Health Insurance Problems Coming

July 3, 2003
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GRAND RAPIDS — The new president of a West Michigan association of health insurers says he and his colleagues hope for a positive outcome in Lansing’s reform of health care for small businesses.

But James L. Gilbert, recently installed president of the West Michigan Association of Health Underwriters, told the Business Journal he fears the reform will not work out well for many businesses.

Gilbert said he fears the legislation means that, come November and December, some small businesses likely will face some unprecedented increases in insurance rates — increases going well beyond the premium increases that for the past several years have been rising annually at a double-digit percentage rate.

Gilbert, an independent agent with West Michigan Business Group Inc., stresses that readers should not take his remarks as whining about what the measure would do to his own business as an insurance agent.

Because he’s an independent agent, he explained, he sells large and small group health policies for commercial carriers as well as Blue Cross/Blue Shield. “The impact of this law might be to send more business to the Blues than the commercial carriers,” he said, “but that doesn’t hurt me, since I sell both.”

What does concern him deeply, he said, is that the insurance reform laws will have some serious unintended consequences, among them being drastic increases in premiums for some small firms, and sharp reduction of insurance competition in the small business market.

“And the thing is that 90 percent of the companies here in the Grand Rapids area have 20 employees or less,” Gilbert said. “I think this is going to hurt many of them.”

He said he serves as an agent for one commercial carrier that recently reported privately that if the bill were to pass it would withdraw from Michigan.

Gilbert said that response arises from one provision in the legislation that limits commercial carriers to a 45 percent spread in premiums between their highest and lowest small group rates.

He said the provision was to make it more difficult for commercial carriers to engage in what’s termed “cherry picking.” This means the law is to prevent commercial carriers from offering low rates to low-risk groups, leaving coverage of high-risk groups to Blue Cross/Blue Shield, which loses money on such groups because of the state-mandated, artificially low rates for the nonprofit.

“Now say you’re a carrier who issues a group policy for the employees of a body shop, and they’re all young, healthy guys,” Gilbert said.

“The health insurance premiums for that group would be pretty low compared to another group with a much older work force that is more likely to have heart disease or arthritis that calls for hip or knee replacements, and so forth.”

Commercial carriers, he explained, ordinarily would set the premiums for the two groups according to the disparate likelihood, or risk, of big-dollar health claims for the two groups.

But when the statute with the 45-percent rule goes into effect Jan. 1, Gilbert said the carrier will be forced to drastically raise the premium of the policy for the body shop.

He explained that commercial carriers could not lower the premiums of their high-risk groups to within 45 percent of lowest-risk groups. That would mean those carriers would be trying to offset high claims with low premiums.

“They can’t survive in business that way,” Gilbert said. “So they’re going to raise the premiums of the healthy group to within 45 percent of the high-risk group.” In extreme cases, he said, the premium disparity between such high-risk and low-risk small groups could approach 300 percent.

He explained the provision is accompanied by another that allows Blue Cross/Blue Shield to expand its rates. He said the legislature’s intent in both laws is to level the insurance coverage field between the Blues and commercial carriers.

“I’m glad to see Blue Cross/Blue Shield getting expanded rates,” Gilbert said. “They needed a wider band. But I’m afraid that it may have gone too far,” he added.

In his view the Legislature, which had struggled with the reform since the first of the year, enacted the measure not because it was the best thing for the state, but because of Ernie Harwell.

He said that Harwell, one of the best-known people in Michigan, was employed in commercials to speak with endearing regret about how commercial companies cover people when they’re young and healthy, but not when they’re old and ill.

“Nothing against Mr. Harwell,” Gilbert said, “but the commercial was a complete misrepresentation of the facts in a very, very complex issue that, frankly, most people — including most legislators — just don’t understand.”

He predicted that when many small business owners start looking at group health renewals in November and December, they’re going to be deeply surprised. “It’s going to be interesting.”   

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