The current U.S. health insurance system stacks the deck against small businesses, according to House Energy and Commerce Committee Chairman Henry Waxman.
“Small firms pay premiums that are 18% higher than what large companies pay for the same level of coverage, and insurance companies can legally discriminate against small firms when setting premium rates,” Waxman said today at a hearing on small business health insurance organized by the committee’s oversight and investigations subcommittee, according to a written version of his remarks posted on the committee’s website.
“If a small firm employee gets sick, the insurance company can hike up the premium rates in order to recover its costs,” Waxman said. “Insurers can also charge discriminatory rates based on the age and gender of the small firm’s employees. They can charge higher premiums to a small business that employs older people or young women who might get pregnant. And these discriminatory rate-setting practices are perfectly legal under our current health insurance system.”
Committee investigators found examples of insurers imposing premium increases of greater than 100% on small business customers, and 2 insurers that imposed rate hikes greater than 200%, Waxman said.
“In the small group market, insurers don’t cancel the policies,” he said. “Instead, they increase rates to unaffordable levels so they can unload small businesses with sick employees from their plans. In each case, the insurance companies have created a win-win scenario for themselves. If health claims are low, the company collects premiums and makes money. If policyholders get sick, the company finds a way to get rid of the unprofitable policy.”
Linda Blumberg, a senior fellow at the Urban Institute, Washington, testified at the hearing that only about 36% of employers with fewer than 10 workers offered health benefits in 2008, compared with almost 99% of employers with 1,000 or more workers.
At employers where at least half of the workers earned low wages, only 18% of the smallest employers offered health benefits in 2008, compared with 98% of the large employers with high concentrations of low-wage workers, Blumberg said.
The gap is growing, because most large employers have kept their health benefits programs, but employers with fewer than 10 workers were 10% less likely to offer health benefits in 2008 than in 2000, Blumberg said.
The National Health Insurance Exchange system proposed in H.R. 3200, the House health bill, would help small employers, by helping them get standardized plans without the kinds of underwriting rules that now prevail, Blumberg said.
The exchange system would prohibit preexisting condition exclusion periods, limit the difference between the rates charged for the oldest insureds and the youngest, and prohibit insurers from considering health status, gender or industry of employment when setting rates, Blumberg said.
The health exchange system also could cut administrative costs, including marketing costs, Blumberg said.
She cited Congressional Budget Office estimates that administrative costs account for just 7% of premiums for the largest groups and up to 30% of premiums individuals and small groups.
“For example,” Blumberg said, according to the written version of her testimony, “insurers typically pay agent commissions of 10% of the first year’s premium in the small-group market.”
In Massachusetts, that state’s health insurance exchange pays agent commissions equal to just 1.3% to 3.3% of premiums, Blumberg said.