Wednesday, May 7, 2008

CT will offer coverage to high risk small businesses

Connecticut’s latest health insurance bill has now passed the state Senate and is expected to be signed by the Governor. The approval vote came late last night and today’s news is filled with praise for the “outstanding accomplishments” of the legislators. The new bill presents an entirely different approach to health insurance reform.

The law allows local municipal government employees and small businesses to join the state employee’s health insurance pool. Premiums are already about $2,000 per month for family coverage, (vs. a national average of about $1,200 for comparable coverage in large firms). Certainly this is not what we consider “affordable” but this is apparently far less than some CT municipalities are now paying for health insurance! Few small businesses could afford this coverage. Those that could foot the bill will cover only the owners or key employees. There is no economic reason to suggest that small businesses would use the plan to cover rank and file employees. Small businesses tend to pay far less for employee health benefits than larger firms and municipal governments.

The problem is that those who understand insurance principles realize that adverse selection under the new law will now drive the premium rates up in a spiral effect. That is ALWAYS the economic effect of opening up a guaranteed issue health plan to additional applicants on a voluntary basis. The state will now be effectively subsidizing the health care costs of local municipalities and the rlativley few affluent small business owners who have significant medical costs. The first may be commendable – but who would have expected the second result? Eventually the cost of coverage under this Connecticut insurance plan will be HIGHER than any other state's employee cost but LOWER than any other high risk insurance pool. It will be a highly effective method to distribute health care costs of a few among all the state's taxpayers.

Open enrollment health insurance pools are certainly not a new concept. This is the approach used in most states to cover high risk individuals despite the clear indications that those who need the insurance most can not afford it. Most states use open enrollment health insurance pools as a "last resort" coverage under federal HIPAA law for those who cannot find more afordable coverage. Connecticut's plan to combine the open enrollment plan with the taxpayer-funded state employees' health coverage is an interesting new approach.

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