Denver Women's Commission
Small Business Health Insurance - January 2001
December 15, 2000
Prepared by Chaer Robert
For Zenith Magazine
If you were diagnosed with M.S. tomorrow, would your health insurance rates jump? If you had a heart attack, could you still renew your insurance? If one co-worker was diagnosed with diabetes and another with breast cancer, would your premiums skyrocket?
In 1994, the Colorado Legislature passed legislation designed to protect small business from dramatic price increases. Large businesses are protected by the negotiating power of numbers. The bill required health insurers to issue policies to all small businesses--“ guarantee issue”. Rates are set by "modified community rating” versus individual underwriting, although plan design, age, location and family size can be considered. Rather than basing the premium on one company's employees’ health histories, insurers must charge based on usage by the small employers community-wide.
Since some companies have lost money insuring the smallest groups, they may propose legislation to abolish community rating. For companies employing only healthy young single men, this could lower their rates. For the rest, the removal of modified community rating would likely only accelerate the increase in health insurance premiums.
In 1997, Congress passed the Health Insurance Portability Act (HIPAA). It protects businesses of 2-50 employees. Insurance companies cannot refuse to renew your policy because of illness. They cannot ban coverage of pre-existing conditions if you transfer insurance companies or change jobs.
Federal law does not protect the "business groups of one"--BG1s-- the self- employed or sole employees. A task force of the State Division of Insurance has thus considered possible state legislation. One proposal would have allowed insurance companies to refuse to cover BG1s who have certain medical conditions. The only option left them would be Cover Colorado, a state program for those who have difficulty finding health insurance due to health problems. Premiums are 50% higher than market rate for other individual plans, and choices of plans are limited.
Another proposal under consideration at press time is to form a “reinsurance pool" in which insurance companies would be able to limit their financial responsibility for BG1s with major health problems. For the individual, there would be no visible change. The extra administrative costs of this option, versus just denying coverage, are not popular with some insurers on the task force.
Suspicions that some BG1s were individuals with health problems who saw being self-employed as an avenue to affordable health insurance prompted state legislative changes in 1999. Now, a BG1 can only enroll within a month of their birthday and the business must generate taxable income or be a substantial portion of their income. The results of these new restrictions have not yet been documented.
Another insurance company concern was BG1s "behaving as individuals” or what we, as consumers, would call being financially savvy. A self-employed person might get a cheaper individual policy, but move to a BG1 policy because of its guaranteed issue if they develop an illness their policy doesn't cover. The task force is considering restricting new BG1s to limited coverage the first year if the person was previously uninsured. Certainly insurance can't work financially if people wait until they are sick to get it. But many insurers want to count those with individual policies as "uninsured" to discourage small business people from switching based on health problems.
Take stock of the health of your health insurance. Things could get tougher for those with the smallest businesses.