States come to aid of small firms - health insurance market reforms

Nation's Business, Nov, 1995

Steven J. Shamblott, chief executive of the Institute for Advanced Technology Inc., a small, high-tech training company in Edina, Minn., says he found it impossible to offer health insurance to his 20 workers when he took over the firm in early 1992. Several of his employees had pfc-existing health conditions, including one who had battled cancer, and insurers he talked with weren't interested in doing business with his company at any price.

But later that year, Minnesota lawmakers adopted insurance-market reforms for companies with fewer than 50 workers. One reform set a 12-month limit on the period during which insurers could refuse to cover pfc-existing conditions. Insurers also had to guarantee issuance and renewal of coverage to any business. And they were limited in the extent to which a group's claims experience or health status could be used in rate-setting.

Shamblott said the law, which was phased in beginning in July 1992, made it possible for him to buy company health insurance, and the benefits in turn have helped him attract more computer-literate workers to the firm. "Health care is an important part of being competitive," he says.

Minnesota is just one of 45 states that have adopted various small-group insurance-market reforms in recent years, according to a study by the Commonwealth Fund, a philanthropic group in New York.

Such incremental reforms have broad support in Congress because they address concerns about the uninsured and the affordability of care without burdening the federal Treasury. A Senate committee recently approved legislation that includes reforms similar to those many states have adopted, but prospects for passage this year are unclear because of the crowded congressional agenda.

Although Shamblott's experience suggests that the changes adopted by Minnesota have had some positive effects, the Commonwealth Fund study indicates that it is still too early to say whether reforms in states across the nation reduce costs and expand coverage. The report, based on interviews with state insurance regulators, did note, however, that there was no apparent widespread negative impact on the insurance market as a result of the reforms.

Meanwhile, some of the state regulators voiced concern to the Commonwealth Fund researchers about the rising number of small employers that are self-insuring, thereby avoiding state regulation and taking much of the punch out of state reforms.

Back in Minnesota, a state-level report found that there have been some troubling outcomes of reforms, but also some positive change.

On the downside, the study last year by the Minnesota Department of Commerce indicated that nearly half of the insurance carriers serving small employers when the reforms went into effect had left the state, many citing the expense of complying with the new law. That left just 27 insurers to serve the state's small-group market, the report said.

But the report also pointed out that 15 percent more small Minnesota employers were offering health benefits since the reforms went into effect. John Gross, a health-care analyst with the state Commerce Department, says regulators generally feel the reforms are a success.

Shamblott agrees: "We wouldn't have health care if it weren't for this law."