Insurance purchasing pool proponents try again
By Charles Rathmann, of SBT
While a partial veto by former Gov. Scott McCallum prevented budget provisions for a health insurance purchasing pool for small businesses from coming to fruition last year, lawmakers and the administration of Gov. Jim Doyle are trying to hammer out an agreement to create the pool in the first few months of 2003.
According to lawmakers involved with the Assembly’s Small Business and Insurance Committees, gears are turning to implement the Private Employer Health Care Purchasing Alliance (PEHCPA) through the administrative rule-making process.
An administrative rule would not likely have to be voted on by the entire Assembly, but would need approval by committees in the Assembly and Senate involved with health, insurance or small business.
If a committee in either chamber had an objection to the bill, it would be sent to the Joint Committee for Review of Administrative Rules (JCRAR), which is chaired by the purchasing pool’s strongest advocate, Rep. Lorraine Seratti, a Republican from Florence County.
The pool is designed to moderate health insurance cost increases by making insured employees part of a larger pool. Insurers participating in the pool would offer packages that employers — or even individual employees — could choose from.
Premiums would be based on geography, age and sex of participants, but health status would not be a consideration. To prevent the pool from attracting only older, sicker groups, a variety of measures may be included in new legislation or an administrative rule, including a subsidy from Badger Care, the state’s program for working poor with children, and an exemption from state health insurance coverage mandates.
A group of consultants from Washington think-tanks and California’s successful insurance pool were in Madison Jan. 15 to advise state legislators on health care-related issues, including the purchasing pool.
The seminar, held by the University of Wisconsin-Madison’s Wisconsin Family Impact Seminar group and Wisconsin Health Policy Forums, was closed to the media and industry advocates.
Small Business Times spoke with legislators who attended the seminar and consultants who spoke at the event.
About 80 legislators attended the event, according to organizers.
According to Seratti’s office, no ad
ditional legislation should be needed to implement the pool as proposed.
A Seratti aide said the Office of the Commissioner of Insurance has been asked by Doyle to draft an administrative rule that would close the gap left by McCallum’s veto of rate band and funding provisions in the PEHCPA legislation.
The PEHCPA proposal originated as part of Wisconsin Act 9, the previous biennial budget bill.
While PEHCPA would be a self-funded private industry initiative, the biennial budget proposal included an $850,000 loan from the State Life Insurance Fund. In his veto message, McCallum characterized that funding source as unconstitutional, but PEHCPA sponsors pointed out that it was suggested to them by a fellow Republican – then-Senate Majority Leader Scott Jensen.
The team of consultants was adamant that rate-band provisions would be necessary for the success of the pool, despite the objections of the insurance industry.
The rate bands would restrict the degree above or below a midpoint premium for any group that could be increased in a single year.
A 15% rate band for health status-related increases currently exists in the state, but the budget proposal called for a 10% band that would apply to all small businesses in the state.
The Wisconsin insurance industry, led by Humana Wisconsin market president Larry Rambo and the Wisconsin Association of Health Plans (WAHP), claimed that most small businesses would see an increase in costs if the pool is put into place. That, in turn, would drive some employers and employees out of the market, they said.
One of the visiting experts, Rick Curtis of the Institute for Health Policy Solutions, Washington, D.C., presented legislators with the results of the study commissioned by the Wisconsin Private Employer Health Care Coverage Board (PEHCCP). The study results indicated that premiums would increase slightly for most small employers if the pool is created, because the drastically higher premiums paid by a small minority of very high-risk groups would be spread out over the pool market as a whole.
Curtis stressed that a remedy for that would have to be found, or the pool would suffer from adverse selection.
One solution Curtis proposed, reflected in a Jan. 14 advisory minute to Department of Employee Trust Funds from the PEHCCP board, would be to drop certain state-mandated coverages from policies written to pool participants.
"It might do a little to prevent adverse selection," Curtis said.
Another suggestion from Curtis was to leverage Badger Care dollars by offering subsidies to employers with low-wage employees who cannot afford health insurance.
"On a budget neutral basis or on a budget savings basis, it could do a lot of good," Curtis said.
Even critics of the purchasing pool concept were intrigued by the proposals.
"We have long been advocating for increased flexibility for small employers in choosing benefits plans," WAHP deputy director Joe Kachelski said. "If it’s a good idea for the whole market, it’s a good idea for the pool "
Rep. Gregg Underheim, an Oshkosh Republican who chairs the Assembly Health Committee, called the mandate exemption concept "interesting."
The insurance industry, which was instrumental in the demise of the pool last year, also cited increased costs as a prime concern.
However, according to Curtis and John Grgurina, the director of PacAdvantage, California’s insurance pool, insurers currently in the Wisconsin market have another reason to fear the pool.
"Before we put the pool and rate reforms in place, there were a lot of insurers sitting on the sidelines in California," Grgurina said. "Other established insurers were skimming off the good risk, selectively marketing to good risk. When someone proved to be a bad risk, you just jack up their premium 200%, which is the equivalent of telling them you don’t want to do business with them. So it all has to do with who has the best risk managers. By taking underwriting out of the picture, it is easier for new companies to come into the market without fear of being stuck with nothing but bad risk."
"It certainly makes for a better opportunity," Curtis said. "It is no longer a matter of who has the best actuaries. But if you are an insurer and you think you are good at risk management, you probably don’t want your competition to be able to come in and compete on a level playing field."
"They all think that they win if they play this underwriting game," said Tom Korpady, administrator of the Department of Employee Trust Funds. "The fact is there are winners and losers in that underwriting game. Underwriting really rewards young, healthy groups and punishes people who need the insurance."
Kachelski disagreed with the argument that the pool would attract insurers not already in the market.
"I would be shocked if the implementation of this pool introduced new insurers into the Wisconsin market," Kachelski said. "I am not aware of that scenario playing out in other states. We have an awfully competitive market right now."
Jan. 24, 2003 Small Business Times, Milwaukee