South Carolina Small Business Chamber of Commerce

INSURANCE INDUSTRY DEFEATS CONSUMERS

Health Insurance

To really have competition between health insurance companies you have to stop allowing the dominant carrier in the state, Blue Cross Blue Shield (BCBS), from contractually forcing healthcare providers to charge BCBS competitors higher fees.  This process is called the “most favored nation” clause in a contract.

If one health insurance company is guaranteed to have the lowest reimbursement rates for doctors and hospitals, that company has lower costs and thus can be more competitive in premiums charged.  But that company also has no incentive to drive down healthcare costs.  In fact, it has an incentive to allow healthcare costs to increase thus enabling it to make more profit through higher premiums.  As a result the other healthcare companies are forced to have higher costs and thus less competitive premiums.  With no market-driven containment on healthcare costs, premiums for all health insurance companies increase.

We supported S.316 which would have outlawed most favored nation clauses in health insurance company contracts with providers.  But S.316, which was introduced in January of 2011, never even got a subcommittee assignment from the Chairman of the Senate Banking and Insurance Committee.  You can probably figure out why. 

The last reason given to me by the Chairman, who was defeated in his primary election, was that BCBS was under federal investigation for using the most favored nation clause to restrict competition thus harming the consumer.  The Chairman didn’t think it was appropriate for the state to get out in front of the feds and possibly pass a law that might have to be changed later depending on the outcome of the investigation.

I didn’t buy the logic.  While it was true that the U.S. Justice Department has been (and probably still is) looking into the contractual practices of BCBS, confirmed by a call I received from the Justice Department to discuss the matter, this was a poor excuse for not moving S.316 along the legislative process.  

First, since when does South Carolina kowtow to the federal government?  We think nothing of sticking a finger into Uncle Sam’s eye whenever it means scoring some political points.  And if we can do that for partisan reasons, surely we can do that to help make health insurance more affordable for our citizens.

Second, a federal investigation would be looking at the past behavior of BCBS.  Legislation would address future behavior.  We should have been taking action to correct uncompetitive behavior going forward and let the feds worry about the past misdeeds.

The bottom line is that because the Senate Banking and Insurance Committee failed to promote competition between health insurance companies either because of the lobbying power of BCBS or the Chairman’s reluctance to hurt the fed’s feelings, South Carolinians will still pay higher rates for the same coverage compared to Georgians and North Carolinians right across the border.

Workers Compensation Insurance

Since 2005 the SCSBCC has been fighting workers’ compensation rate increases in court alongside the State Consumer Advocate.  Our efforts have paid off with dramatic reductions of up to 40% of the proposed rate hikes for our state’s small businesses. 

Unfortunately, the current law had been interpreted by our state Department of Insurance (DOI) to allow other parties like us and the Consumer Advocate to challenge a rate change only when it was a proposed average overall increase.  Recently we had seen actual rate decreases proposed but in our opinion not enough of a decrease.  However, because of the DOI’s position, the insurance industry got what they wanted. 

We supported S.31 which would have simply allowed the Consumer Advocate to request a hearing before a judge for any proposed increase or decrease in workers’ compensation rates.  This bill was filed in January of 2011 but it did not receive a Senate Banking and Insurance subcommittee hearing until this year.  The bill received a favorable recommendation from the subcommittee but then the momentum stopped.  Once again the powerful insurance industry had won. 

Fortunately, the Consumer Advocate in the mean time had challenged the DOI interpretation of the law in court and met with success.  The Judge agreed that the Consumer Advocate should be allowed to request a hearing before a judge regardless of whether the average rate change was an increase or decrease.  An appeal of that ruling by the DOI or the insurance industry is possible which made the effort to change the law necessary.

On a less prominent bill, H.3111 would have (among other things) required workers compensation insurance companies to use the latest approved rates for the state.  A quirk in the present ratemaking process allows a company not to use the most recently approved rates.  Pressure from the insurance industry ended with this provision being struck from the bill in the Senate Banking and Insurance Committee.  H.3111 did pass the Legislature and was signed by the Governor without the consumer friendly language.

