While Washington Dithers, States Craft SMB Health Plans

For the past eight years, lawmakers in Washington have dithered and debated while the health insurance crisis has grown increasingly worse. At last count, skyrocketing costs have forced 47 million Americans to forego insurance and put their health at risk. The majority of those work in small businesses.

At the state level, however, a number of progressive governors have taken action. Obviously, a piecemeal, state-by-state approach is not the best way to go. The health care crisis is a national problem that clearly requires a national solution. So why are a growing number of states tackling this problem without Washington's help? A close look at one program in Pennsylvania provides an eye-opening answer.

Pennsylvania Governor Edward G. Rendell appeared this week before the House Small Business Committee to explain why his state has stopped waiting for Washington to act. "In Pennsylvania, we have 133,000 children and 767,000 adults who are uninsured. Of those, 71 percent are employed," he told the committee. While many work in low-wage jobs, small business owners also fall in that group.

Rendell told the story of Roberta Ayers, who owns an auto body shop with her husband. The Ayers dropped their health insurance 10 years ago when it cost $500 a month with a $5,000 deductible. Today, they don't go to the doctor, don't have yearly physicals, can't afford medical tests, and "live on needles and pins hoping everything is okay."

If $500 a month was too burdensome 10 years ago, the Ayers would be shocked by the cost of health insurance today. Since 2000, the national rate of inflation has increased 17 percent while wages have only increased by 13 percent. In contrast, health insurance premiums for individual workers nationally have increased by nearly 76 percent.

From 1996 to 2005, the average cost of premiums for family coverage in Pennsylvania through employer-sponsored health care has gone from $4,859 to $11,416 a year. During the same period, the average premium per enrolled employee of a small business in Pennsylvania more than doubled from $2,036 to $4,625. If current trends continue, in five years the cost to insure a family of four will be more than $20,000 a year in Pennsylvania.

To make matters worse, the state had the second highest loss of employer-provided health insurance between 2000 and 2007, according to a recent study by the Economic Policy Institute, a nonpartisan, nonprofit think tank in Washington, D.C. Nearly 500,000 state residents lost their coverage during that time. In addition, 198,683 children lost their health insurance, also the second highest in the nation.

All of this is having a direct impact on the prosperity of Pennsylvania small businesses. While state figures were unavailable nationally, the cost of lost productivity ranges as high as $205 billion annually because workers don't have health insurance, according to a study by the Institute of Medicine, a division of the National Academies of Science. A similar study by the Commonwealth Fund, a private foundation that focuses on health care, found that common ailments for which the uninsured do not receive treatment, such as headaches, back pain, arthritis, or muscle and joint pain, alone cost businesses $62.1 billion dollars annually in lost workplace productivity.

In the face of such a daunting problem, Gov. Rendell said his state had no choice but to act. Pennsylvania is already spending $400 million annually to reimburse hospitals for providing uncompensated care to the uninsured, who often end up seeking medical attention in emergency rooms, one of the costliest forms of treatment. In addition, an estimated 6.5 percent of premiums for insured residents go toward care for the uninsured. "That means that every Pennsylvania business that offers insurance ends up paying for those without," Gov. Rendell noted.

Today, the state is rolling out what's known as the Prescription for Pennsylvania plan, which is centered on improving quality and access "by delivering the right care, right, the first time," said Gov. Rendell. The idea is to promote wellness and save money while expanding coverage to all state residents. That state also has crafted Cover All Pennsylvanians (CAP), a plan to make affordable basic health insurance available to eligible small businesses that do not currently offer health insurance. This isn't "socialized" medicine, according to Gov. Rendell; the program works through the private insurance market.

Small business employers can participate if they have 50 or fewer employees who earn less than the state's average wage. Employers who choose to join CAP will pay about $130 per employee per month, and each employee will pay a premium of $10 to $70 per month depending on family income.

A family of four with a household income of up to $61,000 a year will receive help from the state with premiums, while the working poor (a household income of up to 150 percent of the federal poverty level, about $30,000 for a family of four) will get free coverage. The program also provides a subsidy so an employee can join an employer-sponsored health plan. "This will allow small businesses who do offer insurance to increase their pool, which usually results in lower, more stable rates," Gov. Rendell said.

The state legislature shot down Gov. Rendell's plan to levy a 3 percent tax on businesses that do not offer insurance to fund the program. (A similar tax pays for state programs in California and Massachusetts.) Instead, the program would be funded with a new 10-cents-a-pack tax on cigarettes; the first ever tax on cigars and smokeless tobacco; federal matching funds and excess funds in another health program funded by a current 25-cents-a-pack cigarette tax.

The legislature is currently debating a number of other reforms that would change the way health insurers do business in the state and make it easier for small businesses to spread risks and bargain for lower rates. "These reforms are especially critical to our small businesses because 72.4 percent of all private businesses in Pennsylvania and 26.8 percent of all Pennsylvania-based employees work for businesses with fewer than 50 employees," Gov. Rendell noted, "and employers with fewer than 10 employees make up 56.4 percent of all businesses in the Commonwealth."

The Pennsylvania program proves it's possible for governments to craft initiatives that work within the current private insurance market to make health insurance more affordable for small businesses. Now, it's time for Washington to get its act together.