Small Business Health Insurance Bill Introduced, State Would Oversee Small Business Pool

On February 12th, Spartanburg Senator Glenn Reese introduced major legislation to help solve the health insurance crisis faced by small businesses. Co-sponsoring the Senate Bill with Reese is Lexington Senator Jake Knotts. A companion bill was also introduced in the House by Lexington Representatives Kenny Bingham and Mac Toole. 

“I’ve been talking about this kind of proposal for years and finally the time is right,” said Reese.  “Small businesses simply can not go it alone any longer in trying to obtain affordable group health insurance.”


The Problem


According to the most recent Kaiser Foundation study, small group health insurance premiums have increased 12% across the country last year. The Center for Studying Health System Change estimates that in 2001 the average premium increase for small businesses in South Carolina was 14.5%.


Premiums have risen every year for businesses since 1990 affecting small businesses the hardest.  As a result, the Kaiser Foundation estimates that while 56.7% of private sector firms in South Carolina offer health insurance to their employees, only 39.7% of companies with fewer than 50 employees do so.  (In 2002, the SC Employment Security Commission reports 81,407 businesses with less than 50 employees, 2,165 with 50 to 100 employees and 2, 055 with over 100 employees.)  Large employers often elect to be self-insured to control their health insurance costs, an option not available to individual small businesses.


In the spring of 2001, the SC Dept. of Insurance released a preliminary report assessing the state’s small group health insurance market.  Findings of this report include:


–         The number of companies writing small group health insurance in the state dropped from 72 in 1997 to 32 in 2000.

–         Small employers face higher insurance costs than larger employers because of the size of the risk pool.

–         Rising health care costs have reduced the number of small employers who offer coverage.

–         South Carolina does not have as many mandates as other states.

–         The rating bands established under state law are adequate.

–         State law permits health insurance purchasing cooperatives by small businesses but such organizations are not being created.

–         Most health insurance purchasing cooperatives for small businesses existing in other states have some government involvement in the program.

–         Most health insurance tax credits for small employers are ineffective.


This preliminary report concluded, “many members of the uninsured population are non-elderly adults.  These adults are generally employees of small businesses that are unable to procure affordable health insurance coverage….Access to affordable health care is currently more acute than in prior years in the South Carolina small group health insurance market.”


Proposed Legislation


“The primary intent of this legislation is to create a large pool of small employers for the purpose of self-insured health insurance for the employer and their employees with the goal of achieving affordable, stable health insurance premiums,” said Frank Knapp, executive director of The SC Small Business Chamber of Commerce.  “This legislation addresses the benefits that small business pooling can have to control health insurance costs by spreading the risk and negative experience over tens of thousand of policy holders.”


Knapp pointed out that this legislation does not address factors that contribute to the overall cost of health care such as inflation, cost shifting, new technology, bad debt, aging population, direct to consumer advertising, mandates, capacity and utilization.  This legislation also does not address the issue of lower investment earnings by insurance companies resulting in the need for increased revenue from premiums nor does it address the need for Medicaid reform.


Reese, who serves on the Board for the Small Business Chamber along with Senator Knotts and Representative Bingham, said that under this legislation, the SC Employee Insurance Program of the Budget and Control Board would be responsible for, as part of the state health plan, a small employer self-insured plan (SESIP).  There are a number of issues and details that will have to be addressed by this agency that will take some time to develop to ensure the best chance for success of this effort, said Reese.  The third party administrator used by the state health plan would provide the same services to the SESIP.


The legislation states:


In addition, the board may adjust separately, and at any time, the benefits and premiums for small employers as defined in Section 1‑11‑720 to ensure that there is no cost to the State associated with offering or administering small employer participation in the state health and dental plans.  The board also may promulgate those regulations it considers necessary to implement small employer participation in the state health and dental plans; to ensure the fiscal stability of these plans; and to allow independent insurance agents licensed in South Carolina to offer access to these plans.  The board shall establish a separate fund to receive small employer employee contributions, and there must be no subsidy from the public employer employee contributions for the payment of claims made by small employer employees.


The legislation defines small employers:


“( )  small employers, in connection with a group health plan with respect to a calendar year and a plan year, who employed an average of at least one but not more than one hundred persons during the preceding calendar year and who employed at least one person on the first day of the plan year.  ‘Small employer’ includes a sole proprietor and a partner of a partnership.”


No Public Money


“Small businesses are not looking for a government handout, just the opportunity to aggregate for the purpose of health insurance as a state law intended them to do,” said Reese.  “As other states have shown, only state government has the resources to organize and administer the large-scale effort needed for success.”


“The private sector employers and their employees should and will be responsible for paying for this plan,” said Knapp.  The Small Business Chamber would not support any plan that put public money in jeopardy.”  Knapp did point out that while seed money will be needed to create this system in the beginning, foundation and federal funds should be sought first and only then state resources used to be reimbursed by the private fund.


No Risk to State Employees


Knapp said that there would be no impact on state employees because the premiums and benefits of the SESIP will be adjusted separately from those currently on the state employee health plan and will be based on the private sector experience and needs.


Competition with Private Sector


Knapp pointed out that only 32 insurance companies still write small group health insurance in the state.  “The private sector is rapidly giving up on this market because for the most part it is simply not very profitable,” he said.  “What this legislation does, said Knapp, “is to let small businesses employ a strategy to control health insurance costs that has been used for years by big business–self-insuring.”


Knapp also pointed out that this legislation does not eliminate private sector small group health plans from the market.  And because independent insurance agents are allowed to put their clients in this plan, the SESIP will offer these small businesses more opportunity to do business in the small group market.

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