COMMERCE REFUSES REAL LOCAL ECONOMIC DEVELOPMENT

The SCSBCC supported S.1089 that would have created a Division of Small Business and Entrepreneurial Development within the S.C. Department of Commerce (DOC).  Since 2006 the SCBCC has been advocating for our DOC to develop a community-based development plan modeled after one started in 2004 by Georgia’s Republican Governor Sonny Perdue.  The concept is simple but effective.  Help local communities become more small-business friendly by providing expert consultation on the ground to develop a plan and assist in working the plan.  This community-based economic development would be one of the responsibilities of this new Division. 

Also since 2006 the DOC has opposed this real local economic development plan.  Instead it has prided itself on answering requests from small businesses by directing them to other state agencies and programs.  It has created a very nice website to provide information to small businesses and held workshops.  None of this, of course, is an effort for helping local communities do comprehensive small business development agendas. 

S.1089 had one subcommittee hearing at which the DOC said that the legislation wasn’t needed.  And there it died. 

CLOSE BUT NO CIGAR ON ENERGY AND ENVIRONMENT

Solar Energy

For several years the SCSBCC has championed providing tax credits to small businesses for installing solar equipment as H.3346 would have done.  We have four goals.  Help small businesses afford using solar energy to reduce their energy costs.  Create new jobs in the solar industry, primarily installers.  Reduce the need for new, expensive power plants that really drive up rates.  And reduce our reliance on coal plants thus reducing carbon emissions that contribute to climate change.  The latter is a major contributor to extreme weather events and rising sea levels that threaten our small business tourism and outdoor recreation industry.

H.3346 overwhelmingly passed the House and received a favorable report from the Senate Finance subcommittee.  All the supporters were optimistic that the Senate Finance Committee Chairman, who had blocked the legislation in years past, had set aside his concerns about the cost to the state budget.  But H.3346 was then blocked allegedly by one Senator’s concern over a local solar equipment guy in his district getting into trouble.  But even when that concern supposedly had passed, the bill never appeared again on the Finance Committee agenda. 

Was there some backroom stalling strategy going on to block the bill?  Possibly.  But the end result is the same.  Years of hard work by a lot of good organizations with a great idea failed again. 

Recycling

What started out last year as a bad bill that the SCSBCC opposed turned into a positive proposal to promote the recycling of bottles, cans and other container material from bars and restaurants.  As introduced in the Senate S.461 was a mandatory recycling program that would have increased the operating costs on business so that the rest of the state would benefit from reduced demand on landfills and recycling companies could be more profitable.  While the SCSBCC supported recycling, we believed that the cost of recycling should be shared by all who would benefit.

The bill passed the Senate but then got stuck in a House subcommittee whose members shared our concern.  Then in an effort to save the legislation, the proponents agreed to amend the bill so that bars and restaurants would be required to recycle but only if they experienced no additional costs in their waste disposal.  The SCSBCC agreed to the change and supported the bill.

But our earlier complaints about the bill had resonated too well with the subcommittee members and the hospitality industry, which opposed the legislation, would not consider the new proposal.  The bill did not get out of the subcommittee.   

CONSUMER SAFETY, STOPPING FRAUD AND BETTER BANG FOR YOUR TAX DOLLAR—NOT THIS YEAR

Consumer Safety

Trade associations have long advocated for regulations on their industries to improve professionalism and protect the public.  The South Carolina Association of Heating and Air Conditioning Contractors and the SCSBCC supported H.3473, the HVAC Consumer Safety Act, to protect consumers from unlicensed contractors purchasing and installing large heating and air conditioning equipment resulting in danger to homes and families as well as violation of state and federal environmental laws due to improper handling of hazardous materials.  The bill did not get out of a House subcommittee.

