Obama and Small Biz Rates

[Winter_123]

The White House is saying small businesses pay more for health insurance because they lack bargaining power.

I am not smart enough to know what the real reason is but I am savvy enoug to know that bargaining power or whatever Barry says about it is not. Being from a state where the health insurance system is severely jaundiced keeps me from understanding how rates work in "normal" states.

Anyway, what do you health gurus say about the reason why small business group rates are higher. I would like to get some understanding here. If left to myself, I would guess that the small business rates are higher because the smaller groups are subject to more underwriting and the smallness of the group precludes them from capturing enough young and healthy to balance things out. As stated, I don't really know.

Anyone have knowledge here?

Obama hawks health care overhaul, citing study - Yahoo! News

 

[somarco]

Small group (2 - 50) in GA uses a form of community rating as a base. From there rates are adjusted based on demographics (age, zip codes, SIC codes, etc.) and plan design.

The final adjustment is the underwriting assessment for risk based on medical profiles. The max rate up will vary slightly but for the most part carriers are allowed to add up to 67% to the starting base rate.

Small group is GI and anyone with prior creditable coverage has full benefits. Those lacking creditable coverage may have to wait up to 6 months (believe that is the limit) before they have full benefits as well.

If the plan is an HMO you have full coverage from the start regardless of prior coverage or not.

Base rates are roughly 20 - 30% higher than comparable individual major med to account for the GI requirement and the cap on risk loads. Most really small groups, those with fewer than 5 ee, almost always get the max load.

Employers have no negotiating power on groups under 50. For that matter, they have nothing to negotiate under 300 lives. You take what is offered or not.

There is some pooling of risk on all plans but it appears less evident under 50 lives.

PresBO is right, to an extent. If you are a small employer that is part of a bigger group (say state wide) you pay a rate based on the experience of the group and that rate may indeed be better than buying a plan for your 5 life group separately.

Therein lies the rub.

When you have a larger group that is offering attractive rates they attract all the bad risks while the good risks stay away. Eventually this transition catches up with the big group and rates start to spiral.

A smart administrator will track the experience and effectively manage the large group but very few know how to do this.

I have considerable experience in the past dealing with MEWA's including state and multi-state associations. These are akin to the national health exchange promoted by some as cost saving measures.

Most will fail within 5 years due to the inward migration of bad groups and the outward migration of good groups.

As rates rise in the big group relative to what the employer can get in the open market they leave. It is basically a zero sum game. If the big group remains viable long enough you get an equilibrium between rates of the big group vs outside the group.

Of course that never happens.

I haven't seen the study Obamaman refer's to but the conclusion, at least as reported, is flawed. A small business pays more out of their total revenue for health insurance vs a big business for the same reason someone earning $20,000 pays more (as a percent of income) for food than someone earning $200,000.

It has nothing to do with bargaining power or higher admin costs. A small business that joins a large co-op has no bargaining power (as illustrated above) and may briefly enjoy lower rates. But as soon as their health (risk factor) improves if they are smart they leave the co-op and go back on their own.

I would not expect Mr Fixit or any other *** in Congress to know or even comprehend that.

 

[djs]

I would hope that we don't get to the point where every small business needs to negotiate their healthcare fees. The system, as it works today, is for a small business to pick from several prenegotiated packages.

Small businesses do in fact have a lot of negotiating power. This is what the health insurance company does for them. The small business has access to the rates Blue Cross (or whatever carrier) has negotiated with various medical groups and professionals. The lower the rates Blue Cross pays, the lower the rates for the plan. If Blue Cross pockets to much of the savings, companies will switch to Aetna.

I basically ditto Somarco's comments, but, in CA, the max load is 10%. Small group is guaranteed issue, with no medical rating factors involved. I can get a person with terminal cancer on a plan and it will be covered. I have placed children (with their parents) on a small group plan for them to have a scheduled surgery 8 days after the plan went in force. The surgery was scheduled prior to the plan being applied for, and was documented on the application. It was covered in full (we used a $0.00 deductible plan for this one).

