To help the small businesses on which its economy depends, the state has a new, market-based solution to health-care reform
Could health reform control costs for small businesses and expand choices for workers at the same time? Utah is about to find out. In response to a sharp drop in the number of employers that offer health benefits, the state is launching an innovative insurance exchange to free businesses from unpredictable premium hikes that make coverage unaffordable.
Here's how it works. Companies choose a fixed amount to contribute toward employee health benefits. Employees contribute pretax money from their own paychecks, and they can make contributions from a spouse's job or a second employer as well. They use that money to shop for any policy offered on the Utah Health Exchange. Workers who want to contribute less can select cheaper plans, while those who want more comprehensive coverage can buy it.
The appeal for companies is clear: Firms can predict their health-care costs and get out of the business of shopping for insurance policies. Employees get more flexibility and can choose policies from across different carriers. Policymakers hope a transparent marketplace where consumers can shop around will keep premiums in check.
Pilot program is enrolling for 2010
Utah will test the exchange with a limited number of companies in the small group market, each with between two and 50 employees. In the two-week enrollment period that closed at the end of August, 136 businesses employing a combined 2,333 workers signed up. The average size of companies enrolled is 17 employees. In the coming months, employers will determine how much to contribute, and their workers will select plans online through the exchange for policies that start Jan. 1. Next year, all small businesses in the state will be eligible to enroll, and large companies will be eligible the following year. (Individuals will also be able to buy insurance through a separate part of the exchange.)
The state hopes the new system will expand access to more small businesses that can't afford health insurance now. In 2005, when then-governor Jon Huntsman made health reform a priority, just 29% of businesses with fewer than 50 employees offered coverage, according to data from the U.S. Health & Human Services Dept. Though that figure has increased to 38% in 2008, it still falls below the national average of 43%, and thousands of Utah businesses don't offer insurance.
Huntsman and Utah House Speaker David Clark, both Republicans, saw health reform as an economic issue. "We're a small business state," says Norman Thurston, the state's health policy and reform initiative coordinator. "A lot of our growth and development has come through small business."
At Klein's Custom Countertops, a 55-year-old family business in Salt Lake City, the firm has had to cut its contribution to employee health insurance from 70% to 50% because of rising premiums. When the company shopped for new policies this year, four out of five insurers quoted prices 50% above what the firm already paid, according to general manager Matt Klein. The 22-employee manufacturer decided to pay a 24% increase to stick with the plan it had. The firm was among the first to enroll in the new exchange, and Klein's is happy to give workers control over picking their own plans. "You're taking on a decision that's going to impact families," says Klein. "For an employer, that's a difficult task to do. It's hard especially when you have to tell them the premiums are going to go up."
Lots of companies feel the same way. Dave Jackson, managing partner of FirstWest Benefit Solutions in Orem, says 52 of his clients signed up for the exchange. "They were struggling to provide benefits; it's killing their bottom line," he says.
Using Competition to Lower Costs
The risk of Utah's approach is that employers' contributions won't keep up with insurance costs, and workers will still be left without affordable options. But companies still have an incentive to contribute to workers' health benefits to stay competitive in Utah's labor market. (The state's unemployment rate, at 6% in July, is among the lowest in the nation.) Officials also hope that making rates transparent will force insurers to keep costs down, the way travel price comparison sites direct consumers to the lowest airfares. Thurston says the exchange may spur insurance companies to create innovative policies that the existing market doesn't support, because they'll have to appeal directly to consumers rather than companies.
The pricing for employees is based on the group rate for their company and their age, and pricing in the exchange is subject to the same regulation that covers all Utah insurers. Because employees can choose different insurers, and some carriers may wind up with a disproportionate share of sicker people, the exchange includes a "Risk Adjuster Board" (which Jackson sits on) to spread the risk among insurers. In effect, the carriers have agreed that those with the healthiest policyholders will subsidize those with the sickest. Three insurers, Humana (HUM), Regence Blue Cross/Blue Shield, and SelectHealth will each offer multiple policies for 2010, and the state expects more to join the following year.
The Utah Health Exchange borrows some ideas from Massachusetts' exchange created in 2006, but the plans differ in important ways. Massachusetts requires everyone to buy insurance and firms with more than 10 full-time employees face penalties if they don't contribute to premiums. In Utah, the exchange will not come with mandates, and it allows small businesses for the first time to define their contribution to workers' health benefits. As Washington attempts to pass national health reform this fall, Utah's experiment may become a model for lawmakers looking to create market-based reforms. It will clearly benefit small businesses that now face unpredictable rate changes. The real test of Utah's exchange will be whether the 62% of small employers that don't now offer insurance will start to buy in.