Hope for small business health insurance.

For the first time in nine years, Colorado has enacted legislation to address small-business health insurance, hoping to control exploding premiums and the rapidly declining number of employees covered. But is it enough?

Even big businesses use the word "crisis" to describe the health-care

For the past four years, corporate giant Qwest Communications International has seen health insurance premiums increase at unprecedented rates. So much so that the company has set caps on future premium spending, asking its 50,000 employees to pick up the cost of insurance premiums that rise higher than the cap.

When Scott Elmore, owner of Stan's Automotive in Louisville, hears that, he chuckles dryly.

Elmore's business's health-insurance premiums have nearly doubled over the past four years. And Elmore's employees have always paid 25 percent of their premium.

That's because Elmore, instead of employing and insuring 50,000, employs and insures only 12.

Like many other business owners, Elmore is a victim of recent health-care inflation that seems to target small business. While average business health insurance rates increased an already substantial 15 percent last year, for the vast majority of companies with fewer than 100 employees, the hike was at least 20 percent, and often much more.

Elmore's 37 percent increase seems paltry compared to Denver Bookbinding Co.'s 75 percent. In fact, the only way Denver Bookbinding owner Gail Lindley could continue to offer insurance at all was by passing an enormous deductible on to her employees--the highest allowed, she said.

But many small businesses have been forced to stop health coverage altogether. According to the National Bureau of Economic Research, the number of employees covered drops a full percentage point for every 3 percent premium increase. The Agency for Healthcare Research and Quality reports that this year less than half of businesses with 10 to 24 employees are able to offer health insurance; among those with fewer than 10, coverage is available to an even more dismal 36 percent.

The root of the problem is threefold. Small businesses lack the purchasing power of national corporations with thousands of employees--revenue from small accounts simply doesn't make up for the insurer's administrative investment, leaving many providers reluctant to cover companies with fewer than 100 employees at all, let alone compete for their business. Small companies, therefore, are left with few choices of benefits and even fewer choices of pricing--a problem compounded even further by the quickly shrinking number of insurance providers in the Colorado market.

"These days, there are maybe four big insurance companies, instead of 20, who offer maybe six plans," Elmore said. "Basically they can say, 'If you don't like it, tough! Because we know you don't have any other options.'"

The second reason for high premiums for small business is "rate banding," used by providers in all fields of insurance to increase premiums proportionate to higher risk. In the large market for individual health insurance, providers offset medical payouts for sick people with rates charged across the entire pool of insured, both sick and healthy. But in company purchasing, rate banding is based on average risk per company, ultimately punishing firms with fewer employees. One high-risk employee at Stan's Automotive, for instance, would increase its average company risk (and consequently, premiums) by more than six percent, while one at Qwest would shift risk a negligible .002 percent.

The third strike against small businesses in insurance markets are regulated mandates. Usually set by state or federal government regulators, mandates designate areas that employers must cover in their insurance plans. Originally, they were intended to ensure adequate health-care coverage for employees. Recently, though, mandates have exploded beyond the necessary to the simply convenient. Nationally, there are currently more than 1,500 different mandates included in various health insurance policies, covering the cost of everything from infertility treatments to wigs for cancer patients.

Under the federal 1974 Employee Retirement Security Act, large employers are exempted from federal health-insurance mandates, but small businesses face the full burden of both state and federal requirements.

"My employees are men between 19 and 25, so they don't need prostate checks," Elmore said of his own company's mandated coverages. "And I have a number of employees with vasectomies--they're clearly not interested in well-baby care. So why am I paying?"

Dire as it seems to business owners like Elmore, there's hope for the little guy. For the first time in nearly a decade, Colorado has adopted legislation to reform health care with small business in mind.

Colorado House Bill 03-1164, in effect as of July 1, addresses several issues, ultimately giving small businesses more choices and an opportunity to lower health-insurance costs. For example, the bill creates state-sanctioned, bare-bones insurance plans. These "Chevy" policies (as opposed to fully equipped "Cadillac" plans) allow small companies like Elmore's to opt out of some previously state-mandated benefits, offering baseline coverage instead.

Tim Jackson, the Colorado State Director of the National Federation of Independent Business, who, with Elmore, lobbied for HB 1164, points to a shift in health responsibility. "Individuals must have an obligation to their own health," said Jackson. "Some things, like mammograms, I agree, are great to do, but shouldn't really encumber the employer."

Not everyone is so optimistic about the removal of mandates, however. Physicians for a National Health Plan, for instance, which ultimately hopes for a publicly administered national health-insurance system, maintains that the Chevy plans create affordability by destroying the health security that should be offered by private plans. By removing mandates, offering what the group terms "uninsurance," the bill removes the substance that companies and individuals pay for, they said.

But more importantly, Jackson says, "some health coverage is better than no health coverage." He said the Chevy plans allow for more small companies to afford insurance that otherwise would not be offered at all.

A more controversial effect of HB 03-1164 draws mixed reactions even between Jackson and Elmore. The new law allows insurers to determine rate hands for small businesses that are based not only on age and geographical location but also on employee health, a company's past experience and risk. By discounting insurance for healthy groups, Jackson said, the new law will actually make it substantially more difficult for some businesses to secure it. "Small businesses cannot control the health status of their employees or that of their dependents, and shouldn't be charged more if they develop health problems," he said.

But Elmore thinks rate-banding flexibility will re-attract providers to the Colorado market, and also make insurers more amenable to small business negotiations. "It just makes business sense for the insurers," he said. "Anything that creates market competition is an appropriate concession."

The legislation also sets up a pilot program for multiple-employer welfare arrangements: in essence, health-insurance purchasing pools that allow small businesses to aggregate into larger groups. Because of the large size of the group, the businesses then can better negotiate with insurers for lower rates and a broader range of insurance coverage.

Elmore is looking forward to checking out the purchasing pools. "I'll examine them to see if they'll be a better option," Elmore said. "When we're talking about people competing for our business like they would for Qwest's, I suspect we're going to see a lot of benefit."

No matter the short-term impacts of HB 1164, both Elmore and Jackson have welcomed the legislature's first step toward providing relief from annual increases in health insurance premiums. "If nothing else," Elmore says, "it has woken people up and shown them that, 'Hey! We can really change things.' I think we've told the insurance providers that Colorado is open for business."