Finally an Elected Official Gets It Right for Healthcare

Small Business Health Coverage Affordability Act
HB 122 (Rep. Mascaro)

Summary

HB 122 is designed to stimulate economic development and cover many of Utah’s working uninsured by allowing small businesses (2-50 employees) to buy-into the Public Employee Health Plan, a private not-for-profit health care trust fund. Premium costs for participating businesses will be significantly lower by virtue of the administrative efficiency, economies of scale, and community rating (pooling or spreading of risk) that are the hallmarks of PEHP.

Background

Double digit increases in health insurance premiums are threatening the competitiveness of Utah businesses and forcing many employers to drop coverage entirely. Some are shifting costs to workers, while others are thinning out the benefit package. Small business owners and their employees are particularly impacted by these challenges. Utah’s entrepreneurs should not be forced to choose between covering their workers and competing in an increasingly globalized economy.

Over the last decade premiums for employer-provided family health insurance in Utah grew 50% faster than in the US (Medical Expenditure Panel Survey). In August of 2003 employer concern about insurance costs reached a 3-year high of 42% (Kaiser Family Foundation). PEHP is able to offer affordable premiums because it has 3.8% administrative overhead costs, compared to the insurance industry average of 15%. HB 122 makes coverage more affordable for small businesses, by taking advantage of the robust purchasing power, significantly lower administrative costs, and efficient risk pooling of PEHP.
The Target Population

% of Employees in Businesses that offer health insurance by firm size in Utah, 2000-03

Source:: http://www.meps.ahcpr.gov/.

Private Sector Employees by Firm Size
Source: www.meps.ahcpr.gov/MEPSDATA/ic/2003/Tables_II/TIIB1A.pdf
…The target population is roughly 45% of 254,872. or 114,692 Utah workers. The target population would be less if there was a look-back period, (a period of time during which workers would need to be uninsured before they are eligible).

Frequently Asked Questions

How will HB 122 stimulate economic development and possibly create jobs?
Small businesses have enough to worry about meeting their bottom line. It is the intent of the legislation to encourage new business development, relocation, and expansion by making health coverage more affordable for small businesses.

Does this Initiative Create Unfair Competition for Other Insurers?
No. Since participation in the PEHP buy-in would be entirely voluntary, the program does not confer any competitive advantage to PEHP over other players in the market. Health insurance companies are always free to compete by offering more affordable or higher quality products. If anything, HB122 will promote competition based on quality and price in a vastly underserved market.

How much will HB 122 cost?
The cost should be minimal because outreach to small businesses will happen through the Governor’s new Office of Economic Development which has access to small businesses statewide. This initiative is heartily endorsed by the Vest Pocket Business Coalition, several regional Chambers of Commerce, Downtown Merchants Association, and other high-profile business associations. PEHP might need to add a few more claims processors, but otherwise they can build the buy-in into its current administrative apparatus.

Why not try a purchasing cooperative?
Utah tried to implement two purchasing coops over the last 11 years, and both failed because of low enrollment due, in turn, due to excessive cost.

Is there a precedent for groups buying into PEHP?
Yes, there are several. For over 25 years PEHP has been providing benefits for employees of the State of Utah. In addition, Salt Lake County, Salt Lake City, and dozens of other public entities and school districts within our state also offer benefits through PEHP. Today PEHP has 177,854 covered lives. In 1998, state statute was modified to permit PEHP to administer the Children’s Health Insurance Program. HB122 further modifies the statute to allow small businesses to buy into PEHP.
Small Business Health Coverage Survey Preliminary Results (n=174)

Preliminary results from a survey designed and conducted by the Utah Alliance for Health Policy Solutions and sponsored by the Governor’s Office of Economic Development show very strong support for initiatives like HB122. Key findings include:

· The average age of respondents’ (n=171) workforce was 37.2, lower than the average age for PEHP. This suggests that concerns about adverse selection are exaggerated. A younger group will be healthier and thus more likely to reduce the actuarial risk—and cost—for the rest of the pool.

· 90% of respondents (n=168) indicated that the cost of coverage impacts their businesses’ profitability, and 88% saw an impact on employee retention.
· 74% of employer respondents (n=168) said they were having trouble affording health coverage for their employees.
· 80% of respondents said that 76-100% of employees would be interested in having a health insurance benefit.

· If the employer were expected to cover 50% of a full premium cost ($300 per member, per month) for standard PEHP-like coverage, 84% of respondents indicated they would buy. 53% of respondents said they would cover 75-100% of the full premium cost. Another 39% said they would cover 50% of the premium.
· Given this level of support, 53.5% of respondents thought that 76-100% of their employees would take up the coverage. Another 24.2% said 51-75% would enroll.

Good for business, Good for Workers

Utah Premiums Paid by Workers Rising 5x Faster than Wages (2000-2004)

Change in average insurance premium
Change in Average Earnings

Utah
66.3%
13.2%

U.S.
35.9%
12.4%

Source: The Lewin Group for Families USA, 2004
Distribution of Nonelderly Uninsured by Employment data, 2002-2003.

1 Full-time Worker Part-time Worker Non-Workers
in household in household

Source: http://www.statehealthfacts.org
For further information contact Judi Hilman, Research Director, The Alliance for Health (801) 870-3887 judi@healthsolutionsalliance.org . Thanks to Nick Racker and Scott Spendlove for assisting w/data collection.