BWSmallBiz -- Health Care October 9, 2009, 12:00PM EST

The Purge Is On

(page 2 of 2)

Browse Issues

Browse the BusinessWeek Archive

Arth: To get around UHC's 22% rate increase, he doubled employees' deductibles Billy Delfs

Story Tools

Not all entrepreneurs are equally vulnerable. In about a dozen states, where some form of community rating prevails, regulations prohibit insurers from setting premiums for companies with 50 or fewer employees based on workers' health status. But elsewhere, so-called ratings bands allow for considerable flexibility in pricing. In states with loose ratings bands, such as Texas and Nevada, one small business can be charged nearly 70% more than another. In Pennsylvania and Virginia, there are no ratings restrictions at all. No matter what state you're in, ratings bands don't apply to companies with more than 50 employees.

Compounding the problem, entrepreneurs slapped with big premium rises often have few options. According to a 2008 survey by the Government Accounting Office, the median market share of the largest carrier in the small group market is 47%. As Olympia Snowe (R-Me.), the ranking member of the Senate Committee on Small Business & Entrepreneurship, which commissioned this study, notes: "Such consolidation is an alarming trend."

When UnitedHealthcare hit Raymond Arth, CEO of Phoenix Products, a faucet maker in Avon Lake, Ohio, with a 22% increase after an employee came down with Gaucher's disease, Arth found that competing insurers offered premium quotes more than twice as high. Ohio forbids insurers to boost rates on an existing client more than 15% based on claims experience, but does allow additional increases based on age and medical inflation. Arth kept his premiums flat by doubling deductibles, which now stand at a stratospheric $5,900 for individuals and $10,400 for families. "We used booby wire and duct tape to patch something together," says Arth.

In the absence of major policy changes, small companies have little leverage. "All any individual entrepreneur can do is to become more knowledgeable and to take the time to shop around for coverage," advises Amanda Austin, director of federal public policy at the National Federation of Independent Business. The bills now bouncing around Congress call for the creation of a health insurance exchange, which might provide protection against sudden rate hikes. But the bills have different thresholds for how big a company may still grow and participate. Says Nichols: "It will leave a lot of small businesses unprotected. The size really should go up to protect all firms that are not big enough to self-insure"—a number he pegs at about 300 employees. That leaves a lot of companies out in the cold.

Return to the BWSmallBiz October/November 2009 Table of Contents