Dan

 

[Winter_123]

Small group (2 - 50) in GA uses a form of community rating as a base. From there rates are adjusted based on demographics (age, zip codes, SIC codes, etc.) and plan design.

The final adjustment is the underwriting assessment for risk based on medical profiles. The max rate up will vary slightly but for the most part carriers are allowed to add up to 67% to the starting base rate.

Small group is GI and anyone with prior creditable coverage has full benefits. Those lacking creditable coverage may have to wait up to 6 months (believe that is the limit) before they have full benefits as well.

If the plan is an HMO you have full coverage from the start regardless of prior coverage or not.

Base rates are roughly 20 - 30% higher than comparable individual major med to account for the GI requirement and the cap on risk loads. Most really small groups, those with fewer than 5 ee, almost always get the max load.

Employers have no negotiating power on groups under 50. For that matter, they have nothing to negotiate under 300 lives. You take what is offered or not.

There is some pooling of risk on all plans but it appears less evident under 50 lives.

PresBO is right, to an extent. If you are a small employer that is part of a bigger group (say state wide) you pay a rate based on the experience of the group and that rate may indeed be better than buying a plan for your 5 life group separately.

Therein lies the rub.

When you have a larger group that is offering attractive rates they attract all the bad risks while the good risks stay away. Eventually this transition catches up with the big group and rates start to spiral.

A smart administrator will track the experience and effectively manage the large group but very few know how to do this.

I have considerable experience in the past dealing with MEWA's including state and multi-state associations. These are akin to the national health exchange promoted by some as cost saving measures.

Most will fail within 5 years due to the inward migration of bad groups and the outward migration of good groups.

As rates rise in the big group relative to what the employer can get in the open market they leave. It is basically a zero sum game. If the big group remains viable long enough you get an equilibrium between rates of the big group vs outside the group.

Of course that never happens.

I haven't seen the study Obamaman refer's to but the conclusion, at least as reported, is flawed. A small business pays more out of their total revenue for health insurance vs a big business for the same reason someone earning $20,000 pays more (as a percent of income) for food than someone earning $200,000.

It has nothing to do with bargaining power or higher admin costs. A small business that joins a large co-op has no bargaining power (as illustrated above) and may briefly enjoy lower rates. But as soon as their health (risk factor) improves if they are smart they leave the co-op and go back on their own.

I would not expect Mr Fixit or any other *** in Congress to know or even comprehend that.

Thanks, that's good info.

I have no trouble seeing how the GI aspect of a small group drives rates up but why does this make it more costly than for a large business? Aren't the large group GI businesses GI too or is it the underwriting factor that is superimposed on the community based rate that makes a difference with the small businesses. Or....is it as Obummer states, the bargaining power factor? Or is it that they get dinged for not having enough experience to have the experience factor help them?

 

[moonlightandmargaritas]

The system, as it works today, is for a small business to pick from several prenegotiated packages.

The system, as it works today, has led to; overuse, poorer quality, and higher costs.

What if health insurance was used for it's original (and correct) purpose; to indemnify against loss that can't be afforded?

Imagine the cost savings if there were no PPO networks or HMOs or strangulating regulations along with the bureaucrats needed to police them?

The money might actually be able to be spent on health care.

 

[somarco]

I have no trouble seeing how the GI aspect of a small group drives rates up but why does this make it more costly than for a large business?

Small groups are fully pooled. A large group may only be partially pooled depending on size. Most carriers seem to target somewhere around 300 lives as fully credible, so rates will be based solely on historical claims, ongoing claims and internal pooling points for large claims and on the aggregate.

A small group is rated within a relatively narrow band from 100 - 167 for example. Due to the upper cap (67% in GA) the starting rate may well be higher (and usually is) than a group with similar demographics but more bodies. Manual rates are calculated for the larger group but then tempered to a greater degree than smaller groups based on claim history.

