An alliance of businesses and consumer advocates is pushing for a major overhaul of Rhode Island’s small-group health insurance market, promoting legislation that would impose so-called “community rating,” with only a narrow exception.
Community rating is the opposite of the standard insurance model, in which each policyholder’s premiums reflect the relative risk incurred by the insurer. Under that model, young and healthy people pay the least, while older and sicker people pay the most.
Pure community rating, by contrast, would charge everyone the same. Since 2000, for groups up to 50, Rhode Island has required health plans to use “modified” community rating, which allows rates to be adjusted by up to 10 percent based on group members’ health status, and allows further adjustments for age, gender and family composition.
The law allows insurers to charge the highest-paying group up to four times as much as the lowest-paying group – so if a company with, say, four healthy 21-year-old male employees pays $400 per person per month, the most a firm with four sick 60-year-olds can be charged is $1,600.
For the company paying $400, that’s not a bad deal. The problem is, Rhode Island has a relatively old work force, and many small businesses, especially in manufacturing, are on the other end of the scale. And as their workers age, the premiums rise dramatically.
Take Metachem Resins Corp. in West Warwick, a manufacturer of specialty materials and polymers, primarily for the electronics and solar cell industries. It has 22 full-time employees, said president and chief operating officer Phil Papoojian, and their average age is over 50.
“We’ve been in business for 47 years,” he said. “We have very strong employee loyalty, a very educated work force – in our business, it takes years to educate people like that – and we retain employees. We keep them working and productive.”
And on April 1, Metachem’s premiums are going up 22.6 percent, two or three times as much as for the Rhode Island market as a whole. Watching his company’s struggles, Papoojian has become a strong advocate of universal health care in the long run, and community rating now.
Papoojian led a committee on health care at the Rhode Island Economic Summit last Jan. 5 at Johnson & Wales University that was sponsored by the U.S. Small Business Administration and the R.I. Small Business Development Center. When the group came back with a policy agenda for small businesses to pursue this year, community rating was on the list.
Separately, but with support from others in business – most notably, Ted Almon, president and CEO of Claflin Co. in Cranston – the Health Care Organizing Project, a coalition started by Ocean State Action, has been pushing for adoption of true community rating as well. Almon said the real goal is universal health coverage, but this is a good first step in that direction.
After coalition member Joshua Miller, owner of the Trinity Brewhouse in Providence, was elected to the state Senate (filling Lt. Gov. Elizabeth H. Roberts’ former seat), the Cranston Democrat decided to sponsor community rating legislation.
After Miller learned about the Economic Summit health care committee’s position, Almon said, he presented his plan to the group, and the business leaders gave him their support. Papoojian said the committee, in turn, is recruiting more business-world supporters.
Miller’s bill, which has a twin in the House sponsored by Rep. Arthur Handy, D-Cranston, would require health insurers in Rhode Island to use community rating for their entire business with groups up to 50, with only one exception.
Insurers long have said that community rating is bad for the market because it raises the premiums for the youngest and healthiest people, making it less cost-effective for them to buy insurance at all – so they just drop out. That leaves only older and sicker people, so they end up paying just as much, or more, as they would have without community rating.
To try to avoid this “adverse selection,” Miller and Handy’s legislation would allow insurers to charge reduced rates for workers between the ages of 20 and 30.
In addition, to reduce costs for the entire small-group market, the legislation would create a reinsurance system to cover expenditures in excess of $40,000 for any person in a year. The reinsurance fund would be paid for through a new tax on insurers’ ”excess” revenue.
(The latter, an idea first floated last year, would set a target percentage of insurers’ premium revenue that must be spent on medical costs, and is meant to be an incentive for insurers not to overcharge subscribers or underpay providers. Blue Cross & Blue Shield of Rhode Island said it spent 85.5 cents per premium dollar on medical costs last year, for example, and 87.6 in 2005. UnitedHealthcare of New England said it spent 81 cents per dollar both years.)
The proposal comes at a time when annual premium hikes for the market as a whole have stopped being in the double digits, and when other efforts to control costs are already under way, such as the “wellness” plans being developed by Health Insurance Commissioner Christopher F. Koller’s office with insurers, businesses and consumer groups.
But this is also a time of heightened health care-related activism by businesses. Along with the group Papoojian is leading, a separate Rhode Island Business Group on Health has been busy identifying ways to curb costs, address the main issues driving cost increases, and most important, ensuring that businesses’ voices are heard at health care policy discussions.
Asked what he thinks of the Miller/Handy proposal, Koller said he hasn’t reviewed the details, but even the current, limited form of community rating in place has helped make health insurance more affordable for older and sicker populations.
While the current system allows rates to vary by a four-to-one ratio, Koller said, this measure might make it about two-to-one. Without further action, that would raise younger and healthier people’s premiums, he said, but the proposed subsidy could address that issue.
“The trick is where you find the money to fund the subsidy,” he said. Not only isn’t it clear that the proposed tax would yield enough to cover the cost, he added, but “everyone’s looking at that money” to pay for a wide variety of health care-related items.
Asked whether it’s worthwhile to pursue such an ambitious measure before the new “wellness” plans are put to the test, Koller said they’re not mutually exclusive by any means.
“I think ideas like this are good,” he said. “The status quo isn’t working, so we have to look at new ways to help keep as many people insured as possible.”
