Return to Virginia Business - September 2004

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- Managed Health Care Providers in Virginia

by Marjolijn Bijlefeld
Virginia Business
September 2004

Last September, Loida Gonzalez was so close, she could almost taste her dream — opening a Bohemian-style coffee shop in Northern Virginia. She and her self-employed husband, Rick, were scouting locations, and Loida was on the verge of quitting her administrative job. Then Rick had a heart attack. “If we had opened that business just a little sooner, the potential was that we would have lost the house and been penniless,” says Rick Gonzalez. As it is, the couple is struggling to get back on their feet. Medical expenses not covered by her insurance plan consumed much of their savings. Meanwhile, income from Rick’s management consulting business dwindled. He’s rebuilding that while working as vice president of development for the Virginia Hispanic Chamber of Commerce in Vienna.

Loida still hopes to open the coffee shop, but she’ll have to do it by working around her full-time job at KPMG in Tysons Corner. The Gonzalezes can’t afford the higher COBRA rates they’d have to pay for health insurance if she quit, and they don’t want to risk not having health coverage. Even if she opens her shop, “We won’t be offering the full scope of services and products. We’ve had to scale back everything,” Loida says.

For small businesses owners, the cost of health insurance can kill dreams. Yet, ironically, policy experts say small businesses are the best tool to reach the millions of Americans who don’t have health insurance. Among the nation’s 44 million uninsured, the majority of those who are employed work for companies with fewer than 25 workers. In Virginia, half of the uninsured work for small businesses. “The rational place to go to help large numbers of the uninsured is through small businesses,” says Dr. Arthur Garson Jr., dean of the school of medicine at the University of Virginia. While health insurance reform is climbing to the top of the national debate, he says, “states seem to be good laboratories.” Notably, policy makers are watching Maine, which began the nation’s most far-reaching universal health care coverage program in 2003. One of its key elements is a state-administered plan for small businesses and the self-employed. While private insurers provide the coverage, the state regulates rates and helps with enrollment and eligibility.

In Virginia, Lt. Gov. Tim Kaine — the presumed Democratic gubernatorial candidate in 2005 — is focusing on the issue. He traveled the state this summer, talking with small business owners about the challenges and looking for solutions. One in seven Virginians, about 786,100 or more than 14 percent, is uninsured, and the majority is employed. “The highest rates of uninsured full-time workers are at companies that employ ten or fewer people,” he told a group of about 80 business people at an Arlington meeting in July. In order for Virginia to maintain its stellar pro-business reputation, the state must step in, says Kaine. “We can’t afford to wait” for a federal response. Accordingly, Kaine has pulled together a bipartisan commission that is working to present some options to the next General Assembly session.

Virginia has made progress in some areas, notably by enrolling nearly 400,000 uninsured children in the state’s FAMIS and FAMIS Plus programs, which provide insurance to children of working families.
Elsewhere, business communities and health care providers are moving forward on their own plans to help the uninsured. The Chamber Solutions program, started in 1992 through the Hampton Roads Chamber of Commerce, has built on the idea of smaller groups banding together to gain clout. In some ways, it has been successful. Twenty-nine chambers, from the Eastern Shore to Pulaski County, participate and the group has been able to negotiate with Anthem Blue Cross/Blue Shield for benefits, such as wellness programs and supplemental accident riders at no additional costs, says Kenn Penn, executive vice president and COO.

The plans cover 60,000 workers and family members from 2,000 small businesses and for some, like the 40-member Cape Charles Chamber of Commerce, stepping into benefits like these would be difficult to arrange any other way. However, each of the 2,000 businesses has a separate contract with the insurance company. That’s where the buying clout of 60,000 falls short. Because of the complexities of getting 2,000 businesses to move as one unit in negotiating and because of a state law prohibiting multiple employer welfare arrangements (MEWAs) from being self-insured, the purchasing cooperative hasn’t been as successful as Penn and others hoped in terms of keeping costs down.

If allowed by law, a self-funded MEWA administered by an insurance company could attract businesses that like the idea of keeping some local control — the same concept that makes self-funded plans appealing to large employers. But the financial failures of some self-funded MEWAs have tainted their reputations.

Receiving more attention currently is a debate on allowing association health plans or AHPs to form. Under an AHP, businesses that join a trade organization could buy insurance through that organization – creating the pooled clout of a large labor organization or large employer. The U.S. House of Representatives in May passed the Small Business Health Fairness Act for the second year in a row. But the idea is no slam-dunk. Some studies have shown that AHPs do little to reduce costs or rates of the uninsured. The companion bill to the one the House passed has garnered less than a dozen sponsors in the U.S. Senate. And, after six months of study, the Senate Republican Task Force on Health Care Costs and the Uninsured decided not to endorse AHPs. Still, they’re a cornerstone in President George Bush’s health reform proposals. Democratic presidential candidate John Kerry proposes, as one element, that small employers can buy into federal purchasing pools. Both candidates offer multifaceted approaches to health reform.

Indeed, the challenge with health insurance is how best to approach it. “The ideas come a mile a minute,” notes the University of Virginia’s Garson. “It’s the funding that requires a great deal of thought.” He says any solution should follow these four basic principles: use the employer-based insurance system rather than replace it; find some method to subsidize the individual; pool buyers together; figure out funding.

Some of the funding could come from a shift in current costs. Currently, the state or hospitals sometimes pick up the tab for the medical care for the uninsured who can’t pay. Under Maine’s universal health coverage program, insurers are putting money into the program to help fund it. The idea is they’ll recover payments because more people will be insured and uninsured charity costs will go down. Maine also expects savings from the $270 million now spent on unnecessary emergency room visits and uncompensated care.

Some funding can come through saved administrative costs. Dr. Tom Connally, a retired internist in Arlington and occasional adviser to John Kerry’s campaign, says, “We’re spending between 25 and 30 percent of our health care dollars on administration. If you realize that nationally, every single percent represents $16 billion, saving 1 percent is helpful. If we can save 4 to 5 percent, that’s more than $60 billion.”

In Roanoke, Carilion Health System chose to flex its muscles with insurers to achieve administrative savings and generate more competition. Chief financial officer Don Lorton says Carilion offered discount prices for services to five insurers who agreed to use the same administrative processes. Lorton says brokers tell him the greater competition has made a difference. For instance, renewal rates were generally about 6 to 6.5 percent higher this year, compared to about 13 percent the year before. Carilion would like to increase the number of insurance companies it works with to seven so that there’s more competition for the small business market.

Other health care providers also are investigating what local impact they can have. Inova Health System in Northern Virginia reduced its fee structure for the uninsured, so people without coverage no longer have to pay higher rates than insured patients at its five hospitals. In Leesburg, the Loudoun Hospital Community Health Services Fund is working with the Loudoun County Chamber of Commerce to study and create solutions for the uninsured and underinsured in the region.

In meetings around the state, Kaine hears about these and other examples. People ask him how the state could use its buying power to force expansion in the small business market. For example, could the state offer catastrophic universal coverage for any employer who provides the lower tier of coverage? Could the state expand its self-funded plan for state employees to include small businesses? The danger there is that those who might join have more high-risk employees — either because of the industry they work in or because of their personal medical histories. Costly leaks could swamp the boat, endangering the coverage of the state employees. Kaine compares the health insurance debate to a balloon. “You squeeze one side and it bulges out on another.’’

Standing before a room of business leaders in Northern Virginia recently, Kaine recalled what he was taught in law school: “Never ask a question unless you already know the answer.” A chuckle spread through the group as it realized Kaine was throwing that tenet right out the window by stepping into this debate.

Return to Virginia Business - September 2004