Yes, large group is also GI but the community rate factor is minimalized as you gravitate to larger groups. Their rate, initial and renewal, is based more on claims history vs the community base rate.

Sometimes, but not always, a small group can save money by moving to a larger group, such as an association. But it doesn't always work that way.

If the small group is young (age 30, single male) and healthy and the larger group is older (40's, families and some health issues) there is no incentive for the small group to become part of the larger group and therein lies the problem. The large group will never attract the smaller employer that can get a better deal in the free market.

I have seen this with associations and PEO's. Any advantage they may have quickly dissipates.

What if health insurance was used for it's original (and correct) purpose; to indemnify against loss that can't be afforded?

You are a dreamer, aren't you?

 

[VolAgent]

What silliness. Health insurance is there so I only have to pay $20 to see the doctor, or $25 so I can get the latest and greatest drug being advertised on tv. I mean honestly, why should I have to pay $50 to go to the ER, its highway robbery. Who cares if I outweigh the elephant at the local zoo, drink a case of beer a night, and that only vegetable I eat are deep-fried potatoes. Health insurance should be cheap with cheap co-pays, right?

What if health insurance was used for it's original (and correct) purpose; to indemnify against loss that can't be afforded?

 

[Winter_123]

Good stuff. Thanks

Small groups are fully pooled. A large group may only be partially pooled depending on size. Most carriers seem to target somewhere around 300 lives as fully credible, so rates will be based solely on historical claims, ongoing claims and internal pooling points for large claims and on the aggregate.

A small group is rated within a relatively narrow band from 100 - 167 for example. Due to the upper cap (67% in GA) the starting rate may well be higher (and usually is) than a group with similar demographics but more bodies. Manual rates are calculated for the larger group but then tempered to a greater degree than smaller groups based on claim history.

Yes, large group is also GI but the community rate factor is minimalized as you gravitate to larger groups. Their rate, initial and renewal, is based more on claims history vs the community base rate.

Sometimes, but not always, a small group can save money by moving to a larger group, such as an association. But it doesn't always work that way.

If the small group is young (age 30, single male) and healthy and the larger group is older (40's, families and some health issues) there is no incentive for the small group to become part of the larger group and therein lies the problem. The large group will never attract the smaller employer that can get a better deal in the free market.

I have seen this with associations and PEO's. Any advantage they may have quickly dissipates.



You are a dreamer, aren't you?

 

[djs]

The system, as it works today, has led to; overuse, poorer quality, and higher costs.

What if health insurance was used for it's original (and correct) purpose; to indemnify against loss that can't be afforded?

Imagine the cost savings if there were no PPO networks or HMOs or strangulating regulations along with the bureaucrats needed to police them?

The money might actually be able to be spent on health care.

What you are saying is at odds with a lot of medical groups. Probably means you are right, if you follow the money though. I don't have any way to know for sure....

The story is, if preventative stuff is covered, bigger stuff is prevented. The math is supposedly that lots of little stuff is still cheaper than the one big thing that it MIGHT prevent.

So, lets look at this in reality. If I'm responsible, I get my checkup, my doctor says my blood sugar is high, I need to change my diet. As a good patient, I do exactly what the doctor says, which prevents me from having my foot amputated sometime in the future.

Ooops, that's probably not reality. People all say they want health care to be between them and their doctor. Truth is, they want their doctor to give them a shot (or better, a pill) which cures whatever the problem is, and as a patient, I can go back to my Big Macs, Twinkies, and Doritios, while looking at my Wii Fit.

Does preventative care really save money in the health care system? Don't know. If it does, and can be proven to save money, and there isn't a coorelation between the people who would pay for the test themselves and the people who will do the treatment, then I'm all for including preventive care.

Okay, I submitted my cars oil change bill to my auto insurance company. I'm still waiting on reimbursement. I don't understand why the mechanic won't direct bill.....

Dan

 

[somarco]

only vegetable I eat are deep-fried potatoes

Ketchup (or some prefer catsup) is a vegetable.

BTW, Winter. Thx for the link

Obama, False Prophet