Preventing Fraud

The SCSBCC supported S.1089/S.1003, bills that would provide incentives to private citizens to report false or fraudulent claims of payment to the state.  Such bogus claims waste the financial resources of the state and steal from all taxpayers.   Amazingly there are business organizations that apparently don’t want to encourage reporting of false and fraudulent payment claims to the state.  They showed up at the Senate Labor, Commerce and Industry subcommittee that took up the bills.  This pro-false and fraudulent payment claims lobby was too powerful.  The bill never made it out of the subcommittee.

Better Bang for Your Buck

The SCSBCC supported H.4317 that would have established a standard data collection system to assess the effectiveness of how taxpayer money is being used to support Home Visiting Programs.  These programs help at-risk parents with parenting skills to enable their children to become productive citizens and workers.  However, the state presently has no way of telling which of the many home visiting programs are most effective.  Opposition from some Home Visiting organizations delayed the bills progress and it died.

UNFAIR COMPETITION FOR LOCAL SMALL BUSINESSES NOT SO UNFAIR NOW

This is a story of a big multi-national corporation in leagues with the auto insurance industry unfairly competing against locally-owned auto glass installers.  Safelite, the Belgium-owned company, handles call centers for many auto insurance companies.  When you call your claims department of your insurance company you probably are talking to a Safelite employee who you think works for the insurance company.  Safelite also is in the auto glass installation business across the country.  So when the call to the insurance company for a cracked windshield comes in, it is common for the Safelite employee to direct the consumer to a Safelite Auto retail store even if the customer mentions another local vendor.  That’s sweet for Safelite but unfair to its small business competitors.

The SCSBCC supported H.4042 which would have prohibited Safelite employees in auto insurance call centers from directing customers to Safelite auto glass installation retail stores.  The bill would have also prohibited information obtained by the Safelite call centers from being used by Safelite retailers for marketing purposes.

The bill sailed through the House, which was concerned with a level playing field for our small businesses.  But the situation turned nasty in the Senate when Safelite and insurance companies turned their lobbyists loose.  In the final days of the Senate, the bill passed with severe amendments to allow Safelight call centers to direct customers to Safelite retail stores if the customer does not indicate a preference for a glass installation store.  So Safelite will still capture the unwitting customer.  This was a minor victory for our small businesses but more needs to be done.

SUSTAINALBE CORPORATIONS

In South Carolina, as in many states, C-corporations are suppose to be organized totally for maximizing profit for its owners otherwise the Board of Directors can be held liable by its stockholders.  However, more and more businesses are recognizing their responsibility for also being concerned about their employees and the environments.  These more socially conscious businesses want to be C-corporations but need legal protection for promoting a more sustainable economy.

H.4766, supported by the SCBCC, would allow businesses to be legally organized as Benefit Corporations.  This new legal entity would give the needed protection to the business to pursue profit as well as more social goals.  Benefit Corporation status would also open up new opportunities for investors.  Given that the bill simply gave another legal status option for corporations, the bill passed the House and Senate easily.

SMALL BUSINESSES TO RECEIVE ANOTHER TAX CUT

When the SCSBCC was formed in 2000, small business pass through income was taxed in South Carolina at 7% while C-Corporations were taxed at 5%.  It took us five years to make the need for income tax parity a reality when we successfully lobbied for reducing small business income tax.  In 2006 small businesses (S-Corporations, LLCs, sole proprietors) started having their state income tax on profits reduced by one quarter percent a year until it reached 5%. 

The SCSBCC started out this year making sure that our legislators understood that if big business C-Corporation were given a reduction in income tax from their current 5%, small businesses would ask for parity. 

This year the Legislature passed another income tax reduction that will again lower a small business owner’s pass through income tax by two-thirds of percent for the next three years until it reaches 3%.  While C-Corporations did not have their income tax reduced, these big businesses did benefit from the state enabling a reduction in their unemployment insurance rates.

BUDGET SUCCESS

The SCSBCC supported the budget requests of theSC Small Business Development Center (received the same budget as the yearbefore), SC Primary Health Care Association (received $1.8 million compared tono funds from the year before) and the SC Manufacturer Extension Partnership(received $880,000).  Governor Haleysuccessfully vetoed the $200,000 of the latter organization’s budget.