Anthem is reviewing the new rule and determining how it may be used within segments of the small-business market, spokesman Tony Felts said. Further, it continues to work with the Legislature, the Department of Insurance and the Daniels administration to make health insurance more affordable and accessible to smaller companies, he said.

Atterholt argued that insurance providers might accumulate business from companies that otherwise couldn't afford to purchase a policy. Another choice increases competition and the potential for more affordable prices, he said.

Roland Dorson, executive director of the Greater Indianapolis Chamber of Commerce, agreed. Its Chamber Care program has been operating since 1987 and gives its 1,900 participating companies a 5-percent discount on an Anthem policy. While they would not be eligible to partake in the state program-unless, say, they did so through a specific trade group-Dorson still supports it.

"The more options the better," he said. "There's no question about it."

The pooling program is part of legislation that included the Healthy Indiana Plan, which is providing health insurance to more than 20,000 working adults who earn up to double the poverty line. State agencies estimate that 870,000 Hoosiers-or 14 percent of the state's population-lack health insurance, up from about 9 percent in 2000.

The legislation also allows dependent children to remain on a parent's health insurance plan until age 24. The cutoff had been 21 for those enrolled in college and 19 for children not in school.
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