Monday, November 24, 2008

Small Business Health Insurance Coverage: A Sobering Report From the Trenches

One of the things I enjoy the most about my travels across the country is meeting benefits brokers and health plan sales reps--they have the best feel for the real market and what their customers and their employees are up against.

This very sobering and, from what I independently hear, accurate report about the small group health insurance market comes courtesy of Brian Klepper. Please note the impact consumer driven plans are having.

Small Business Coverage: A Report From the Trenches

John Sinibaldi, a well-respected health insurance agent in St. Petersburg, FL , has become prominent in Florida's broker community because he not only counsels and services a large book of small business clients, but because he also studiously tracks the macro trends that impact coverage for this population. And he's active in the state's regulatory and legislative activities.

The other day I dropped him Jane Sarasohn-Kahn's post that reported on International Foundation of Employee Benefit Plans' survey showing that most employers still want to be involved with health care. John responded with a long description of what the small employers he works with are up against. Its an illuminating, damning piece. I asked him whether I could post it, and he graciously agreed.

Often the discussions on sites like this are dominated by people who understand health care's problems deeply but abstractly. For John and his employers, buying health care is a stark, concrete problem that boils down to cutting care arrangements that are affordable for the employers and employees. As he describes it, it's an increasingly impossible task.

John notes that only 36% of Florida's small businesses - defined in the health insurance market as employers with 2-50 employees - now offer coverage. This is significant, since 95% of Florida businesses are small. Nationally, about one-third of all employees work for firms with fewer than 100 employees.

The increasing pressure on small business may explain why, as I pointed out the other day, even the arch-conservative National Federation of Independent Business (NFIB) recently co-sponsored a reprise of the Harry & Louise health care reform ads, this time advocating for, rather than against, universal health care. Last time, they were part of the coalition that killed the Clinton's reform effort.

And finally, Mr. Sinibaldi's message should drive home a key point, echoed by Shannon Brownlee and Zeke Emanuel in the Washington Post over the weekend and Bob Laszewski's post yesterday. To be successful, the expansive health care reform discussions that typically dominate in DC MUST go beyond the Massachusetts and California reform efforts. Approaches that can address waste and cost are just as important as those relating to universal coverage. Otherwise the resulting solutions will continue to be out of reach to a sizable portion of the American people, and the underlying driver of the crisis, out-of-control cost, will remain untouched.

Here's John's letter.
I've got news for the folks doing the IFEBP survey: Smaller businesses, especially those defined as true small businesses (2-50 FT employees), are strapped beyond belief when it comes to paying ever-higher premiums for health care. The survey's results are NOT indicative of what is happening in the small group market (much like the Kaiser Family Foundation's (KFF) annual survey on total premium and the portions shared by employees, which always makes me laugh. The employees at my businesses would kill to have the low percentage of total premium passed on to them that is reported in the KFF survey).

Across the board, the 100+ businesses I represent, all of them 2-50 full time employees, have received increases between 13%-75% this year. The average has been around 20-24%. That's on top of 15+% average increases last year, 15+% increases the year before, and the year before that.

Some of those increases have been mitigated by moving to High Deductible Health Plans (HDHP), but we didn't get premium savings by doing so, we only leveled premiums for a year or so. Now, the underlying increases are causing the HDHPs to rise just as fast (and maybe even faster; more on that in a minute), so employers are moving toward ever bigger deductibles.

Just five years ago, average deductibles for my employers who had deductibles (many were still on straight copay HMOs) were in the $500-$1000 per covered member range.

Now, I have only a handful of employers still on HMOs, and they have huge co-pays, like $1,500 inpatient hospital co-pays or large deductibles just like the more traditional insurance plans. Most deductibles range from $2,000 per covered member to as much as $10,000 for a cumulative family deductible. And many of those are HDHPs, with no benefit for covered sickness or injury or prescription benefits, until the deductible is met. Even with these plans, premiums are simply too high for many low-wage and middle-income folks to pay.

Most of my small businesses have been frightened to death by the health care industry's warnings against governmental intervention. The most common remark I receive is "I don't want government involved in my health care!" However, the second most common remark I am receiving now is "I don't know how much longer I can pay for this. Frankly, the government can't do any worse."

I have an unremarkable quote in a November 17 WSJ article - "Now the insurers are catching up." - on the coverage problems facing small business. What I meant to convey to Ms. Fuhrmans, the reporter, was that the premise that Consumer Directed Health Care would give consumers more skin in the game and slow the rise in health care costs was, and remains, a myth.

I represent the two businesses profiled in the article. Their experiences are not anomalies in the small group market. Rather, they are indicative of the dramatic health insurance changes that have affected small businesses. Just five years ago, one of the businesses had a very traditional PPO product, with low copays, low out-of-pocket expenses for major medical claims, and low-cost prescription drugs. The other employer also had relatively affordable costs, both for themselves and their employees. More importantly, both businesses felt that, while expensive, the costs to them and their employees was not egregious.

Fast forward to today. Both businesses feel that they're being hosed on their health care costs. They don't care what is behind the cost increases. It also makes no difference which carriers are involved, as all struggle with rising costs and ultimately pass those costs on to employers and their employees. The employers only know that the current rate of increase (for premiums, for payroll deductions for the employees' portions, and for out-of-pocket expenses at time of claim) is simply unsustainable.

Unsustainable. Think about it. Only some 36% of small businesses in Florida still offer coverage - this is far less than the national average of 52% - and that number continues to plummet.

So an increasing percentage of small businesses now feel that governmental intervention of ANY kind is preferable to the present untenable situation. In the small group marketplace, the pinch has been here for a long time, and has turned into a hard squeeze. Soon, it will squeeze the life out of the markets - at which point the small group market will implode.

At this point, the current system only works for affluent employers, who can still pay the exorbitant premiums but who don't pass the bulk of that cost along to their employees. It also still works for businesses with high-income employees who can absorb the cost. That typically means larger businesses; institutional purchasers like local, state and federal government organizations. It works for purchasers with enough capital and revenue to offset the bulk of the costs, whose employees haven't yet felt the "pinch" of high health care costs.

An interesting and often overlooked sidenote is that, in almost all surveys of employee satisfaction, employees of larger employers and those employers that pick up the bulk of the premium are typically more satisfied with the current system than employees in small businesses, which are often not included in such surveys.

Finally, the most popular plans I now sell to small businesses? A flat $5,000 individual/$10,000 family deductible HDHP (no carrier responsibility for anything other than pure preventive until the deductibles have been met). A similar $1,500/$3,000 HDHP is also popular. I very rarely sell more traditional PPO co-pay plans, since the businesses I represent (mostly light industry and service) can't afford them.
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