Personal Business: INSURANCE
HEALTH PLANS: A NEW DEAL FOR SMALL FRY
When Frank Clayton opened Central Electric Supply Co. in Cleveland 20 years
ago, he vowed to split the cost of health insurance with his employees. He had no trouble purchasing a policy, but rate hikes forced him to change carriers three times. Clayton finally turned to Cleveland's Council of Smaller Enterprises (COSE), the small-business division of the Chamber of Commerce. COSE operates a health-insurance purchasing cooperative (a group formed to negotiate reduced rates) that insures Clayton's 10 employees for 15% to 20% less than what he used to pay. And COSE's premium increases have averaged 6% a year, compared with an 18% increase in the local market.
COSE is just one example of market-driven reforms making it easier for small-business owners and self-employed workers to purchase quality health insurance at affordable rates. For years, they either have been denied access to adequate health coverage or paid about 30% more than employees of large corporations. "There's no one who has less leverage than individuals and small businesses in the health insurance market," says Jacque Sokolov, president of Advanced Health Plans, a Los Angeles health-care consulting firm.
That realization has led 46 states since 1990 to pass reform legislation requiring insurers to offer health coverage to self-employed people or groups of up to 50, even to those with preexisting medical conditions. For instance, the Health Insurance Plan of California (HIPC), a statewide purchasing cooperative authorized by a 1993 law, doesn't ask for any medical information on its application. The state laws also guarantee that your policy will be renewed, outlawing a common practice known as cherry-picking--offering price breaks if you're low risk, then dropping you if you get sick and use the insurance.
Most states also now restrict the amount rates can vary from one subscriber to another in the same community, regardless of age, gender, occupation, or health condition.
And you do not have to worry as much that your health-insurance premiums will skyrocket from one year to the next. Insurance rates are no longer rising 15% to 20% a year, as they did in the late 1980s, and many states limit rate
increases. In its first and second years, HIPC negotiated an average rate decrease of more than 5% for subscribers. If you have been denied coverage or think your rates have been hiked unfairly, you can file a complaint with your state insurance department.
To show the advantage of going through a purchasing pool, take the example of a 40-year-old healthy man in Cleveland. If he wanted to obtain a hospital-based preferred-provider plan--which gives the option of using doctors outside the network--the monthly premiums for a $500-deductible policy would cost $290 with Blue Cross Blue Shield of Ohio. A similar plan through COSE would run $113.
NO MANDATE. A recent survey by George Washington University's Intergovernmental Health Policy Project found that state-initiated insurance reforms have stabilized rates and made insurance more accessible to small employers. So in most cases, small businesses are in a better position than they were before, says Kala Ladenheim, one of the study's authors. But she says the laws protect only companies that are too small to self-insure and can't assume the risk if an employee incurs an enormous medical bill.
In addition, the laws haven't expanded coverage to the nation's 38 million uninsured because they don't mandate that small businesses provide insurance. A 1993 survey by Arthur Andersen's Enterprise Group and National Small Business United, an advocacy organization, found that 54% of companies with fewer than 19 employees and 94% of those with 20 to 99 offer health-insurance benefits to their full-time staff.
Although health insurance is largely regulated by the states, three bills are pending in Congress to reform the small-group insurance market nationwide. They would mandate that insurance be offered to all businesses that apply, require coverage for people with existing conditions, and limit how widely rates can vary for the same policy. The federal government has already given a break to self-employed people. In April, President Clinton signed a bill permanently allowing them to deduct 30% of their health-insurance costs. Small-business owners may also write off 30% for themselves and 100% for their employees.
When you begin to shop for health insurance, either for yourself or your employees, keep in mind that it's almost always cheaper to purchase group coverage than to negotiate a policy on your own because it spreads the risk that a subscriber will require expensive medical treatment. The most generous and inexpensive group policies are offered to large corporations, which have more clout to negotiate reduced rates. If you're about to leave a corporate job, you can continue your coverage for up to 18 months under the terms of the federal Consolidated Omnibus Reconciliation Act (COBRA).
DIVE IN. You can locate purchasing pools through your Chamber of Commerce or state health department. If they aren't yet available in your area, you can buy group insurance for yourself, your family, and in some cases, your employees if you're a member of a professional or trade association. Veterans' groups, fraternal organizations, and the alumni associations of many colleges and universities also offer group health insurance and fairly inexpensive short-term policies ideal for recent graduates.
Not all group plans boast discount rates, however. A recent survey by the Colorado Division of Insurance found that rates for identical small-business health-insurance plans can vary as much as 300% from carrier to carrier. Make sure the plans you're comparing offer similar benefits--the same deductible, co-insurance payment, and type of services covered. Many state laws make it easier to compare rates because they require insurers to offer uniform benefits for small businesses. If you live in New Jersey, for example, you can select from standardized plans A through E, which provide indemnity or health maintenance organization (HMO) coverage with various co-insurance payments. Once you decide which one you want, compare the price that various carriers charge.
The nice thing about joining a purchasing pool is that most allow a company's employees to sign up with different plans, so you can choose what type of coverage would be best for you and your family. If you're young and healthy or have a big family, consider joining an HMO, which is less expensive than a traditional indemnity plan and allows subscribers to use many primary care and preventive services for a flat fee. And thanks to growing competition, many HMOs have cut their rates. A point-of-service plan, which is slightly more expensive, allows you to go outside the network for care--offering a fairly inexpensive safety net if you need to be treated for a serious condition or want to maintain an ongoing relationship with a particular doctor. If physician and hospital choice are very important to you, stick with a traditional fee-for-service indemnity plan.
CASH UP FRONT. If you use medical services frequently, a low deductible makes sense even though premiums are higher, advises Sokolov. But if you're young and healthy or don't require medical care often, you can keep costs down by signing up for a plan with a high deductible--which means you will pay more out of pocket before insurance kicks in.
Deductibles usually run from $250 to $500 but can go as high as $5,000. Ladenheim cautions, however, that bare-bones plans with huge deductibles are rarely a good choice because they often limit benefits such as the number of doctor or hospital visits. "You may end up paying a lot of money," she explains. "But if you ever need the insurance, it's not going to cover you."
Health Insurance Resources
NATIONAL ASSOCIATION FOR THE SELF-EMPLOYED (NASE) 1023 15th Street, N.W., Suite 1200, Washington, D.C. 20005-2600, 202 466-2100 or 800 232-NASE. Offers several health-insurance benefits to its members.
NATIONAL INSURANCE CONSUMER HELPLINE
800 942-4242. Operates a toll-free consumer-information telephone service to answer questions and assist with complaints.
COUNCIL OF SMALLER ENTERPRISES (COSE)
200 Tower City Center, 50 Public Square, Cleveland, Ohio 44113-2291, 216 621-3300. Health-care purchasing pool that represents 200,000 employees and their dependents in northern Ohio.
AMERICAN ASSOCIATION OF RETIRED PERSONS (AARP) 611 E Street, N.W., Washington, D.C. 20049, 800 424-3410. Offers several health-insurance plans to its 33 million members age 50 and over.
HEALTH INSURANCE ASSOCIATION OF AMERICA 1025 Connecticut Ave. N.W., Washington, D.C., 20036-3998, 202 824-1600. Publishes The Consumer's Guide to Health Insurance, a good all-around overview available at no cost.
DATA: BUSINESS WEEK