How Do We Regulate The Small Business Market Outside Of The Exchange?

The New York Times’ Reed Abelson authors a curious article about health insurance companies’ reluctance to accept greater regulation of the small business market:

Insurers, for example, have agreed to sell policies even to people with pre-existing medical conditions, and to stop basing prices on how healthy or sick someone is….But so far, the industry has made no such promises about another segment of the health insurance market, one responsible for many people being uninsured in the first place: the market for small employers… Some large insurers, like Aetna and Cigna, say they would generally support similar federal rules for both the individual and small-business markets. “We need to be relatively consistent,” said H. Edward Hanway, Cigna’s chief executive. But one of the biggest insurers, WellPoint, opposes changing the way coverage is sold to small employers.

It’s true that America’s Health Insurance Plan’s (AHIP) proposal for how to help small businesses afford health care coverage is rather uninspired. But then again, revamping the small business market — currently regulated by the states — isn’t up to Karen Ignagni or the nation’s insurers; it’s the responsibility of lawmakers to ensure that insurance companies can’t lure away healthier beneficiaries. And so far, most health care reformers have remained silent on how they would regulate the market outside of the Exchange.

Nationwide, only 42.6 percent of all small businesses offer coverage and those that do provide insurance, offer lower quality, porous policies that often exclude dental coverage and have higher deductibles. Generally, small businesses have three major disadvantages when purchasing insurance: (1) the costs of insurance is shared by a small group of workers, one sick worker could increase premiums for everyone in the group; (2) small businesses don’t have economies of scale and encounter higher administrative costs; and (3) premiums often vary from business to business and year to year, making premiums unpredictable and very expensive.

The president would allow small businesses to purchase coverage in a new national Exchange — a so-called “Orbitz for insurance” where individuals and small employers “could compare plans side by side, find options with a minimum benefits package and buy coverage.”

But what would happen to the existing market? After health reform, insurance could still be purchased as it is today — in the existing individual market, the small business market, from large employers — or in a new Exchange. Lawmakers, however, must avoid a situation where insurers outside of the Exchange attract healthier individuals and leave sicker (more expensive) patients to the Exchange. In other words, insurers should be required to issue coverage to everyone who applies and charge all applicants a similar rating in all markets.