Let smaller firms compete

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By Jean H. Card

Charlie Abowd is a restaurant owner in Carson City, Nev. He thinks it is his responsibility as a business owner, and a moral person, to provide health insurance for his employees. He does so at great cost and, as a result, suffers a competitive disadvantage to national restaurant chains that have more affordable coverage for their employees.

Mr. Abowd is worried that he won't be able to continue offering health insurance for much longer, as his rates have increased 125 percent since he began offering it 12 years ago. As of this week, reports indicate that premiums are expected to increase an average of 15 percent this year for small businesses like Mr. Abowd's - about double the rate of last year's increases.

Mr. Abowd's story is terribly typical in the small-business community.

His employees are also insured, through his restaurant, for workers' compensation in the event of on-the-job injuries. For that coverage, Mr. Abowd has been able to join with other restaurant owners to self-insure against claims as a member of the Nevada Restaurant Self-Insured Group. His workers' compensation plan is affordable, and the coverage is excellent - comprehensive, with fast servicing of claims.

So now Mr. Abowd has a question: Why hasn't anyone in Washington proposed to let him cover his employees for health care in the same affordable way he can for workers' compensation? He asks an excellent question.

The ability to create genuine insurance co-ops (entities, like Charlie's workers' compensation group, that are started, run and owned by the businesses or individuals joining them) would be a godsend for small business. With state-level workers' compensation self-insurance groups (SIGs) having proved themselves so effective, it seems ridiculous that Congress would not want to replicate them nationally for health insurance.

Here's how the workers' compensation SIGs work: In states where the regulatory structure allows it, smaller businesses have come together to pool their financial resources and self-insure against workers' compensation claims. Claims are paid directly out of that pool of money. Groups hire companies that specialize in designing and managing self-insured group programs. (In Charlie's case, it's Nevada-based CHSI.) On behalf of the group, the companies hire claims professionals, build safety programs and support member employers.

If the group has pooled more money than is necessary to cover all claims, that extra money eventually is returned to the businesses' bank accounts because it still belongs to the group - versus adding to the profits of an insurance company.

The incentive for fewer claims and for the speedy processing of claims is incredibly straightforward and powerful: Fewer injured workers means money back. Quickly processed claims mean the money comes back sooner. (In comparison, with traditional insurance, an open claim means the insurance company's capital remains invested and working for the insurance company - not for the insured.)

Because of this strong incentive, the businesses in these self-insured groups have begun to take an interest in worker safety like never before. Education, training, safe and healthy work environments - these are rapidly moving to the top of the priority list for these employers.

Imagine the power of small and midsized businesses pooling their money to self-insure against health claims. Imagine the ownership they would take over the issue of their employees' health. No longer surrendering huge sums of money to mammoth insurance companies, these smaller firms would be in charge of their own health-related finances. If their employees collectively remain more healthy than not, they'll get money back. Talk about an "everyone wins" scenario.

Self-insurance is consumer-driven health care coverage. And here's the best part: Self-insured small-business groups would be extremely fierce competition for big, traditional insurance companies. Aren't those the things the president and both sides of the congressional aisle claim to want the most?

So why are small-business purchasing groups still missing from the legislation and from the debate? The idea is not even new; it has been proposed under different names in the past - for example, Association Health Plans (AHPs). Creation of AHPs has passed out of a small-business-friendly U.S. House over and over in years past - but the insurance lobby has brought out its big guns when AHPs have gone to the Senate ... and they have shot down this would-be competitor time and time again.

This time, the Senate should stand up to the big insurance lobbyists and deliver some real competition in the free market. They should give small businesses the slingshot they need.

Call them self-insured groups. Call them small business co-ops. Call them Association Health Plans. Small business owners like Charlie Abowd won't care what you call them. If Congress delivers this for small firms, they'll be able to affordably cover their employees, which is what they want to do. They will then reward Congress with job creation and with their votes. Can big insurance really compete with that?

Jean H. Card is a writer in Alexandria. She has served as a speechwriter for U.S. secretaries of Treasury and labor as well as the attorney general and is a former senior official at the U.S. Small Business Administration.