Health-insurance purchasing pool moves closer to reality in Wisconsin
Small businesses in Wisconsin may soon be able to join a statewide pool to purchase health insurance - two years after the system was authorized by the state legislature.
But some items still need to be cleared up before such a pool could be organized, and state legislators are now working on those changes, according to state Rep. Lorraine Seratti, chairperson of the Assembly Small Business and Consumer Affairs Committee.
In 1999 the Wisconsin legislature created the Private Employer Health Care Coverage Purchasing Alliance (PEHCPA) as part of Wisconsin Act 9 -- the biennial budget bill. That program is a voluntary health-insurance purchasing pool for small businesses.
Wisconsin Act 9 included $400,000 to fund start-up of the pool. But some errors in the language and provisions putting the plan into place has delayed implementation of the insurance pool, according to Seratti and Bill Smith of the National Federation of Independent Businesses-Wisconsin. One issue was that the original plan would have required a private program administrator, hired by the state, to actively hold contracts with insured parties.
"That was included in requests for proposals for administrators of the program -- but they don't hold contracts," Seratti said. "They want the state to hold the contract. Third-party administrators administer programs. They do not sign contracts. They collect payments and adjudicate claims. But they do not hold contracts for the plan."
Committee members are now considering legislation that would help the pool get off the ground by modifying provisions in the original language of the bill.
Seratti, a Republican of Spread Eagle in Florence County, was optimistic that the plan could move forward, after the committee heard testimony on June 11 in support of the state's small business health insurance plan.
Some issues with regard to the Health Insurance Portability and medical underwriting are also challenges to implementing the pool, Smith said, and those issues must be addressed in the legislative changes being worked on.
"Currently, we have a system that uses medical underwriting, which requires extensive time for employers and employees filling out forms," Smith said. "In the pool concept in California, plans are rated using very limited factors -- age, seven categories of age bracket, geographic region and family size. Each region currently has published rates. If you are a small employer, you know what your rates will be. If an insured company chooses, it can still choose medical underwriting. Wisconsin has a 30% plus or minus rate band for underwriting, while California restricts rate differences to 10%."
"We would like to advance as quickly as possible," Seratti said. "We had some good bipartisan support expressed in the committee. Part of what will be incorporated into our draft will be inserted into the budget in the State Senate. Senate Bill 81 includes technical information and leading -- our changes will be included in there. If we can get the draft out by the end of the week, a hearing could also be scheduled. Or we could incorporate these changes into a budget amendment."
But the degree of bipartisan support may depend on the details.
"Is there bipartisan support? That depends on what it says," said Rep. Marlin Schneider, a Democrat of Wisconsin Rapids. "For the concept there is bipartisan support. There are millions of people without health insurance. To that extent, we support it. To the extent they may want to take away certain benefits or may not want to protect the health-care records and privacy rights of employees, that's an entirely different matter."
California plan a model?
Smith, Seratti and Schneider all like California's small business health-insurance purchasing tool so much, they have been consulting with John Grgurina, chief deputy advisor and lead negotiator for California's Managed Risk Medical Insurance Board (MRMIB). Grgurina also flew to Milwaukee to testify before the committee.
The California MRMIB administers three health-care programs. They are:
- The Access for Infants and Mothers (AIM), which program provides low-cost health insurance coverage to moderate-income pregnant women and their infants.
- The Healthy Families Program (HFP), which provides low-cost health, dental and vision coverage to children in low-wage families.
- The Major Risk Medical Insurance Program (MRMIP), which provides health insurance for Californians who are unable to obtain coverage in the individual health-insurance market.
But the program analogous to PEHCPA is the Pacific Health Advantage (The Health Insurance Plan of California). In 1993, California's state legislature created the Health Insurance Plan of California (HIPC). HIPC is one of the largest and oldest small employer purchasing pools. The HIPC was managed by the state until July 1, 1999, when control was transferred to a nonprofit agency, the Pacific Business Group on Health.
Through HIPC, also known as PacAdvantage, small businesses can get affordable health, dental, and vision coverage by buying insurance together as one group. That gives small employers (with 2-50 employees) real purchasing clout, and gives their employees a broad choice of health, dental and vision plans.
The program has not been subsidized by the state, according to Grgurina, who stresses that smaller states have also been successful with similar purchasing pools.
