Health insurance rate band legislation passes in Senate

Health insurance rate band legislation passes in Senate
By Charles Rathmann, SBT Reporter
Legislation to tighten rate bands designed to control health insurance rates has been approved by the Wisconsin Senate.
The 25-8 vote in favor of Senate Bill 81 flies in the face of Gov. Scott McCallum’s veto of similar legislation contained in the state budget proposal.
The rate band legislation was part of the Private Employer Health Care Purchasing Alliance (PEHCPA) package, which was initially part of the 1999 biennial budget signed into law by Gov. Tommy Thompson.
PEHCPA was to be a self-funding program that created a pool so small businesses could control insurance costs by spreading risk across a larger group that would behave, for risk management purposes, like a larger employer.
Technical problems with the initial version of PEHCPA prevented it from being enacted; those technical problems were fixed in the biennial budget proposal sent this year to McCallum by the Conference Committee. The Small Business and Consumer Affairs Committee also added the rate band provisions, which had not been a part of the original legislation.
While the matter has not been a strictly partisan measure in the Senate, all 18 Senate Democrats voted for Senate Bill 81, while all eight no votes came from Republican senators.
Nor has PEHCPA been a partisan issue in the Assembly, where the measure has been driven through the Committee on Small Business and Consumer Affairs by Rep. Lorraine Seratti, a Florence County Republican.
Wisconsin’s health insurance industry has been critical of the rate band provisions in the PEHCPA legislation, claiming the restrictions would force it to increase premium rates for thousands of small businesses. The associations that advocate for small businesses — chiefly the Independent Business Association of Wisconsin and the state chapter of the National Federation of Independent Businesses — have supported the measure.
What the bill does
Currently, rate bands are in place in Wisconsin restricting health insurance rates to 30% above or 30% below a midpoint. Senate Bill 81 would compress that rate band for small businesses to +/-10%. That rate band would apply not only to an opt-in pool of small businesses, but to the entire small group market. Similar legislation — Assembly Bill 543 — that has passed the Assembly Small Business and Consumer Affairs Committee recently includes rate bands of +/-15% rather than the +/-10% included in Senate Bill 81.
The Assembly measure could come up for consideration on the floor before the end of the year, according to sources in Seratti’s office.
The goal of the rate bands is to limit variation in premium rates among small groups due to health status or claims experience. Proponents claim insurers would see savings from the fact that underwriting could be done away with as a result.
Parties on both sides of the issue offer conflicting projections of the impact the tighter rate bands would have on what small businesses pay for health insurance.
Proponents claim the rate band tightening is necessary to limit increases that would result when a company has a sick employee. In order to create a large enough risk pool, the rate bands would apply to all small groups as opposed to only those in the pool. Seratti claims that would be necessary to prevent adverse selection, a scenario where only the sickest, oldest groups would participate.
Throughout the debate over the rate-band provisions, insurers, most notably Humana, have claimed that the majority of small businesses would see major increases in their premiums if the tightened rate band were to go into effect.
“It’s mathematically impossible to compress the rate band without forcing rates higher for businesses at the lower end of the band,” Nancy Wenzel, executive director of the Wisconsin Association of Health Plans, said. “Senate Bill 81 does nothing about the overall cost of health-care services; it simply shifts the funding burden for health care and health insurance to the businesses that are already heavily subsidizing the health-care costs of high-risk groups.”
According to a statement released by Seratti aide Tim Fiocchi, “The only groups who have provided projections have shown average increases between 2.6% and 7% for healthy groups while showing decreases for sicker groups averaging 11% and 15%. Ironically, none of the projections can be independently confirmed, as the Office of the Commissioner of Insurance does not collect this type of data.”
The debate over rate bands takes place in a highly-charged atmosphere caused by 20% to 30% rate increases for small businesses in the state.
Data from the Office of the Commissioner of Insurance shows that the average health insurance rate for small businesses in Wisconsin has increased more than 54% since 1998.
“For many individual businesses, the increase has been vastly worse,” Seratti daid. “I’ve received reports of businesses receiving 70% and 80% increases in a single year.”
November 9, 2001 Small Business Times, Milwaukee