Insurance Premiums Are Killers
The results of the Small Business Association of Michigan survey provide further evidence of a growing crisis in the insurance market that has many small business owners worried about their financial future because of annual double-digit increases in premiums in the past four years.
The timing of the survey’s release — as lawmakers try to formulate a proposal to reform the insurance market — is no coincidence, said Barry Cargill, vice president for government relations for the Small Business Association of Michigan.
By conducting and releasing the survey now, the association hopes to apply pressure on lawmakers to deal with the issue this summer, rather than put it off to election year politics and leave the matter for a new Legislature to deal with in 2003. With numerous legislative seats turning this year because of term limits, the association worries that rookie lawmakers coming into office next year may put the issue off for yet another year, which will undoubtedly bring another round of major premium increases, Cargill said
Small business, facing 20 percent to 30 percent increases in health insurance costs, simply can’t wait much longer for reform that will enable Blue Cross Blue Shield of Michigan, which covers about 70 percent of small businesses in Michigan, to better compete with commercial carriers, Cargill said.
“We need some education among employers and employees so that they will realize there is a crisis in health care the Legislature can do something about,” he said. “It’s leading to real problems that we need to get a grasp of.”
The Small Business Association of Michigan survey, conducted by the Lansing research firm EPIC/MRA, found that nearly one-fourth of small businesses perceive rising health insurance costs as threatening their ability to stay in business.
Forty percent of the respondents said they have had to increase the price of goods or services to pay employee health benefits, while 22 percent said they had to borrow money to pay higher insurance costs and 29 percent indicated they’ve hired fewer employees.
The survey’s results mirror those of many others issued in the past year that show businesses are responding to rising premiums by reducing health benefits or passing on escalating costs through higher employee co-pays and deductibles.
Many of the association’s members purchase their health insurance from Blue Cross Blue Shield of Michigan, which has incurred massive losses in recent years in its small group market that covers employers with two to 99 employees.
The losses, which have forced the Blues to push up insurance premiums — including an average increase of 15 percent to 20 percent in 2001 depending on where a business is located in Michigan — have brought about the legislative efforts in Lansing to reform the insurance market.
A House committee is expected to issue a reform proposal by the summer legislative recess that begins in June.
Blue Cross Blue Shield of Michigan, as the nonprofit “insurer of last resort” in the state that must accept anyone who applies for coverage, wants to see changes in the law to make it harder for commercial carriers to “cherry pick” small businesses with a younger, healthier workforce that costs far less to insure.
The Blues have lost more than $400 million since 1996 in the small group market that covers more than 1.3 million people in the state who work at small businesses. The group’s underwriting loss totaled about $20 million in 2001, down from the $66 million in 2000, Chief Financial Officer Mark Bartlett said.
The “single biggest factor” in trimming the loss from year to year was the large premium increases implemented this year for small business, Bartlett said. If the Legislature does not eventually enact market reforms, small businesses will end up getting priced out of the market for health insurance, he said.
“If you don’t have a fundamentally sound insurance market, then eventually it comes apart. The question is when?” said Bartlett, blaming the ability of commercial carriers to target younger, healthier employee pools and leave the Blues with a riskier pool to insure.
“Eventually, the small group market won’t be insurable because you’ll end up with a concentration of high-risk people in the pool,” Bartlett said.
In pushing for reforms, the Small Business Association of Michigan supports doing away with what’s known as “community rating,” where insurance rates are set by geographic markets around the state. The association backs moving to rating bands that would allow the Blues to set rates based on the risk of an employee pool, as commercial carriers do.
“Rate bands put insurance principles back into the market by controlling the spread of risk and rates, thereby bringing back the principle of pooling,” association CEO Gary Woodbury said.
A Small Business Association of Michigan survey recently gauged how small business owners are coping with rising health insurance costs. The survey found that:
- 24 percent say rising costs threaten their ability to stay in business.
- 40 percent say they’ve been forced to raise the price of goods or services to cover higher health insurance costs.
- 22 percent say they’ve been forced to borrow to cover higher health insurance costs.
- 34 percent have lowered employee wages or limited pay increases.
- 29 percent have hired fewer employees.
- 43 percent have raised employee co-pays for office visits and prescriptions.
- 36 percent have increased employee deductibles.
- 26 percent report increased frequency of employee hardship.
- 28 percent report lower employee morale or satisfaction.