Health insurance ratings spark debate

Richard Mains and his wife are paying $2,000 more this year for their health insurance plan from the Pennsylvania Farm Bureau. Mains' son, -however, is paying $2,000 less for the same plan.

The difference, Mains said, is age.

Capital BlueCross, the insurer that provides the plan to the

I have mixed feelings about it," said Mains, who, along with his family, raises heifers on a 1,000-acre farm in Cumberland County.

The insurance industry and the small business community have mixed feelings, too.

Many health insurers in Pennsylvania look at demographic and/or health-related factors when

determining premiums for small employers. However, some insurers and small business groups want the state to stop insurers from using such factors and instead use community rating, which does not take such factors into account. (See "How rating system works," this page).

Supporters of community rating argue that it is fairer to small businesses that employ older and sicker workers. However, opponents argue that community rating reduces competition in the health insurance market and leads more people to choose to go without insurance.

The debate is expected to heat up this fall, when the state House Insurance Committee holds a series of public meetings on the issue. The meetings are scheduled for Sept. 25, Oct. 2 and Oct. 9. In addition, state Rep. Patricia Vance, RCumberland, is the primary sponsor of two bills that would require insurers to use community rating for small groups and would allow them to vary that rate only by geographic area and family size. The bills also would prohibit insurers from considering such health status-related factors as claims experience, genetic information or disability.

To determine the premium for a small employer, some insurers use community

rating. An insurer using this system puts small groups into a pool, examines the

health care costs for the pool and uses that information to set rates that are the

same for every group in the pool. Community rating allows claims costs to be

spread evenly among the groups.

Other insurers start with a community rate but then adjust the actual premium for each employer up or down by examining factors such as the employer's industry and the age of the employees. This is often referred to as demographic rating. Some insurers go even further and use medical underwriting, which examines factors such as employees' health status and claims history.

Most insurers nationwide consider demographic factors while determining rates, said Larry Akey, spokesman for the Health Insurance Association of America

in Washington, D.C. These insurers feel that examining demographics allows them to more accurately determine the risk they are assuming.

"That's the norm," Akey said. "Community rating is abnormal."

But proponents of community rating argue that demographic rating and medical underwriting punish employers who have older workers or who have workers who use a lot of health care. Those employers end up paying more than employers with younger, healthier work forces, said Tom Henschke, director of SMC Business Councils' central region office in Wormleysburg. SMC Business Councils, which also has an office in Pittsburgh, is a small-business trade association.

"It's creating the haves and the have-nots," Henschke said.

Using demographics and health history also could lead some employers to discriminate against potential employees who could increase the business' health insurance costs, said Bob Criste, chief financial officer of Stephenson Equipment Inc., Harrisburg.

"I think employers hiring people may discriminate and hire a younger person," Criste said.

Some Blues plans in the state also are supporting the effort to require community rating, including Independence Blue Cross in Philadelphia and Highmark Inc. Independence Blue Cross currently uses community rating but has said that it would switch to demographic rating next year if the state does not act.

For several years, Highmark has considered demographics such as the industry and the age of the work force when determining premiums for small groups in western Pennsylvania, said Michael Weinstein, a spokesman for the insurer based in Pittsburgh and East Pennsboro Township, Cumberland County. Locally, Highmark Blue Shield and Susquehanna Township, Dauphin Countybased Capital BlueCross introduced demographic rating last year.

Joe Butera, a spokesman for Capital BlueCross, said he could not comment and referred questions to Capital executives. They could not be reached for comment.

Although Highmark supports moves toward community rating, Weinstein said, Highmark adopted demographic rating only because it allows the nonprofit insurer to remain competitive with for-profit plans that use demographic rating and medical underwriting.

"We think community rating is a good idea. .." Weinstein said. "We are trying to make health care coverage more affordable to the people who need it the most."

But the Blues' push for community rating is just an attempt to eliminate competition and to increase their dominance in the state's health insurance market, said Kevin Shivers, director of the state chapter of the National Federation of Independent Business. if the state mandated community rating, then those insurers with the

largest market shares in an area would be able to spread their costs out the most. Insurers with smaller market shares would not be able to spread the risk as far and might be forced to charge higher rates.

"It's going to allow the Blues to raise rates and small businesses are going to pay," Shivers said. "It's a surefire way to eliminate competition for the Blues." Community rating also could lead some people to choose to go without insurance, said Francis Soistman Jr., president and chief executive officer of HealthAmerica Pennsylvania Inc. and HealthAssurance Pennsylvania Inc. The insurers, which have offices in Swatara Township, Dauphin County, use demographic rating and medical underwriting for small groups.

Soistman said younger, healthier people would pay more under community rating and some would choose not to get insurance. The entire health care system would suffer when these uninsured people are faced with medical emergencies they can't afford, he said.

Shivers said state lawmakers should examine why health insurance costs are going up instead of trying to shift the cost among employers. State officials should look at issues such as medical liability reform and placing a moratorium on mandated benefits, he said.

Henschke acknowledged that the question of what rating system insurers should use does not have an obvious answer, Even though his organization supports community rating, Henschke said, some of SMC Business Councils' members have benefited from demographic rating. Some members have seen premiums decrease by up to 30 percent.

Vance said she hopes the upcoming public hearings would provide a forum where all arguments on the rating issue could be heard.

"I want to see the pros and cons," Vance said.