Law intended to help small businesses buy health insurance fails to gain traction

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by Jessica Sabbath

Two years after the General Assembly passed legislation allowing small businesses to form pools to buy health insurance, there is little evidence that the law has any effect.

While the idea sounded good in theory, it’s been hard to pull off, business leaders say. The problem? Small-business owners may be too busy to create insurance pools, a task that requires recruiting members, shopping for insurance and negotiating rates. “The small-business owner does payroll, HR, and often opens and runs the shop,” says Julia Ciarlo
Hammond, Virginia state director of the National Federation of Independent Business (NFIB). “So while they are running their day-to-day business, it’s unlikely they have time to run around and see if other businesses are interested in pooling together.”

Some observers also wonder if such an effort would result in real savings. The effectiveness of pools is untested in Virginia. In addition, any savings created by using a pool potentially could be erased by the health condition of a company’s employees. Businesses with healthy employees likely are enjoying lower insurance rates already, says
Catherine Harrison, director of policy for the Virginia Association of Health Plans. “They can get cheaper rates outside of the pool,” says Harrison. “So you don’t have the healthy people interested in participating, and you have only the sick folks interested.”

In 2006, Gov. Timothy M. Kaine, bipartisan sponsors in the legislature and the business lobby all supported the plan, hoping it would give small employers an edge in negotiating lower insurance costs. Although records of the insurance cooperatives are not kept by the state, the Virginia Association of Health Plans and the Virginia chapter of the NFIB are
unaware of any insurance pools being created.

The law allows businesses with 50 or fewer employees to create cooperatives that can negotiate and facilitate health-care coverage as a single entity. The cooperatives can either serve as the policyholder or leave the collection and payment of premiums to each business in the group. 

Tammy Rostov, owner of Rostov’s Coffee and Tea in Richmond, provides high-deductible health insurance for her seven employees. She would like to see a business organization arrange a small-business pool. “If there was a comprehensive plan I could get for the same price, I would definitely do it,” says Rostov. “[The insurance pool is] a great idea,
but there’s no way to facilitate it.”

The cost of health care remains the No. 1 concern for small businesses in Virginia and around the country, according to surveys conducted by the Virginia Chamber of Commerce and NFIB. An estimated 1 million Virginians are uninsured, about one-seventh of the population. And about 70 percent of those uninsured have at least one person in the household who works.

The health-care problems of small Virginia businesses have not been ignored. When he was lieutenant governor, Kaine formed a commission to study ways to help small businesses cope with rising insurance costs. The pool was one of its recommendations. (But the commission acknowledged that other states reported mixed results with voluntary pools.)

In addition, the state’s Joint Legislative Audit and Review Commission (JLARC) and a Kaine-directed commission both developed recommendations last year to reduce the number of uninsured Virginians.

The weakening economy has made it difficult to implement new initiatives on health insurance coverage. Legislators proposed giving tax credits to small businesses that provide health insurance to employees, but that approach fell victim to the state’s budget shortfalls. Kaine also introduced a plan this year that would have subsidized employer-provided
health insurance for low-income workers. The state would have paid a third of the insurance premium, with the employee and employer paying for the remaining two-thirds. That plan failed to materialize because of budget constraints.

On the federal level, the NFIB has 10 principles for health-care reform. They include offering catastrophic coverage for the low-income citizens, giving small employers the same benefits as large employers (such as pooling across state lines) and providing more transparency to medical consumers.

There’s no clear answer on the best solution for small businesses. But Hammond says she spends much of her time trying to block new health insurance mandates in the General Assembly that could increase the cost of health care. Virginia has the third highest number of mandates for health insurance plans, she says. “There’s nothing to say these aren’t
good things to cover,” says Hammond. “But it becomes very difficult for people to be able to provide any type of health insurance if they have to cover a litany of things. There comes a breaking point.”

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