- The Washington Times - Friday, June 30, 2006

Small businesses in Virginia with few employees and little bargaining power may see some relief starting today when it comes to the bottom-line behemoth that is the cost of health care.

A new state law authorizes businesses with 50 or fewer employees to pool together to purchase health insurance in an effort to gain the financial advantages of large corporations. Big employers are able to keep premiums low by reducing administrative costs and spreading risk among hundreds or thousands of workers.

“We now have options that we’ve never had before,” said Bob Ramsey, president of the Printing Industries of Virginia, a trade association comprised largely of businesses with 10 or fewer employees. “There’s a misconception that five or six printers can get together and should be able to demand a better rate, but under the current business climate, that’s just not possible.”

For many small businesses, Mr. Ramsey said, employee health insurance has become too costly at a time of escalating health premiums and high energy costs.

“It’s a major cost — profit margins are squeezed,” he said.

The new law, signed June 20 by Gov. Timothy M. Kaine, gives qualifying employers two options when pooling for health insurance.

The businesses can join together as a single entity, designating one administrator for all employees in the pool and, perhaps, dramatically reducing administrative costs. Or they can shop for insurance as a group but have an insurance carrier underwrite separate policies, leveraging their increased buying power in hopes of getting a better deal.

“Small employers would love to have the benefits of a larger employer,” said Doug Gray, executive director of the Virginia Association of Health Plans.

The law is a product of a year-long study that examined the impact of rising health care costs on small businesses.

Aside from having the financial resources to assume their own risk, large employers possess several advantages over smaller ones that allow them to keep health costs at bay.

Small employers can be riskier to insure because of high turnover and, in the case of start-ups, uncertainty as to whether the business will succeed. In addition, premiums are less predictable as a result of a smaller employee population in which one surgery or catastrophic health event can significantly raise the costs faced by other employees.

Unlike self-insured companies that can design their own coverage plans, small businesses must comply with state health-insurance mandates that often can be costly. While the new law enables participants to moderate risk by pooling together, it is different from an association health plan because employers are not exempt from state mandates.

Small businesses have been lobbying at the federal level for association health plans but have been unsuccessful due to lawmakers’ concerns about trumping state mandates.

Mr. Gray noted that not every insurance pool will see benefits.

“The savings that can come from pooling are directly related to the amount of risk and the health of the population and the stability,” he said. “You’re not going to get a cheaper deal by getting more risky people together,” for example.

Bill Freeman and Brent D’Agostino of AH&T; Inc., an independent insurance broker in Leesburg, Va., are putting together a pooling plan for about 200 small businesses within the Northern Virginia Technology Council (NVTC).

“It’s quite a project,” said Mr. Freeman. The two, who have been working on the plan for two weeks, expect to have a first draft ready in a few weeks.

While there is no guarantee that insurance companies will agree to underwrite the NVTC insurance pool — or any pool — Mr. D’Agostino and Mr. Freeman said they have heard from a few companies that expressed interest in the idea but lacked a product.

“I think they’re waiting for the market to come to them,” Mr. Freeman said.

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