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first_imgBut small employers cannot exercise those economies of scale. And because they typically are not rich enough to insure themselves, they are almost wholly dependent on insurance companies to provide health benefits. In the many states that do not closely regulate health coverage, small businesses have little bargaining power with the insurers. In a small workplace, as a result, if an employee or a covered dependent becomes seriously ill, or if someone has even a routine medical need such as maternity care, the entire group may pay the price through steeply higher insurance rates. “Almost any kind of situation where one employee has a serious health condition almost makes the group uninsurable because of cost,” said Kansas Gov. Kathleen Sebelius, a member of a group studying health care issues for the National Governors Association. Sebelius, a Democrat, is at work on a bipartisan proposal with the state’s Republican insurance commissioner that would insulate small groups by having the state provide backup insurance for the most expensive medical cases. But that only applies a patch to a bigger wound. In Massachusetts, which has embarked on a widely watched effort to make health insurance mandatory, the state plans to address the small-business issue by combining 800,000 small employers and 50,000 individuals into a single pool as a way to even out costs and increase their bargaining power. Over the years, small employers around the country, often led by chambers of commerce, have occasionally sought to band into regional groupings. But the efforts often led nowhere – especially because insurers tend to assume that many young, healthy workers will opt out, leaving them saddled with older, sicker enrollees. That is a big reason Massachusetts will require the young and healthy to join the pool, or pay into a state insurance fund if they choose not to buy coverage for themselves. The insurance rules already in place in some states do provide various buffers for small businesses. Nine states, for example, prohibit insurers from considering workers’ health status when setting rates for small groups. Those include Connecticut, New York, New Jersey and Maryland. A number of states also limit the size of yearly rate increases. Rates in California, for example, typically can rise no more than 10percent. But in many other states, it is essentially every mom-and-pop for itself. When the rates can leap with each new employee illness, the only recourse may be shopping for another insurer. That is what Varney’s did in 2005. The bookstore switched its coverage to Blue Cross and Blue Shield of Kansas after the previous insurer said it would raise Varney’s premium by 17 percent. The reason? Another employee, a 59-year-old woman who was a longtime Varney’s bookkeeper, had died of stomach cancer the previous year. Varney’s former carrier, Trustmark Insurance, based in Lake Forest, Ill., declined to discuss the case’s specifics. A Trustmark spokesman would say only that the bookstore had fared no worse over the years than the typical small employer. Blue Cross currently charges Varney’s about $16,500 a month. The Levins pay 80percent of that, asking their employees to pick up the rest. A typical share, for an employee and spouse, requires a monthly paycheck deduction of about $115. Even in states that impose government caps on rate increases, those protections may not cover all contingencies.160Want local news?Sign up for the Localist and stay informed Something went wrong. Please try again.subscribeCongratulations! You’re all set! Such are the challenges for smaller businesses in Kansas and the many other states where laws permit insurers to raise health premiums substantially for small employers when one worker incurs significant medical bills. And it is why, as state legislatures, Congress and presidential candidates of all stripes debate the growing problem of Americans without health insurance, the struggles of small businesses – which employ about 40percent of the nation’s work force – are likely to become a central issue. Small-business employees are one of the fastest-growing segments of the nation’s 44million uninsured; at present, they represent at least 20percent of the total, according to federal census data. And even modest-size employers such as Varney’s that say they remain committed to providing benefits find themselves wondering how long they can continue. The challenges make small business a particularly tricky piece of the nation’s health care puzzle, a problem compounded by the state-by-state jigsaw nature of insurance regulation. “There are 50 sets of state rules,” said David Fear, an insurance agent in Sacramento, who is president of the National Association of Health Underwriters, an agents’ trade group. With the rising cost of insurance, even the nation’s biggest employers are struggling to cover their workers. But large companies at least wield some clout with insurance underwriters and providers of care, and are usually solvent enough to insure themselves as an alternative to the insurance market. Either way, they can spread their health costs over a pool of employees large enough that any one worker’s medical bills don’t make big financial waves. To understand the challenges of insuring the health of the nation’s work force, consider Varney’s Book Store. After a long bout with emphysema, an employee at Varney’s, a family-owned business in Manhattan, Kan., died several years ago. But for Varney’s health insurer, her legacy lived on. The next year, the insurer raised Varney’s premiums by 28percent – even though most of the other three dozen employees were significantly younger and healthier than their departed colleague, who had been in her mid-70s. And Varney’s premiums continued to climb. “It was as if her medical history stayed on the books for an additional three years,” said Jeff Levin, 46, who runs Varney’s with his younger brother. “How can you justify projecting those costs forward?” last_img read more