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State Considers Reinsurance Rx: Program Could Help Stem Health Care Costs

Posted on: Saturday, 4 March 2006, 03:03 CST

By Guy Boulton, Milwaukee Journal Sentinel

Mar. 4--The proposal -- meriting a mere six sentences in Gov. Jim Doyle's "state of the state" address -- is one only a policy wonk could love.

But anything that could help make health insurance more affordable for small businesses and individuals garners attention.

Doyle proposed creating a state program to cover catastrophic health care costs -- what is called "reinsurance" -- for individuals and small businesses.

Reinsurance isn't the stuff of campaign slogans. But more than 20 states have reinsurance programs. And in some states, such as New York and Arizona, the programs have sharply lowered health insurance premiums.

That in turn has helped check the steady drop in small businesses that offer health benefits.

"Is this the sexiest idea? No," said Jason Helgerson, a spokesman for the Department of Health and Family Services. "But it's a serious idea, and the people we have been talking to think it's a serious idea."

New York, for example, lowered the cost of health insurance more than half for eligible individuals and almost as much for eligible small businesses, according to a report the Commonwealth Fund, which supports research on health policy.

The catch is that New York's program, which covers about 100,000 people, is selective. It also is subsidized the state. Few other state programs have had the same success.

Potential in Wisconsin

But Wayne Corey, executive director of Wisconsin Independent Businesses, which lobbies for independent and small businesses, is intrigued the idea.

"I have every reason to believe this could work very well," Corey said. "But we need to see the numbers for Wisconsin before we do cartwheels in the rotunda."

More than their larger counterparts, small businesses have been hit hard the soaring cost of health insurance.

The number of companies that offer health benefits has dropped to 60% in 2005 from 69% in 2000, and that drop has stemmed almost entirely from small businesses, according to an annual survey the Henry J. Kaiser Family Foundation.

"That's a real issue, and we need real solutions to it," Helgerson said. "That's why we think this is a major policy initiative."

Finding affordable health insurance can be much harder for individuals and small businesses because of the way the market works. Insurers peg the cost to the individual's health or to an employer's history of medical claims.

That's why someone with a pre-existing medical condition, such as heart disease, often can't find affordable health insurance or even buy insurance.

The same holds true for small businesses. If a business employs five people and one of them has a heart attack, its health insurance premiums can soar.

State reinsurance programs try to solve that problem.

Reinsurance is basically insurance for insurance companies, complete with the deductibles and limits in home, auto and other insurance.

It is designed to limit an insurance company's losses when hit with large claims.

setting up a reinsurance program that covers catastrophic medical bills -- say the top 5% -- insurance companies would bear less risk and have lower costs, enabling them to lower premiums.

That's just one way to structure a reinsurance program.

The programs are designed to lessen insurers' incentive to avoid insuring people with potentially high medical costs, such as someone in bad health or a small business that employs them. The most effective programs, though, draw on a state subsidy of some kind.

None of this is new. Nor is the idea of the government providing catastrophic insurance radical. Flood and crop insurance are two examples.

Doyle's proposal is to set up a quasi-public authority -- the Healthy Wisconsin Authority -- that would develop a plan for a state reinsurance program, working out the details, and later oversee the program.

The governor did not make any proposals on how to fund or structure the program

"The key thing for us will be to get these parties to come together and hammer out something that works for everyone," Helgerson said.

The Doyle administration has asked Rep. Curt Gielow (R-Mequon) to sponsor the bill to create the Healthy Wisconsin Authority.

"Anything that expands coverage and potentially lowers insurance of course should be on the table," Gielow said.

Incremental reform

Setting up a reinsurance program would be an incremental reform that doesn't deal with the underlying problem of health care costs. "We're not claiming it is a panacea," Helgerson said.

Scott Schultz, a client relations manager for Burkwald & Associates Inc., a benefits consulting company, said a reinsurance program could help if structured correctly. "It's going to provide moderate relief to the small business person," he said.

Nationally, the average annual premium for employer-sponsored coverage is now $4,024 for one person and $10,880 for a family of four, according to the Kaiser survey.

Workers on average contributed $610 a year toward the cost of individual coverage and $2,713 toward family coverage. Those costs don't include deductibles, co-pays and co-insurance.

The cost for small businesses, though, can be much higher -- $13,000 to $14,000 a year, Schultz said.

For a business with the misfortune of employing one or two people in bad health, health insurance can be unaffordable, prodding the business to drop health insurance coverage for everyone.

The problem could become widespread as the population ages, noted Corey of Wisconsin Independent Businesses. It will soon be hard for a business that employs 10 people not to have at least one employee over 50.

"That is a really serious problem," Corey said.

Whether a reinsurance program can help isn't known. But Corey said the state won't know unless it tries.

"We do know that things aren't working right now," he said.

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Copyright (c) 2006, Milwaukee Journal Sentinel

Distributed by Knight Ridder/Tribune Business News.

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Source: The Milwaukee Journal Sentinel

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