"It is self-sufficient," Grgurina said. "One of the important points to make is that there are smaller states with purchasing co-ops -- including Connecticut. You don't have to have 140,000 insured to make it success."
The California program is not a one-size-fits-all proposition, according to Grgurina.
"One of the main features is employee choice," he said. "Each of the small businesses gets to pick the health plans that fits their needs. That's something usually only offered to large employers.
In both Wisconsin and California, insurance pools have had their opponents -- among the health-insurance industry.
According to a spokesperson for Humana, a Wisconsin-based insurer, the experiences of that company with insurance pools have been mixed.
"Regarding Humana's participation in Wisconsin's small group health insurance purchasing alliance, no final decision has been made," Mark Mathis of Humana said. "However, Humana has been involved in similar purchasing alliances in other states and has left every one after suffering substantial losses. We are highly skeptical of such a pool's ability to manage risk, especially when that pool attempts to offer HMO (health maintenance organization) and PPO (preferred provider organization) coverage."
"Before the reforms took effect, there were those who that prices were going to go up if the plan was in place," Grgurina said. "But in fact, when they went into effect, the rates went down for small businesses by about 10%."
The dynamics of the program have also prompted more insurance companies to enter the California market, due in part to requirements that insurance companies participating in the pool make their rates public.
"We required full disclosure of rates in summary brochures," Grgrurina said. "Companies had to have a brochure that showed all benefits packages and rates. That meant all small businesses in state could see what the products were and what the rates are. It was by virtue of having those reforms put into place that lead to a situation in California where more insurers decided to join the insurance market. They thought they could compete better."
Risk avoidance eliminated
One concern expressed by critics of the health insurance industry is that more and more, insurance companies are in a position to pick their customers, refusing to insure those with expensive medical conditions.
"That's what we don't want to create -- skimming or creaming," Schneider said. "Everyone has to be in the same boat. If they are not in the same boat, we would have a situation like school choice, where public schools get kids choice schools don't want. If you get only the ones insurance companies don't want in the pool, that's a problem. Much like the California model, we would want everyone to be treated like they were part of the pool -- or the poor small employer who has one or two sick employees is left holding the bag."
"We used to have a situation where the unhealthy were jettisoned -- it was a risk avoidance market," Grgurina said, adding that the pool concept has helped protect the risk-spreading concept of insurance for small businesses.
The California plan, for instance, includes a guaranteed renewal provision to protect employees who do get sick. Pre-existing conditions are also covered after a six-month period, he said.
"Changes implemented in California were much broader small business health insurance reforms," Grgurina said. "What is applicable in the pool is also applicable outside of the pool. If businesses decided to go into the pool they could - but if they didn't, the same market rate restrictions were imposed on them. If you don't have uniformity, people can find a more favorable position than in the pool. Keeping it uniform is essential to keeping a system in place."
While committee members like the California plan very much, there are things they would do differently.
"I would hope we can achieve something along the lines of the California model," Schneider said. "They have worked through a lot of the problems. I would expect that those who are already insured are not going to lose benefits that they already have. I think this is a possible because of questions raised during committee. For instance, for state employees, there is a co-pay for prescriptions, but there is a cap on it. In Cal, there is a co-pay, but there is no cap. Every time you get a prescription, you have to pay the deductible."
PEHCPA -- How it works
The State Assembly Committee on Small Business and Consumer Affairs is considering legislation that would get a health-care purchasing pool off the ground in Wisconsin. How would it work? According to Wisconsin Legislative Reference Bureau Brief 99-9:
Responsibilities of Employers. A participating employer must offer coverage under at least one plan to all permanent employees who work 30 hours or more a week. Coverage must be provided for at least 50% of that group who are not covered as dependents on someone else's plan. (The board may require coverage of a higher percentage.) For each employee covered by the PEHCPA plan, the employer must pay an amount equal to at least half of the lowest premium rate available to that employee. A participating employer who voluntarily terminates PEHCPA coverage will not be allowed to participate in the program for three years from the termination date.
Responsibilities of Insurers. Any participating insurer must contract with any employer that applies for coverage under the plan. The insurer must provide coverage to all the employer's employees who choose to participate, regardless of the individual's health condition or claims experience, as long as the employer agrees to pay the required premiums and comply with policy provisions. All policy sales under PEHCPA will be conducted by licensed insurance agents employed by or under contract with participating insurers.
July 6, 2001 Small Business Times, Milwaukee