- The Washington Times - Thursday, May 24, 2007

A lack of competition in the small-employer insurance market is forcing companies to stop offering health care coverage to their workers.

In 2006, the Government Accountability Office reported that in a typical state, the largest insurer controls 43 percent of the market and in nine states, the largest companies have about 50 percent of the market.

Mergers and acquisitions have been used by insurance carriers in recent years to combat the rising costs of medical care while holding premiums at reasonable levels and maintaining profits.

But while the consolidation has helped the carriers, it’s not doing much for small employers who have difficulty finding affordable health care rates given their smaller and thus high-cost-risk work forces.

The lack of competition within the insurance industry is why small employers must in some instances pay as much as 20 percent more than larger companies for the same health plan. Insurance companies don’t like risk.

“A difference in top priorities appears between Congress and America’s small-business owners. One is primarily interested in coverage and the other cost,” said William Dennis, a senior research fellow at the National Federation of Independent Business. “If lawmakers can help reduce costs, small businesses can help increase coverage in the long run.”

Yesterday the House Small Business Committee convened to address ways to cut costs of health insurance in the small-business sector. The subject at hand: the reinsurance market. Reinsurance is the practice of buying insurance against a catastrophic or high-cost risk in an already insured population. In most cases, the primary insurer is buying protection against the unlikely eventuality that some rare set of circumstances might produce losses that the primary insurer is unable to cover.

Lawmakers are wondering whether this arcane, complex strategy, if used more widely, will help curb health care costs for small businesses. The answer, like the subject, isn’t straightforward.

“We need to be clear, reinsurance will not save money, it will shift health care costs around,” said Patrick Collins, chairman of the Medical Reinsurance Work Group and vice chairman of the American Academy of Actuaries. “Somebody will ultimately pay for the medical services.”

Today, there are 19 active reinsurance pools, and another 11 pools that are either inactive or in the proposal stage. Success of these pools to produce cost savings has been limited largely because states make participation voluntary, thereby reducing the potential size of the pools — thus only a few participants are sharing the cost of the premiums for the reinsurance. Large carriers can absorb more risk and are not signing up.

However, designing a reinsurance program at the federal level that attempts to reduce health care premiums, increase competition, and expand small-business health insurance coverage is a worthwhile goal, even if it doesn’t reduce overall health costs.

Why not federally subsidize small employers to buy reinsurance? The theory going that purchasing reinsurance will allow small employers to spread the risk with other companies in a pooling arrangement and thereby attract more insurance companies — competition — with better rates.

Ed Haislmaier, a senior research fellow at the Heritage Foundation, says that type of system has the potential to pass the burden onto the taxpayer.

“While it is possible to provide public subsidies to offset some of those costs, any such funding should be fixed and limited, in order to prevent unintentionally creating incentives for carriers to try to transfer more of their risk onto taxpayers,” said Mr. Haislmaier.

Health Care runs Fridays. Contact Gregory Lopes at 202/636-4892 or glopes@washingtontimes.com.

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